diff --git "a/sentiment_analysis_part1.csv" "b/sentiment_analysis_part1.csv" new file mode 100644--- /dev/null +++ "b/sentiment_analysis_part1.csv" @@ -0,0 +1,23113 @@ +text,sentiment +"Morningstar Equity Company Report | Report as of 15 Feb 2023 21:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 1 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Caterpillar Inc CAT QQ 15 Feb 2023 21:10, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +248.07 USD +14 Feb 2023209.00 USD +15 Feb 2023 21:07, UTC1.17127.17 USD Bil +15 Feb 2023 +Wide Stable Medium Standard ;;;;; +1 Feb 2023 06:00, UTC +Dawit Woldemariam +Equity Analyst +Morningstar ++1 312 696 6758 +dawit.woldemariam@morningstar.com +Contents +Analyst Note (1 Feb 2023) +Business Description +Business Strategy & Outlook (1 Feb 2023)",positive +Bulls Say / Bears Say (15 Feb 2023),neutral +Fair Value and Profit Drivers (15 Feb 2023),positive +"Economic Moat (15 Feb 2023) +Moat Trend (15 Feb 2023) +Risk and Uncertainty (1 Feb 2023) +Financial Strength (15 Feb 2023)",positive +Capital Allocation (1 Feb 2023),neutral +"Financials +Recent Analyst Notes +Research Methodology for Valuing +Companies +Important Disclosure",positive +"The conduct of Morningstar’s analysts is governed by Code of +Ethics/Code of Conduct Policy, Personal Security Trading Policy +(or an equivalent of), and Investment Research Policy.",neutral +"For +information regarding conflicts of interest, please visit: http:// +global.morningstar.com/equitydisclosures.",neutral +"The primary analyst covering this company does not own its +stock.",positive +"Reporting Currency: USD | Trading Currency: USD +Currency amounts expressed with ""$"" are in U.S. dollars +(USD) unless otherwise denoted.",neutral +"1The ESG Risk Rating Assessment is a representation of +Sustainalytics’ ESG Risk Rating.",neutral +"Wide-Moat Caterpillar Closes Out 2022 With Solid Machinery Sales +Analyst Note Dawit Woldemariam, Equity Analyst,",neutral +"1 Feb 2023 +Caterpillar reported solid fourth-quarter results to close out 2022.",neutral +"The company’s machinery sales grew 21% year +on year to $15.8 billion, thanks to stronger pricing and increased sales volume.",positive +"Retail sales (to end users) of +machines were up 4% year on year globally, with North America (up 13% year on year) being the biggest +contributor to growth in the quarter.",neutral +"Notably, retail was up sequentially compared with the third quarter of 2022, +showing Caterpillar’s increased ability to meet the demand from end users.",positive +"That said, we’re not expecting much +uplift from the dealer channel this year, as funding for infrastructure has still not flowed through to U.S. states.",positive +"In +the quarter, Caterpillar noted that dealer inventories increased $700 million sequentially compared with the third +quarter.",neutral +"If we compare this to the same period a year ago, we see a $800 million favorable impact on total sales.",neutral +We'd like to see this number cross over a billion dollars in the medium term.,neutral +"Management also provided adjusted profit margin guidance for various revenue scenarios for 2023, leading us to +increase our fair value estimate to $208 from $196 previously.",positive +"The company’s guidance led us to tweak both our +sales and operating margin assumptions in our cash flow model.",neutral +"We’re now expecting machinery sales growth of +8% in 2023, while operating margins come in at nearly 15%.",positive +"Our forecast bakes in some impact from the U.S. +infrastructure bill in late 2023.",negative +We expect most of the spending to flow through in 2024 and 2025.,positive +"We also +increased our midcycle operating margin assumption slightly from 14.5% to 15% to account for increased sales +volume over the next five years, in addition to favorable pricing for Caterpillar.",negative +"We still hold the view that supply +chains won’t be fixed overnight, but we’re starting to see positive improvements on that front and think +Caterpillar’s pricing power will allow the company to more than offset elevated manufacturing costs.",positive +"Financial Summary and Key Statistics +Actual Forecast +2021 2022 2023 2024 +Revenue (USD Mil) 48,188 56,574 61,265 65,275 +Revenue Growth % 23.5 17.4 8.3 6.6 +Operating Income (Mil) 6,363 8,358 9,078 10,175 +Operating Margin % 13.2 14.8 14.8 15.6 +Adjusted EBITDA (Mil) 7,460 9,365 11,087 11,946 +Adjusted EBITDA Margin % 15.5 16.6 18.1 18.3 +Earnings Per Share (Diluted) (USD) 11.83 12.64 15.05 17.02 +Adjusted Earnings Per Share (Diluted) (USD) 10.81 13.84 16.38 17.70 +Adjusted EPS Growth % 64.8 27.9 18.4 8.1 +Price/Earnings 19.1 17.3 14.9 13.8 +Price/Book 8.5 9.8 8.1 6.7 +EV/EBITDA 17.2 14.7 12.2 11.3 +Free Cash Flow Yield % 5.9 4.7 5.3 6.0 +Source: Morningstar Valuation Model.",positive +"Data as of 31 Jan 2023.Morningstar Equity Company Report | Report as of 15 Feb 2023 21:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 2 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Caterpillar Inc CAT QQ 15 Feb 2023 21:10, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +248.07 USD +14 Feb 2023209.00 USD +15 Feb 2023 21:07, UTC1.17127.17 USD Bil +15 Feb 2023 +Wide Stable Medium Standard ;;;;; +1 Feb 2023 06:00, UTC +On valuation, we still view Caterpillar’s shares as overvalued by roughly 21% based on our $208 fair value +estimate.",positive +The company’s shares have appreciated quite a bit since it reported third-quarter 2022 results.,positive +"We +believe this is largely the result of the market becoming more bullish on the infrastructure story for Caterpillar.",positive +"The U.S. currently has many roads and bridges that are in need of maintenance and repair, providing Caterpillar +a secular tailwind in the next handful of years.",positive +"That said, our cash flow model accounts for cyclicality in +Caterpillar’s international businesses.",neutral +"Business Strategy & Outlook Dawit Woldemariam, Equity Analyst, 1 Feb 2023",neutral +"We believe Caterpillar will continue to be the leader in the global heavy machinery market, providing customers +an extensive product portfolio consisting of construction, mining, energy, and transportation products.",negative +"For nearly +a century, the company has been a trusted manufacturer of mission-critical heavy machinery, which has led to its +position as one of the world’s most valuable brands.",positive +"Caterpillar’s strong brand is underpinned by its high-quality, +extremely reliable, and efficient products.",positive +"Customers also value Caterpillar’s ability to lower the total cost of +ownership.",neutral +"The company’s strategy focuses on employing operational excellence in its production process, expanding +customer offerings, and providing value-added services to customers.",neutral +"Since 2014, Caterpillar has taken steps to +reduce structural costs and its fixed asset base by implementing cost management initiatives and by either +closing or consolidating numerous facilities, reducing its manufacturing floorspace considerably.",negative +"Over the past +decade, the company has continually released new products and upgraded existing product models to drive +greater machine efficiency.",positive +"Customers also rely on the services that Caterpillar provides, for example, machine +maintenance and access to its proprietary aftermarket parts.",neutral +"Furthermore, its digital applications help customers +interact with dealers, manage their fleet, and track machine performance to determine when maintenance is +needed.",neutral +Caterpillar has exposure to end markets that have attractive tailwinds.,positive +"On the construction side, we believe the +company will benefit from the $1.2 trillion infrastructure deal in the U.S.",neutral +"The country’s road conditions are in poor +condition, which has led to pent-up road construction demand.",negative +"In energy, we think the improvement in the price +of oil since COVID-19 lows will encourage exploration and production companies to increase oil and gas capital +expenditures, leading to increased sales of Caterpillar’s oil-well-servicing products.",neutral +"That said, we believe mining +markets will have limited upside, as fixed-asset investment growth in China starts to slow, likely capping +commodity price upside.",negative +"Bulls Say Dawit Woldemariam, Equity Analyst, 15 Feb 2023 +uIncreased infrastructure spending in the U.S. and emerging markets will lead to more construction equipment +purchases, substantially boosting Caterpillar's sales growth.",positive +"uHigher fixed-asset investment growth in China strengthens support for increased investment in mining capital +expenditures, benefiting Caterpillar.",neutral +"A continued recovery from the temporary demand shock in oil prices will lead to increased oil and gas capital uSector Industry +p IndustrialsFarm & Heavy +Construction +Machinery",negative +"Business Description +Caterpillar is the premier manufacturer of +heavy equipment, power solutions, and +locomotives.",negative +"It is currently the world’s +largest manufacturer of heavy equipment +with over 13% market share in 2021.",negative +"The +company is divided into four reportable +segments: construction industries, resource +industries, energy and transportation, and +Caterpillar Financial Services.",neutral +"Its products +are available through a dealer network that +covers the globe with about 2,700 branches +maintained by 160 dealers.",positive +"Caterpillar +Financial Services provides retail financing +for machinery and engines to its customers, +in addition to wholesale financing for +dealers, which increases the likelihood of +Caterpillar product sales.",neutral +"Morningstar Equity Company Report | Report as of 15 Feb 2023 21:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 3 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Caterpillar Inc CAT QQ 15 Feb 2023 21:10, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +248.07 USD +14 Feb 2023209.00 USD +15 Feb 2023 21:07, UTC1.17127.17 USD Bil +15 Feb 2023 +Wide Stable Medium Standard ;;;;; +1 Feb 2023 06:00, UTC +expenditures, leading to more engine, transmission, and pump sales for Caterpillar.",positive +"Bears Say Dawit Woldemariam, Equity Analyst, 15 Feb 2023 +uThe fallout from the global health pandemic could stretch declines in nonresidential spending for multiple years, +leading to pressure on Caterpillar’s sales and margin growth.",neutral +"uCommodity prices soften globally would force mining and oil-well-servicing customers to cut back on capital +expenditures until demand recovers.",neutral +uCaterpillar faces stiff competition from foreign competitors across end markets.,negative +"Growing competition could +pressure its market share.",neutral +Fair Value and Profit Drivers,positive +"Dawit Woldemariam, Equity Analyst, 15 Feb 2023",neutral +"We're raising our fair value estimate to $209 per share from $208 previously, following Caterpillar's 10-K release.",positive +The change is mainly due to a lower net pension obligation in 2022 compared with 2021.,negative +"During Caterpillar’s fourth-quarter earnings, management provided guidance that led us to tweak both our sales +and operating margin assumptions in our cash flow model.",neutral +"We’re now expecting machinery sales growth of 8% +in 2023, while operating margins come in at nearly 15%.",positive +"We see stronger volume as a key driver, thanks to +stronger U.S. nonresidential construction spending.",positive +"We expect sales to grow on average over 5% over the next five years, showing continued strength after a solid +2022, when sales increased 17% year over year.",negative +"We believe mining markets will see limited upside, largely due to +weaker expectations for commodity markets.",negative +"We project operating margins will peak at nearly 16% in 2025, +before moderating to 15% in our midcycle year, as we believe Caterpillar will benefit from a better sales mix +(sales of high-feature equipment) and higher-margin aftermarket sales.",positive +"Our discounted cash flow model is +derived using Caterpillar’s industrial operations, excluding financial services.",neutral +"To account for the financial services +subsidiary in our valuation, we make an enterprise value adjustment based on our assessment of the business’ +value.",neutral +We think the largest revenue driver will be increased infrastructure spending in the United States.,neutral +"There is +significant pent-up road construction demand, with many urban roads in relatively poor condition.",positive +"We also see +low-hanging fruit in emerging economies to construct new roads and build out infrastructure to increase +urbanization.",positive +"These factors will result in increased construction equipment revenue for Caterpillar, leading us to +forecast over 5% average sales growth over the next five years.",negative +"In mining, we expect mining capital expenditures to be flat to down in our forecast.",negative +"In this environment, revenue +will grow over the next five years by nearly 3% on average, reflecting higher aftermarket sales growth (due to +increased machine utilization), offsetting weakness in new equipment purchases.",positive +"In our view, it’s unlikely that +fixed-asset investment growth in China will stay at historical levels, meaning that the commodity price outlook +will probably be softer than historical levels.",negative +"For energy and transportation, we forecast revenue to grow by nearly 5% through the next five years.",positive +"We think Morningstar Equity Company Report | Report as of 15 Feb 2023 21:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 4 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Caterpillar Inc CAT QQ 15 Feb 2023 21:10, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +248.07 USD +14 Feb 2023209.00 USD +15 Feb 2023 21:07, UTC1.17127.17 USD Bil +15 Feb 2023 +Wide Stable Medium Standard ;;;;; +1 Feb 2023 06:00, UTC +oil and gas capital expenditures will increase, following the temporary demand shock in oil due to the COVID-19 +pandemic.",positive +"This will result in higher engine, transmission, and pump sales, which are used in oil well servicing.",positive +"Economic Moat Dawit Woldemariam, Equity Analyst, 15 Feb 2023",positive +"We assign Caterpillar a wide economic moat rating, underpinned by intangible assets and switching costs.",positive +"Throughout its history, the company has consistently provided customers with reliable, high-quality products, +while offering the lowest total cost of ownership.",positive +"These factors have led to Caterpillar becoming one of the +world’s most valuable brands.",positive +"The strength of its brand and extensive dealer network has solidified Caterpillar as +the market leader for heavy machinery equipment.",negative +"The global heavy machinery market is led by large players like +Caterpillar that can deliver world-class products, in addition to value-added services to customers through its +global dealer network.",positive +"It is a leading player in many of its end markets with particular strength in construction +and mining products.",positive +"We believe smaller local and regional competitors will struggle to win market share in +these end markets globally, allowing Caterpillar to maintain its strong market share positions.",positive +"Looking across the heavy machinery industry, Caterpillar offers some of the most reliable, high-quality, and +efficient products.",positive +"The company’s products can be categorized in three groups: lifecycle performance (medium- to +heavy-duty applications), lifecycle value (light- to medium-duty applications), and utility (light-duty applications).",positive +These products provide a wide range of value propositions based on customer type.,negative +"Lifecycle performance +customers value premium products (high specifications and features) that can withstand high utilization, operate +around the clock, provide the lowest total cost of ownership, and ultimately measure machine success by cost +per work completed.",positive +"Lifecycle value customers gravitate toward simpler products for less extreme operating +conditions that hold up on performance and quality.",negative +"These customers tend to be more price conscious than +lifecycle performance customers and have been a challenge to serve in the past.",positive +"Caterpillar has since changed its +approach in recent years to develop products that address customer-specific performance needs in this customer +segment.",neutral +"Utility customers are the most price sensitive—success is measured by cost per hour—and operate primarily in +emerging markets.",positive +"Caterpillar serves utility customers through its SEM brand, with low-feature products that are +specifically designed with the cost-conscious customer in mind.",neutral +"Caterpillar’s strategy to launch new offerings +focused on customer needs by segment has led to the development of high-quality products customers value, +strengthening its brand and competitive positioning.",positive +"We believe Caterpillar benefits from pricing power, +manifested from its brand familiarity of more than 90 years and complex customer needs.",positive +"Customers come to +Caterpillar not only for the best products in the industry but also for its ability to provide aftermarket parts on- +demand and services to keep their machines running to get projects completed.",positive +"Caterpillar is focused on offering products with the lowest total cost of ownership, which takes into consideration +both purchase and future costs.",neutral +"In addition to the initial purchase price, owners weigh how much it will cost to +operate and maintain a machine.",positive +"Future costs include labor costs, maintenance and repair costs, costs for spare +parts, fuel costs, and insurance costs, to name a few.",negative +"Customers in developed markets typically look for machines Morningstar Equity Company Report | Report as of 15 Feb 2023 21:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 5 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Caterpillar Inc CAT QQ 15 Feb 2023 21:10, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +248.07 USD +14 Feb 2023209.00 USD +15 Feb 2023 21:07, UTC1.17127.17 USD Bil +15 Feb 2023 +Wide Stable Medium Standard ;;;;; +1 Feb 2023 06:00, UTC +that help minimize future costs and are not necessarily looking for the cheapest up-front equipment (primarily a +focus for customers in developing markets).",positive +"Cheaper equipment can increase the likelihood of machine failure +during operation, leading to lost productivity that cuts into an operator’s profitability (mission-critical equipment).",negative +"Many of Caterpillar’s competitors talk about providing customers the lowest total cost of ownership, but we think +Caterpillar is the market leader.",positive +"Its products employ better efficiency and output (measured by cost per work +completed or cost per ton) for customers compared with competitors, allowing them to spread costs over the +lifetime of equipment (operating leverage as work output increases).",positive +"This dynamic supports its brand value in the +eyes of customers looking to optimize their operations.",neutral +Fuel consumption costs are another lever that operators can focus on to drive down total ownership costs.,negative +"Caterpillar offers a wide range of products that enhance fuel efficiency, specifically through its diesel-electric and +electric drivetrains offerings.",neutral +"These products also help the company address carbon emissions concerns, which is +increasingly a point of focus for government authorities.",neutral +"We think Caterpillar’s risk to increased emissions +regulation is moderate given its continued focus on producing next generation products that reduce machine +emissions.",neutral +"When it comes to labor costs, Caterpillar helps customers reduce labor costs through improved product efficiency +(new features help customers complete jobs faster).",positive +"For example, new product models continually introduce +better operator control, comfort, and visibility through the machine cab (in addition to cameras that offer 360- +view of a job site).",positive +"Caterpillar has also benefited from its ability to bring down maintenance costs for customers +by increasing machine connectivity over the past decade.",negative +"More than 1 million of its assets are connected to its +digital platform (out of 2 million assets in the field).",positive +"Newly assembled machines are equipped with technology +(the company is also working to retrofit machines in the field) helping both customers and the company track +data (machine utilization rates and productivity) to inform future service needs.",positive +"Caterpillar’s large parts +distribution network and product support offering through its dealer network keep service intervals reasonable, +increasing machine up-time and optimizing the total cost of ownership.",positive +"Caterpillar’s exclusive dealer network is a key tenet to its strong competitive positioning across multiple +geographies.",positive +"The breadth of Caterpillar’s dealer network is unmatched, with 160 dealers operating about 2,700 +branches globally.",neutral +"The company has significant presence on every continent and sells most of its products +through its dealer network (turbines and locomotives are sold directly by Caterpillar).",positive +"These dealers are often very +large organizations that exclusively sell Caterpillar products.",positive +"We think it’s very difficult for existing competitors +and new entrants to replicate the size and coverage of Caterpillar’s dealers.",negative +"Fully stocking a branch is challenging +without similar product breadth to Caterpillar, hence, why many competitors’ products are sold at dealerships +that carry multiple product lines.",positive +"Caterpillar’s value proposition not only consists of its high-quality products, but +it also includes the reliable product support provided by dealers.",neutral +"When customers need parts or machine +servicing, they can rely on the dealer network to reduce their machine down-time.",neutral +"Caterpillar’s increased focus on its installed base through aftermarket and service offerings keeps customers from +switching.",negative +"The company’s machines and engines perform mission-critical functions for large construction, mining, Morningstar Equity Company Report | Report as of 15 Feb 2023 21:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 6 of 28 +��2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Caterpillar Inc CAT QQ 15 Feb 2023 21:10, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +248.07 USD +14 Feb 2023209.00 USD +15 Feb 2023 21:07, UTC1.17127.17 USD Bil +15 Feb 2023 +Wide Stable Medium Standard ;;;;; +1 Feb 2023 06:00, UTC +and oil drilling projects.",positive +"Caterpillar’s products are known for their durability and quality, despite operating in +extreme conditions.",negative +"For customers, switching to an alternative product poses significant risk to their operations, +with the potential for project disruptions from machine failures and long lead times to service equipment.",positive +"Caterpillar’s service agreements give customers priority on proprietary aftermarket parts and services from +dealers, making it easy to understand what the total cost of a machine will be throughout its operating life.",positive +"We +also believe the high cost of failure associated with switching away from Caterpillar’s products increases the +likelihood of elevated projects costs, ultimately cutting into a customer’s profitability.",negative +"Furthermore, customers invest a significant amount of time and money into machinery, creating additional +friction to switch products.",positive +"The purchase price of heavy machinery can run up into the hundreds of thousands +(can get into the low-million-dollar range for new mining trucks), in addition to the time it takes machine +operators to fully train on a machine to reach optimal productivity to complete projects on time.",positive +"Caterpillar also +benefits from long product upgrade cycles, particularly in mining, where mining trucks have a useful life of over +10 years.",positive +"In our view, these factors alone keep customers from switching, but the strongest reason keeping +customers put is Caterpillar’s aftermarket offering.",neutral +"The company’s parts distribution and extensive dealer +network provide customers with aftermarket parts and reliable services to ensure their equipment operate +efficiently, saving them from the headache of machine down-time and from having to search for parts +independently.",neutral +"We do not believe Caterpillar’s wide economic moat faces any substantial threats from environmental, social, +and governance risks.",positive +"Caterpillar has exposure to product safety issues and carbon emissions regulation, but we +do not view them as material enough to include in our valuation.",neutral +"Product safety issues include both customer +injuries while operating Caterpillar machinery and injuries suffered by Caterpillar employees in the production of +products.",neutral +"Carbon emissions regulation is increasingly a topic of discussion, but we think Caterpillar is already +hedging against this risk through the development of next-generation products that reduce the carbon emissions +of its products, namely its diesel-electric and electric drivetrains.",neutral +"Additionally, we think the effect from climate +change initiatives will likely be incremental rather than immediate.",neutral +"In our view, the immediate threat is to new oil +wells on federal lands, rather than the private lands that shale firms operate on.",positive +"The increase in renewables, +electric vehicles, and cleaner internal combustion engine vehicles will likely have a modest impact on fossil fuel +demand in the next 10 years.",positive +"Moat Trend Dawit Woldemariam, Equity Analyst, 15 Feb 2023",neutral +"We assign Caterpillar a stable moat trend rating because we believe the company’s opportunities to improve its +competitive positioning are about evenly balanced with potential threats.",neutral +"Foreign competition exists, but we +think it is unlikely these competitors will be able to undermine Caterpillar’s brand equity and switching costs over +the next two decades.",negative +"Increased utilization of digital applications is a long-term opportunity for Caterpillar, but +we think it will take some time for adoption rates to reach critical scale.",neutral +"Likewise, while Caterpillar is a leader in +autonomous technology, this too is a longer-term opportunity for Caterpillar.",positive +"Morningstar Equity Company Report | Report as of 15 Feb 2023 21:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 7 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Caterpillar Inc CAT QQ 15 Feb 2023 21:10, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +248.07 USD +14 Feb 2023209.00 USD +15 Feb 2023 21:07, UTC1.17127.17 USD Bil +15 Feb 2023 +Wide Stable Medium Standard ;;;;; +1 Feb 2023 06:00, UTC +Much has been made of the threat from Chinese competitors, but we think Caterpillar is well positioned globally +to withstand competition.",positive +"We do not think that competition from Sany and Zoomlion warrants a negative moat +trend rating.",negative +"Both companies are commonly referenced as viable competitive threats to Caterpillar, but we see +meaningful hurdles for both companies to reach global market success.",positive +"First, both Sany and Zoomlion do not +possess the same level of product quality as Caterpillar and come up short in aftermarket services.",positive +"Caterpillar’s +customers value products that offer high-quality, reliability, and a high number of features (classified as premium +products), along with fast access to aftermarket parts and services.",positive +"Second, we agree that these companies have +a considerable presence in their home market, China, but are relatively absent in global markets.",positive +"Looking at +geographical sales mix, both companies produce most of their revenue in China.",positive +"Zoomlion produces +approximately 10% of annual sales from overseas (5% global market share), while Sany generates around 30% of +annual sales from overseas (7% global market share).",negative +"Third, Sany and Zoomlion’s dealer network isn’t as robust +as Caterpillar’s dealer network; which covers every continent.",neutral +"We believe the lack of dealer coverage by Chinese +competitors globally could lead to longer lead times for replacement parts and machinery maintenance for +customers.",neutral +"Caterpillar is well positioned to fend off competition in emerging markets, with its SEM brand.",neutral +"Price- +sensitive customers can purchase simpler machines (not as many features) without compromising on the +performance and quality that Caterpillar products are known for.",positive +"However, we believe Komatsu (based in Japan) is a more viable competitor to Caterpillar.",positive +"Komatsu produces +construction, mining, and utility equipment mostly in Asia and the Americas (makes up about 80% of revenue).",positive +"The company holds the number two position in the global heavy machinery market behind Caterpillar at around +10% market share.",negative +"That said, we think Caterpillar will maintain its lead over Komatsu based on its ability to +continually bring the best products to market supported by an extensive support network provided by dealers.",positive +"Caterpillar’s future strategy revolves around selling multiple digital applications to enhance the customer’s +experience.",neutral +Nearly all of Caterpillar’s new equipment manufactured today are connected machines.,positive +"This +essentially means that all the components on a machine are connected to an electronic architecture, collecting +valuable data around performance to drive insights.",neutral +"We think adoption of digital solutions by customers are still +in the early stages.",positive +"Increased utilization of digital applications has the potential to strengthen customer switching +costs, but we think it will take some time for Caterpillar to sell multiple digital applications to customers that lock +them into the company’s ecosystem.",neutral +"Caterpillar has over 2 million assets in the field, of which, approximately 1 million are connected via its digital +platform (the remaining assets can be retrofitted with digital connectivity).",negative +"Digital applications offered by Cat +Connect help customers manage equipment, improve productivity, and increase the safety of workers.",neutral +"Caterpillar’s solutions can track the hours of machine use, reduce fuel consumption, optimize payload, and +increase job-site awareness via cameras on machines.",neutral +"CAT Inspect brings equipment inspections into the modern +age, with the ability to electronically transmit information and images to Caterpillar’s back office to determine if +machine servicing is needed.",positive +"VisionLink is a comprehensive solution, including equipment geofencing to mitigate machine theft, along with Morningstar Equity Company Report | Report as of 15 Feb 2023 21:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 8 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Caterpillar Inc CAT QQ 15 Feb 2023 21:10, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +248.07 USD +14 Feb 2023209.00 USD +15 Feb 2023 21:07, UTC1.17127.17 USD Bil +15 Feb 2023 +Wide Stable Medium Standard ;;;;; +1 Feb 2023 06:00, UTC +the ability to track equipment idle time, fuel consumption, and productivity.",positive +"Cat MineStar solutions help miners +work quickly, while maintaining efficiency.",positive +"Customers continually look for ways to optimize costs in mining +projects to yield greater project profitability.",positive +"Specifically, Cat MineStar can track equipment, improve operator +visibility, and enable machines to communicate with each other, increasing safety and reducing accidents +involving workers.",negative +"These digital solutions do add value to customers, but we think it will take time to accelerate +adoption rates.",neutral +"Caterpillar will need to demonstrate the utility to customers and push to upsell existing customers +to adopt multiple digital solutions.",neutral +"Caterpillar is the market leader in mining autonomy, but it’s still too early to call for a positive moat trend.",positive +"The +company has diligently worked to bring autonomous solutions to market, finding early success in the mining +sector.",positive +"Caterpillar maintains the largest fleet of autonomous mining trucks (over 800 trucks) and provides +solutions for both surface mining and underground mining.",positive +"Miners can start small by leveraging Cat MineStar to +control a single mining truck remotely, eventually building up to operating a fully autonomous fleet of mining +trucks.",negative +Autonomy has advanced in the mining industry for a few reasons.,positive +"First, mining operations afford the convenience +of large open-pit mines for autonomous mining trucks to work unimpeded, utilizing efficient routes, along with +the ability to work continuously around the clock (projects completed faster—boosting productivity by 30%).",positive +"Second, autonomy improves worker safety and reduces the number of on-the-job injuries.",neutral +"Third, miners can cut +down on the high labor costs to encourage workers to come work in remote locations.",negative +"Despite the benefits of +autonomy, the mining industry has yet to accelerate the adoption of autonomous mining trucks.",positive +"We estimate the +number of fully autonomous mining trucks in operation today is still just a fraction of the installed base of +traditional mining trucks (approximately 20,000 trucks from our estimates).",negative +"Risk and Uncertainty Dawit Woldemariam, Equity Analyst, 1 Feb 2023",neutral +We assign Caterpillar a Morningstar Uncertainty Rating of Medium.,neutral +"We believe the most substantial risk to Caterpillar is declining investment in mining capital expenditures, given +the firm's exposure to coal, iron ore, copper, and gold.",positive +"The recovery following the great financial crisis was fueled +by increased commodity demand, leading mining companies to increase production to meet demand from +emerging markets.",positive +"Going forward, we think fixed-asset investment growth in China will be lower than historical +levels.",neutral +"There is a chance for additional downside risk if China pulls back fixed-asset investment even more than +we expect.",positive +"In the near term, we expect the U.S. infrastructure deal and strong demand for new roads in emerging markets +(increasing urbanization) to serve as tailwinds for Caterpillar.",positive +"However, during slow economic periods, investment +in construction spending can quickly reverse, resulting in weaker capital returns for the company.",positive +"While we don’t think the pandemic presents as great a risk to oil demand today, we believe a potential +slowdown in global economic activity could soften demand in the near term.",positive +"Longer term, we believe climate +change initiatives will affect new wells on federal lands, rather than the private lands that shale firms operate on.",positive +"Morningstar Equity Company Report | Report as of 15 Feb 2023 21:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 9 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Caterpillar Inc CAT QQ 15 Feb 2023 21:10, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +248.07 USD +14 Feb 2023209.00 USD +15 Feb 2023 21:07, UTC1.17127.17 USD Bil +15 Feb 2023 +Wide Stable Medium Standard ;;;;; +1 Feb 2023 06:00, UTC +Caterpillar faces competition from foreign rivals, mainly Komatsu but increasingly from Chinese companies like +Sany and Zoomlion.",positive +"The latter have increased market share slightly but still generate a majority of revenue from +China.",negative +"We think it’s unlikely that these firms can materially improve product quality and build dealer networks +that rival Caterpillar.",negative +"That said, we believe Caterpillar will need to continually improve the efficiency of its +products.",neutral +"Financial Strength Dawit Woldemariam, Equity Analyst, 15 Feb 2023 +Caterpillar maintains a sound balance sheet.",positive +"On the industrial side, the net debt/adjusted EBITDA ratio was +relatively low at the end of 2022, coming in at 0.4.",neutral +"Total outstanding debt, including both short- and long-term +debt, was $9.6 billion.",positive +"Caterpillar’s strong balance sheet gives management the financial flexibility to run a +balanced capital allocation strategy going forward that mostly favors organic growth and also returns cash to +shareholders.",positive +"In terms of liquidity, we believe the company can meet its near-term debt obligations given its strong cash +balance.",positive +The company’s cash position as of year-end 2022 stood at $6 billion on its industrial balance sheet.,neutral +"We +also find comfort in Caterpillar’s ability to tap into available lines of credit to meet any short-term needs.",positive +"Caterpillar has access to $10.5 billion in credit facilities for the consolidated business (including financial +services), of which, $2.8 billion is available to the industrial business.",positive +"Caterpillar’s focus on operational excellence in its industrial operations and improved cost base has put the +company on better footing when it comes to free cash flow generation throughout the economic cycle.",positive +"We think +the company can generate $8 billion in free cash flow in our midcycle year, supporting its ability to return nearly +all of its free cash flow to shareholders through dividends and share repurchases.",positive +"The captive finance arm holds considerably more debt than the industrial business, but this is reasonable, given +its status as a lender to both customers and dealers.",positive +"Total debt stood at $27.3 billion in 2022, along with $26.4 +billion in finance receivables and $962 million in cash.",neutral +"In our view, Caterpillar enjoys a strong financial position +supported by a clean balance sheet and strong free cash flow prospects.",positive +"Capital Allocation Dawit Woldemariam, Equity Analyst, 1 Feb 2023",neutral +We assign Caterpillar a Standard capital allocation rating.,neutral +"The rating reflects our overall assessment that the +company’s balance sheet is sound and the quality of its investing (reinvestment and acquisitions) is fair and +reasonable and supports its competitive positioning.",positive +"We also think Caterpillar’s shareholder distributions are +appropriate.",positive +We think Caterpillar has a sound balance sheet.,positive +"The company’s low balance sheet risk is largely due to its +manageable debt levels and access to credit lines.",negative +"We expect its net debt/adjusted EBITDA ratio and the number +of debt maturities coming due in the near term to be relatively low.",negative +"The captive finance arm does carry more +debt, but we think this is reasonable given the nature of its operations.",positive +"The business provides financing for both +customers and dealers to support the sale of Caterpillar products.",neutral +"Morningstar Equity Company Report | Report as of 15 Feb 2023 21:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 10 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Caterpillar Inc CAT QQ 15 Feb 2023 21:10, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +248.07 USD +14 Feb 2023209.00 USD +15 Feb 2023 21:07, UTC1.17127.17 USD Bil +15 Feb 2023 +Wide Stable Medium Standard ;;;;; +1 Feb 2023 06:00, UTC +Caterpillar’s investment strategy is fair and reasonable, in our view.",positive +"The company’s acquisition strategy has been +focused on expanding its product portfolio.",neutral +"We’ve seen deals across end markets, and we expect Caterpillar to +strategically make acquisitions in the future to boost its competitive positioning.",neutral +"We believe Caterpillar will likely +favor organic growth, propelled by investments in internal projects to improve product efficiency and +performance.",neutral +"Additionally, management has effectively added value through cost reductions and restructuring +and efficiency improvements.",positive +"These moves have improved operating margins and the company’s ability to +employ a lean manufacturing strategy.",neutral +"Continued investment in its digital applications are also on the horizon, +aimed at increasing adoption rates with end users to help manage fleets, predict maintenance, and lower the +total cost of ownership.",neutral +We believe shareholder distributions are appropriate.,positive +"Caterpillar is committed to dividend payouts, increasing +dividend growth year over year even during economic downturns.",positive +"We expect a continued commitment to +dividend payouts well into the future.",neutral +"Historically, share repurchases have fluctuated significantly based on the +health of economic activity globally.",positive +"Looking ahead, we think management will be committed to consistently +repurchasing shares to meet its goal of returning nearly all of its free cash flow to shareholders throughout the +economic cycle.",positive +"In a midcycle environment, we expect free cash flow to be $8 billion.",positive +"KMorningstar Equity Company Report | Report as of 15 Feb 2023 21:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 11 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Caterpillar Inc CAT QQ 15 Feb 2023 21:10, UTC +Price vs. Fair Value +0100200300400Last",positive +"Close: 248.07 +Fair Value: 209.00 +15 Feb 2023 21:07, UTC +Over Valued +Under Valued +2018 2019 2020 2021 2022 YTD +0.68 0.89 1.22 1.15 1.22 1.17 Price/Fair Value +-17.28 19.19 26.04 15.93 18.11 2.50 Total Return % +Morningstar Rating +Competitors +Caterpillar Inc CAT Deere & Co DE Terex Corp TEX The Timken Co TKR +Fair Value +209.00 +Uncertainty : Medium +Last Close +248.07 +Fair Value +359.00 +Uncertainty : Medium +Last Close +410.04 +Fair Value +45.50 +Uncertainty : High +Last Close +56.15 +Last Close +87.65 +Economic Moat + Wide + Wide + Narrow — +Moat Trend Stable Stable Stable — +Currency USD USD USD USD +Fair Value 209.00 15 Feb 2023 21:07, UTC 359.00 15 Feb 2023 21:07, UTC1 45.50 15 Feb 2023 21:07, UTC2 — 15 Feb 2023 21:07, UTC3 +1-Star Price 282.15 484.65 70.53 — +5-Star Price 146.30 251.30 27.30 — +Assessment Over Valued 15 Feb 2023 Over Valued 15 Feb 2023 Over Valued 14 Feb 2023",positive +"Fairly Valued 14 Feb 2023 +Morningstar Rating QQ15 Feb 2023 21:10, UTC QQ14 Feb 2023 22:30, UTC QQ14 Feb 2023 22:30, UTC — — +Analyst Dawit Woldemariam, Equity Analyst Dawit Woldemariam, Equity Analyst Dawit Woldemariam, Equity Analyst — +Capital Allocation Standard Exemplary Standard — +Price/Fair Value 1.17 1.14 1.23 — +Price/Sales 2.18 2.42 0.89 1.42 +Price/Book 8.01 6.00 3.24 2.76 +Price/Earnings 19.33 17.58 13.11 15.70 +Dividend Yield 1.93% 1.10% 0.92% 1.43% +Market Cap 127.17 Bil 121.63 Bil 3.82 Bil 6.26 Bil +52-Week Range 160.60—266.04",positive +"283.81—448.40 26.64—57.48 50.85—87.36 +Investment Style Large Core Large Core Small Core Small CoreMorningstar Equity Company Report | Report as of 15 Feb 2023 21:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 12 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Caterpillar Inc CAT QQ 15 Feb 2023 21:10, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +248.07 USD +14 Feb 2023209.00 USD +15 Feb 2023 21:07, UTC1.17127.17 USD Bil +15 Feb 2023 +Wide Stable Medium Standard ;;;;; +1 Feb 2023 06:00, UTC +Morningstar Valuation Model Summary +Financials as of 31 Jan 2023 Actual Forecast +Fiscal Year, ends 31 Dec 2020 2021 2022 2023 2024 2025 2026 2027 +Revenue (USD Mil) 39,022 48,188 56,574 61,265 65,275 68,651 71,515 74,109 +Operating Income (USD Mil) 4,321 6,363 8,358 9,078 10,175 10,800 10,962 11,114 +EBITDA (USD Mil) 5,951 7,913 8,872 10,548 11,676 12,311 12,464 12,670 +Adjusted EBITDA (USD Mil) 6,416 7,460 9,365 11,087 11,946 12,311 12,464 12,670 +Net Income (USD Mil) 2,998 6,489 6,705 7,897 8,719 9,191 9,249 9,286 +Adjusted Net Income (USD Mil) 3,600 5,932 7,339 8,597 9,069 9,191 9,249 9,286 +Free Cash Flow To The Firm (USD Mil) 3,243 4,336 3,782 5,754 6,666 7,045 7,036 7,106 +Weighted Average Diluted Shares Outstanding (Mil) 549 549 530 525 512 498 485 472 +Earnings Per Share (Diluted) (USD) 5.46 11.83 12.64 15.05 17.02 18.44 19.07 19.67 +Adjusted Earnings Per Share (Diluted) (USD) 6.56 10.81 13.84 16.38 17.70 18.44 19.07 19.67 +Dividends Per Share (USD) 4.12 4.28 4.62 4.86 5.04 5.20 5.40 5.60 +Margins & Returns as of 31 Jan 2023 Actual Forecast +3 Year Avg 2020 2021 2022 2023 2024 2025 2026 2027 5 Year Avg +Operating Margin % 13.0 11.1 13.2 14.8 14.8 15.6 15.7 15.3 15.0 15.3 +EBITDA Margin % — 15.3 16.4 15.7 17.2 17.9 17.9 17.4 17.1 — +Adjusted EBITDA Margin % 16.2 16.4 15.5 16.6 18.1 18.3 17.9 17.4 17.1 17.8 +Net Margin % 11.0 7.7 13.5 11.9 12.9 13.4 13.4 12.9 12.5 13.0 +Adjusted Net Margin % 11.5 9.2 12.3 13.0 14.0 13.9 13.4 12.9 12.5 13.4 +Free Cash Flow To The Firm Margin % 8.0 8.3 9.0 6.7 9.4 10.2 10.3 9.8 9.6 9.9 +Growth & Ratios as of 31 Jan 2023 Actual Forecast +3 Year CAGR 2020 2021 2022 2023 2024 2025 2026 2027 5 Year CAGR +Revenue Growth % 3.7 -23.1 23.5 17.4 8.3 6.6 5.2 4.2 3.6 5.6 +Operating Income Growth % 1.6 -45.8 47.3 31.4 8.6 12.1 6.2 1.5 1.4 5.9 +EBITDA Growth",positive +"% 0.0 — — — — — — — — 0.0 +Adjusted EBITDA Growth %",neutral +"-1.9 -35.3 16.3 25.5 18.4 7.7 3.1 1.2 1.7 6.2 +Earnings Per Share Growth % 6.7 — — — — — — — — 7.3 +Adjusted Earnings Per Share Growth % 6.7 -42.4",neutral +"64.8 27.9 18.4 8.1 4.2 3.4 3.1 7.3 +Valuation as of 31 Jan 2023 Actual Forecast +2020 2021 2022 2023 2024 2025 2026 2027 +Price/Earnings 27.7 19.1 17.3 14.9 13.8 13.3 12.8 12.4 +Price/Sales 2.1 2.1 2.0 2.1 1.9 1.9 1.8 1.7 +Price/Book 8.5 8.5 9.8 8.1 6.7 5.6 4.8 4.1 +Price/Cash Flow 25.9 16.9 21.2 18.7 16.5 15.8 15.9 15.9 +EV/EBITDA 17.3 17.2 14.7 12.2 11.3 11.0 10.8 10.7 +EV/EBIT 25.7 20.1 16.5 14.9 13.3 12.5 12.3 12.1 +Dividend Yield %",neutral +"2.3 2.1 1.9 2.0 2.1 2.1 2.2 2.3 +Dividend Payout",neutral +"% 75.4 36.2 36.6 32.3 29.6 28.2 28.3 28.5 +Free Cash Flow Yield % 3.9 5.9 4.7 5.3 6.0 6.3 6.3 6.3 +Operating Performance / Profitability as of 31 Jan 2023 Actual Forecast +Fiscal Year, ends 31",positive +"Dec 2020 2021 2022 2023 2024 2025 2026 2027 +ROA % 6.3 13.4 13.4 15.3 15.8 15.8",neutral +"15.1 14.3 +ROE % 22.7 51.6 51.0 54.9 50.6 45.5 39.7 35.2 +ROIC % 13.1 12.4 19.8 27.8 28.6 28.0 26.6",neutral +"25.4Morningstar Equity Company Report | Report as of 15 Feb 2023 21:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 13 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Caterpillar Inc CAT QQ 15 Feb 2023 21:10, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +248.07 USD +14 Feb 2023209.00 USD +15 Feb 2023 21:07, UTC1.17127.17 USD Bil +15 Feb 2023 +Wide Stable Medium Standard ;;;;; +1 Feb 2023 06:00, UTC +Financial Leverage Actual Forecast +Fiscal Year, ends 31 Dec 2020 2021 2022 2023 2024 2025 2026 2027 +Debt/Capital % 48.7 42.4 42.7 38.4 34.1 28.5 25.9 23.7 +Assets/Equity 4.0 3.7 3.8 3.4 3.0 2.7 2.5 2.4 +Net Debt/EBITDA 0.4 0.2 0.4 0.2 0.0 -0.1 -0.2 -0.4 +Total Debt/EBITDA 1.7 1.3 1.0 0.9 0.8 0.7 0.7 0.7 +EBITDA/",positive +"Net Interest Expense 12.5 15.3 21.1 23.9 25.4 28.6 28.4 28.3 +Key Valuation Drivers as of 31 Jan 2023 +Cost of Equity % 9.0 +Pre-Tax Cost of Debt % 5.5 +Weighted Average Cost of Capital % 8.6 +Long-Run Tax Rate %",negative +"22.6 +Stage II EBI Growth Rate % 4.0 +Stage II Investment Rate % 20.0 +Perpetuity Year 20 +Additional estimates and scenarios available for download at https://pitchbook.com/. Discounted Cash Flow Valuation as of 31 Jan 2023 +USD Mil +Present Value Stage I 26,190 +Present Value Stage II 49,203 +Present Value Stage III 35,770 +Total Firm Value 111,163 +Cash and Equivalents 6,042 +Debt -9,652 +Other Adjustments 295 +Equity Value 107,848 +Projected Diluted Shares 519 +Fair Value per Share (USD) 209.00Morningstar Equity Company Report | Report as of 15 Feb 2023 21:20, UTC | Reporting Currency:",positive +"USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 14 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Caterpillar Inc CAT QQ 15 Feb 2023 21:10, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +248.07 USD +14 Feb 2023209.00 USD +15 Feb 2023 21:07, UTC1.17127.17 USD Bil +15 Feb 2023 +Wide Stable Medium Standard ;;;;; +1 Feb 2023 06:00, UTC +Income Statement (USD) Actual Forecast +Fiscal Year, ends 31 Dec 2020 2021 2022 2023 2024 2025 2026 2027 +Revenue (Mil)39,022 48,188 56,574 61,265 65,275 68,651 71,515 74,109 +Cost of Goods Sold (Mil) 29,088 35,521 41,356 44,840 47,324 49,684 52,014 54,121 +Gross Profit (Mil) 9,934 12,667 15,218 16,425 17,951 18,968 19,501 19,988 +Selling, General, Administrative & Other Expenses (Mil) 3,915 4,724 4,999 5,261 5,552 5,829 6,102 6,349 +Advertising & Marketing Expenses — — — — — — — — +Research & Development — — — — — — — — +Depreciation & Amortization (if reported separately) — — — — — — — — +Adjusted Operating Income (Mil) 4,321 6,363 8,358 9,078 10,175 10,800 10,962 11,114 +Financial Non-Cash (Gains)/Losses (Mil) 0 0 925 0 0 0 0 0 +Irregular Cash (Gains)/Losses (Mil) 0 0 0 0 0 0 0 0 +Operating Income (Mil) 4,321",positive +"6,363 7,433 9,078 10,175 10,800 10,962 11,114 +Net Interest Expense (Mil) 494 -1,604 -1,103 -1,089 -1,054 -1,036 -945 -838 +Income Tax Expense (Mil) 853 1,517 1,858 2,295 2,537 2,674 2,688 2,697 +After-Tax Items (Mil) 0 0",neutral +"0 0 0 0 0 0 +(Minority Interest) (Mil) 24 39 27 25 27 29 30 31 +Net Income (Mil) 2,998 6,489 6,705 7,897 8,719 9,191 9,249 9,286 +Adjusted Net Income (Mil) 3,600 5,932 7,339 8,597 9,069 9,191 9,249 9,286 +Weighted Average Diluted Shares Outstanding (Mil) 549 549 530 525 512 498 485 472 +Diluted Earnings",positive +"Per Share 5.46 11.83 12.64 15.05 17.02 18.44 19.07 19.67 +Diluted Adjusted Earnings Per Share 6.56 10.81 13.84 16.38 17.70 18.44 19.07 19.67 +Dividends Per Common Share (USD)4.12 4.28 4.62 4.86 5.04 5.20 5.40 5.60 +EBITDA (Mil) 5,951 7,913 8,872 10,548 11,676 12,311 12,464 12,670 +Adjusted EBITDA (Mil) 6,416 7,460 9,365 11,087 11,946 12,311 12,464 12,670Morningstar Equity Company Report | Report as of 15 Feb 2023 21:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 15 of 28 +©2023 Morningstar.",negative +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Caterpillar Inc CAT QQ 15 Feb 2023 21:10, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +248.07 USD +14 Feb 2023209.00 USD +15 Feb 2023 21:07, UTC1.17127.17 USD Bil +15 Feb 2023 +Wide Stable Medium Standard ;;;;; +1 Feb 2023 06:00, UTC +Key Cash Flow Items (USD) Actual Forecast as of 31 Jan +Fiscal Year, ends 31 Dec 2020 2021 2022 2023 2024 2025 2026 2027 +Cash from Working Capital (Mil)",positive +"-1,247 404",neutral +"-385 -1,068 -856",neutral +"-803 -772 -721 +(Capital Expenditures) (Mil) -994",neutral +"-1,129 -1,298 -1,501 -1,665 -1,819",neutral +"-1,967 -2,112 +Depreciation (Mil) 1,630 1,550 1,439 1,470 1,501 1,510 1,502 1,556 +Amortization (Mil) — — — 0 0 0 0 0 +Net New (Investment), Organic (Mil) -1,039 1,670 -1,698 -1,088 -1,007",positive +"-1,099 -1,224 -1,263 +(Purchases)/Sales of Companies & Assets (Mil) -111",neutral +-490 -88,neutral +"-212 -230 -245 -257 -268 +Net New (Investment), Total (Mil) -1,150",positive +"1,180 -1,786 -1,300 -1,237 -1,344",neutral +"-1,481",neutral +"-1,531 +Other Non-Cash Items, From Cash Flows (Mil) 997 -702 -154 0 0 0 0 0 +Free Cash Flow to the Firm (Mil) 3,243 4,336 3,782 5,754 6,666 7,045 7,036 7,106 +Balance Sheet (USD) Actual Forecast +Fiscal Year, ends 31 Dec 2020 2021 2022 2023 2024 2025 2026 2027 +Assets +Cash and Equivalents (Mil) 8,822 8,428 6,042 7,825 9,241 10,016 11,586 13,117 +Inventory (Mil) 11,402 14,038 16,270 17,653 18,644 19,587 20,520 21,366 +Accounts Receivable (Mil) 3,846 3,279 3,710 4,185 4,638 5,066 5,473 5,875 +Net Property, Plant and Equipment (Mil) 8,309 8,172 8,186 8,227 8,402 8,723 9,201 9,770 +Goodwill (Mil) 6,394 6,324 5,288 5,373 5,465 5,563 5,666 5,773 +Other Intangibles (Mil) 1,308 1,042 758 864 979 1,101 1,230 1,364 +Other Operating Assets (Mil) 6,955 8,726 9,543 9,543 9,543 9,543 9,543 9,543 +Non-Operating Assets (Mil) 0 0 0 0 0 0",negative +"0 0 +Total Assets (Mil) 47,036 50,009 49,797 53,671 56,912 59,600 63,219 66,808 +Liabilities +Accounts Payable (Mil) 6,060 8,079 8,657 9,448 10,036 10,604 11,173 11,700 +Debt (Mil) 11,194 9,826 9,652 9,869 9,664 8,665 8,665 8,665 +Other Operating Liabilities (Mil) 10,614 12,647 13,895 13,895 13,895 13,895 13,895 13,895 +Non-Operating Liabilities (Mil) 7,329 6,076 4,631 4,631 4,631 4,631 4,631 4,631 +Total Liabilities (Mil) 35,197 36,628 36,835 37,843 38,226 37,795 38,364 38,891 +Equity +Shareholders' Equity (Mil) 11,791 13,346 12,937 15,803 18,661 21,779 24,830 27,892 +Minority Interest (Mil) 48 35 25 25 25 25 25 25 +Total Equity (Mil) 11,839 13,381 12,962 15,828 18,686 21,804 24,855 27,917Morningstar Equity Company Report | Report as of 15 Feb 2023 21:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 16 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Caterpillar Inc CAT QQ 15 Feb 2023 21:10, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +248.07 USD +14 Feb 2023209.00 USD +15 Feb 2023 21:07, UTC1.17127.17 USD Bil +15 Feb 2023 +Wide Stable Medium Standard ;;;;; +1 Feb 2023 06:00, UTC +Management & Ownership +Management Activity as of 31 Mar 2023 +Name Position Share Held Report Date* Insider Activity +Andrew Robert John Bonfield Chief Financial Officer 63,188 31 Mar 2023 177,729 +Daniel M. Dickinson Independent Director 31,462 31 Mar 2023 6,886 +D. James Umpleby Chief Executive Officer and Chairman of the Board 318,035 31 Mar 2023 638,873 +Denise C. Johnson Group President 41,704 31 Mar 2023 129,993 +Bob De Lange Group President 53,879 31 Mar 2023 126,231 +Suzette M. Long Chief Legal Officer and General Counsel 16,776 31 Mar 2023 170,630 +Joseph E. Creed Group President 3,037 31 Mar 2023 154,536 +Anthony D. Fassino Group President 50,743 31 Mar 2023 42,140 +Miles D. White Independent Director 20,436 31 Mar 2022 293 +Jananne A. Copeland Chief Accounting Officer 7,740 31 Mar 2019 — +Fund Ownership as of 31 Jan 2023 +Top Owners % of Shares Held % of Fund Assets Change (k) Portfolio Date +2ndVote Advisers Shareholders First 8.49 0.82 0 31 Dec 2022 +Vanguard Total Stock Market Index Fund 3.07 0.32 123,975 31 Jan 2023 +Vanguard US Total Market Shares",positive +"ETF 3.04 0.35 -86,406",neutral +"31 Dec 2022 +Vanguard Instl Ttl Stck Mkt Idx Tr 3.04 0.33 62,179 31 Dec 2022 +Vanguard 500 Index Fund 2.32 0.38 28,515 31 Jan 2023 +Concentrated Holders +Q3 Power Momentum - Rising Dividend 0.00 19.83 14 31 Dec 2022 +PVG Tactical Core Strategy 0.00 14.44 2,883 31 Dec 2022 +Horizons North American Infras DevpmtETF 0.00 9.57 0 31",neutral +"Jan 2023 +FT S&P Dividend Atrts",neutral +"By-Wrt 17 0.00 7.94 23 25 Jan 2023 +FT S&P Dividend Atrts By-Wrt 16 0.00 7.18 28 25 Jan 2023 +Institutional Transactions as of 31 Jan 2023 +Top 5 Buyers % of Shares Held % of Fund Assets Shrs Bought/Sold (k) Portfolio Date +Altshuler Shaham Ltd 0.50 10.69 836,340 30",positive +"Sep 2022 +Renaissance Technologies Corp 0.16 0.27 814,500 31 Dec 2022 +Amundi 0.72 0.39 601,458 30 Sep 2022 +Los Angeles Capital Management LLC 0.06 0.39 312,961 31 Dec 2022 +Assenagon Asset Management SA 0.06 0.27 222,840 31",neutral +"Dec 2022 +Top 5 Sellers +FMR Inc 0.83 0.07 -1,905,926",positive +"30 Sep 2022 +Wellington Management Company LLP 0.12 0.02 -1,527,038",neutral +"30 Sep 2022 +Morgan Stanley - Brokerage Accounts 1.08 0.13 -511,390 30 Sep 2022 +UBS Group AG 0.19 0.07 -462,201",neutral +"30 Sep 2022 +Vaughan Nelson Scarbrgh & Mccullough LP 0.00 — -449,879 30 Sep 2022 +*Represents the date on which the owner's name, position, and common shares held were reported by the holder or issuer.",negative +"Morningstar Equity Company Report | Report as of 15 Feb 2023 21:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 17 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Caterpillar Inc CAT QQ 15 Feb 2023 21:10, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +248.07 USD +14 Feb 2023209.00 USD +15 Feb 2023 21:07, UTC1.17127.17 USD Bil +15 Feb 2023 +Wide Stable Medium Standard ;;;;; +1 Feb 2023 06:00, UTC +Comparable Company Analysis",positive +These companies are chosen by the analyst and the data are shown by nearest calendar year in descending market capitalization order.,neutral +"Valuation Analysis as of 31 Jan 2023 Price/Earnings EV/EBITDA Price/Free Cash Flow Price/Book Price/Sales +Company/Ticker 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) +Deere & Co DE 20.7 17.3 15.0 20.3 17.4 14.8 23.4 23.8 16.5 6.7 6.2 5.3 2.9 2.5 2.2 +Terex Corp TEX 9.9 11.9 11.2 7.4 8.1 7.8 19.0 14.0 13.5 2.5 2.7 2.4 0.7 0.8 0.8 +The Timken Co TKR 17.8 34.4 27.2 12.6 15.5 13.8 50.0 13.8 26.8 2.1 4.8 4.8 1.7 2.0 1.9 +Average 16.1 21.2 17.8 13.4 13.7 12.1 30.8 17.2 18.9 3.8 4.6 4.2 1.8 1.8 1.6 +Caterpillar Inc CAT 17.3 14.9 13.8 14.7 12.2 11.3 21.2 18.8 16.6 9.8 8.1 6.7 2.0 2.1 1.9 +Returns Analysis as of 31 Jan 2023 ROIC % Adjusted ROIC % Return on Equity % Return on Assets %",negative +"Dividend Yield % +Company/Ticker 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) +Deere & Co DE 22.9 28.9 31.9 27.6 35.0 38.5 38.0 36.9 37.2 14.4 15.9 17.2 0.8 1.1 1.2 +Terex Corp TEX 14.6 16.0 15.4 21.0 22.6 21.7 26.2 25.1 22.7 10.0 10.1 9.9 1.2 1.1 1.1 +The Timken Co TKR 6.7 13.1 11.0 6.7 13.6 14.5 10.0 10.9 16.5 5.4 6.0 7.5 2.3 1.1 1.2 +Average 14.7 19.3 19.4 18.4 23.7 24.9 24.7 24.3 25.5 9.9 10.7 11.5 1.4 1.1 1.2 +Caterpillar Inc CAT 19.8 27.8 28.6 27.7 38.0 38.6 51.0 54.9 50.6 13.4 15.3 15.8 1.9 2.0 2.1 +Growth Analysis as of 31 Jan 2023 Revenue Growth % EBIT Growth % EPS Growth % FCF Growth % DPS Growth % +Company/Ticker 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) +Deere & Co DE 26.8 21.0 11.1 89.5 22.9 16.5 88.6 23.7 15.7 18.3 -9.0 66.7 9.2 28.9 12.2 +Terex Corp TEX 13.7 6.9 6.2 28.1 14.7 3.3 38.7 9.9 6.6 -43.3 59.1 1.2 8.3 15.4 6.7 +The Timken Co TKR -9.7 3.2 7.4 -32.1 15.2 19.2 -38.3 12.9 26.6 -93.0 5662.2 -43.3 0.1 7.3 2.0 +Average 10.3 10.4 8.2 28.5 17.6 13.0 29.7 15.5 16.3 -39.3 1,904.1 8.2 5.9 17.2 7.0 +Caterpillar Inc CAT 17.4 8.3 6.6 31.4 8.6 12.1 27.9 18.4 8.1 -12.8",negative +"52.2 15.9 7.9 5.2 3.7 +Profitability Analysis as of 31 Jan 2023 Gross Margin % EBITDA Margin % Operating Margin % Net Margin % FCF Margin % +Company/Ticker 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) +Deere & Co DE 28.7 28.4 29.1 19.8 19.6 20.7 17.2 17.5 18.4 14.7 14.7 15.0 12.4 10.3 13.5 +Terex Corp TEX 21.0 22.3 22.1 10.6 11.3 11.0 9.5 10.2 9.9 6.8 6.9 6.8 3.4 5.8 5.7 +The Timken Co TKR 28.6 29.8 30.1 17.0 16.3 17.1 10.6 11.8 13.1 7.0 7.3 8.1 3.4 14.5 6.9 +Average 26.1 26.8 27.1 15.8 15.7 16.3 12.4 13.2 13.8 9.5 9.6 10.0 6.4 10.2 8.7 +Caterpillar Inc CAT 26.9 26.8 27.5 16.6 18.1 18.3 14.8 14.8 15.6 13.0 14.0 13.9 9.3 11.1 11.8 +Leverage Analysis as of 31 Jan 2023 Debt/Equity % Debt/Total Cap % EBITDA/Net Int.",negative +"Exp Total Debt/EBITDA Asset/Equity +Company/Ticker 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) +Deere & Co DE 56.6 44.2 38.2 36.2 30.7 27.6 22.0 24.9 43.4 1.3 0.9 0.8 2.4 2.2 2.1 +Terex Corp TEX 65.6 54.3 48.9 39.6 35.2 32.8 9.5 7.7 8.0 1.7 1.5 1.4 2.6 2.3 2.2 +The Timken Co TKR 24.8 27.1 81.4 19.9 21.3 44.9 21.2 21.0 12.8 0.9 0.9 2.2 1.8 1.9 2.5 +Average 49.0 41.9 56.2 31.9 29.1 35.1 17.6 17.9 21.4 1.3 1.1 1.5 2.3 2.1 2.3 +Caterpillar Inc CAT 74.6 62.5 51.8 42.7 38.4 34.1 21.1 23.9 25.4 1.0 0.9 0.8 3.8 3.4 3.0 +Liquidity Analysis as of 31 Jan 2023 Cash per Share Current Ratio Quick Ratio Cash/Short-Term Debt Payout",positive +"Ratio % +Company/Ticker 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E)",neutral +"Deere & Co DE 22.9 12.3 19.4 1.7 1.5 1.7 1.2 0.9 1.1 4.7 3.6 5.6 17.5 18.4 17.8 +Terex Corp TEX 4.4 5.2 4.5 2.0 2.1 2.0 1.0 1.1 1.0 160.1 190.4 160.3 12.0 12.6 12.6 +The Timken Co TKR 3.1 4.3 11.8 1.9 1.8 2.6 1.2 1.2 1.9 1.1 1.4 3.7 43.2 47.5 32.9 +Average 10.5 9.2 13.4 1.8 1.8 2.0 1.0 1.0 1.2 53.8 64.7 42.4 27.3 27.7 23.2 +Caterpillar Inc CAT 11.4 14.9 18.0 1.5 1.6 1.7 0.6 0.7 0.8 49.1 63.6 — 36.6 32.3 29.6Morningstar Equity Company Report | Report as of 15 Feb 2023 21:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 18 of 28 +©2023 Morningstar.",negative +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Caterpillar Inc CAT QQ 15 Feb 2023 21:10, UTC +Competitors Price vs. Fair Value +Deere & Co DE +0100200300400Last Close: 410.04 +Fair Value: 359.00 +16 Dec 2022 14:33, UTC +Over Valued +Under Valued +2018 2019 2020 2021 2022 YTD +0.93 1.09 1.42 1.27 1.19 1.14 Price/Fair Value +-2.94 18.19 57.04 28.89 26.36 -4.54 Total Return % +Morningstar Rating +Total Return % as of 14 Feb 2023.",positive +Last Close as of 15 Feb 2023.,neutral +"Fair Value as of 16 Dec 2022 14:33, UTC.",positive +"Terex Corp TEX +050100150200Last Close: 56.15 +Fair Value: 45.50 +14 Dec 2022 03:58, UTC +Over Valued +Under Valued +2018 2019 2020 2021 2022",positive +"YTD +0.65 0.82 1.40 1.07 0.94 1.23 Price/Fair Value +-42.00 9.61 17.56 27.34 -1.62 32.54 Total Return % +Morningstar Rating +Total Return % as of 14 Feb 2023.",neutral +Last Close as of 15 Feb 2023.,neutral +"Fair Value as of 14 Dec 2022 03:58, UTC.Morningstar Equity Company Report | Report as of 15 Feb 2023 21:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 19 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Caterpillar Inc CAT QQ 15 Feb 2023 21:10, UTC +Competitors Price vs. Fair Value (Continued)",positive +"The Timken Co TKR +050100150200Last Close: 87.65 +Fair Value: — +— +Over Valued +Under Valued +2018 2019 2020 2021 2022 YTD +— — — — — — Price/Fair Value +-21.81 53.89 39.39 -8.89 3.77 21.75 Total Return % +Morningstar Rating +Total Return % as of 14 Feb 2023.",positive +Last Close as of 15 Feb 2023.,neutral +"Fair Value as of —.Morningstar Equity Company Report | Report as of 15 Feb 2023 21:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 20 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Caterpillar Inc CAT QQ 15 Feb 2023 21:10, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +248.07 USD +14 Feb 2023209.00 USD +15 Feb 2023 21:07, UTC1.17127.17 USD Bil +15 Feb 2023 +Wide Stable Medium Standard ;;;;; +1 Feb 2023 06:00, UTC +Recent Analyst Notes +Caterpillar Reports Better-Than-Expected Third-Quarter Results, Thanks to Strong Pricing Dawit +Woldemariam,Equity Analyst,27 Oct 2022 +Caterpillar’s stronger-than-expected results led us to increase our fair value estimate to $196 per share from +$193.",positive +The company increased equipment sales 22% year on year to $14.2 billion.,neutral +"The key drivers were strong +pricing and solid volume gains.",positive +Caterpillar has flexed pricing to mitigate supply chain constraints.,neutral +"Headwinds +included material and freight costs, as well as manufacturing inefficiencies.",neutral +"We expect supply chain challenges +to remain persistent throughout 2022 and likely into early 2023.On the volume side, Caterpillar noted dealer +inventories increased $700 million in the quarter, resulting in a favorable $1 billion impact on total sales.",positive +"This +remains near the low end of the typical range, but it is a positive sign compared with recent quarters.",positive +"Last +quarter, the company reported inventories decreased $400 million.",negative +"Also, inventories were down $300 million in +the third quarter of 2021.",negative +"Over time, we expect dealer sentiment to gradually pick up as U.S. infrastructure +spending starts to flow down to various U.S. states in 2023 (many roads and bridges are in poor condition).In +terms of demand, management noted average fleet ages are starting to increase, since customers have had to +hold on to machines longer than usual.",negative +"Notably, Caterpillar’s backlog increased by $1.6 billion to $30 billion, +showing strong demand in the pipeline.",positive +"We expect this to be a sales driver for the company as supply chains +normalize.",neutral +We forecast sales during 2023-26 to grow over 5% on average.,negative +"Caterpillar’s stock price jumped nearly +10% following the earnings report.",positive +"We believe the positive response was related to the stronger-than-expected +adjusted EPS performance.",positive +This puts the stock approximately 10% above our $196 fair value estimate.,positive +"That said, +we think the recent downward market volatility in markets may present long-term investors with a margin of +safety in the stock.",neutral +"Supply Headwinds Persist in Caterpillar's Second Quarter, but Demand Remains Strong Dawit +Woldemariam,Equity Analyst,2 Aug 2022",positive +"We continue to remain positive on the demand story for Caterpillar, despite supply headwinds.",positive +"The company has +been pressured by the chip shortage and higher manufacturing costs over the past year, challenging its ability to +meet current demand.",positive +"However, we believe construction activity will continue to improve in the near term, giving +us confidence that Caterpillar’s products will see strong demand from customers over our forecast.",positive +"In addition, +we think the construction industry will benefit from increased U.S. infrastructure spending starting in 2023.",neutral +"Given +this backdrop, we've raised our fair value estimate to $193 per share from $189.",positive +"In the second quarter, machinery +sales increased 11% year on year to $13.5 billion, largely due to strong sales in North America, which grew 18% +year on year.",positive +"The company’s machinery operating margins fell approximately 30 basis points from 2021 levels, +given persistent cost inflation (materials and freight costs).",negative +"That said, management noted its ability to more than +offset rising costs with strong price realization.",positive +"We expect Caterpillar to also raise prices in the back half of the +year at a high-single-digit clip to stay ahead of inflation.",negative +"For 2022, we project over 15% sales growth for Morningstar Equity Company Report | Report as of 15 Feb 2023 21:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 21 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Caterpillar Inc CAT QQ 15 Feb 2023 21:10, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +248.07 USD +14 Feb 2023209.00 USD +15 Feb 2023 21:07, UTC1.17127.17 USD Bil +15 Feb 2023 +Wide Stable Medium Standard ;;;;; +1 Feb 2023 06:00, UTC +Caterpillar’s consolidated business.",positive +"In the near term, we think how the supply chain progresses will be the key +item to watch.",positive +"While we expect the remainder of 2022 to be challenging, we expect to see improvements in +2023, giving Caterpillar the ability to meet demand (the company has strong backlogs).",positive +"This gives us confidence +to project stronger operating margins in 2023 (15.8%) compared with 2022 (13.9%) as elevated costs start to +ease.",neutral +"Focusing on the infrastructure opportunity, we think dealers will start to restock inventories in 2023, +leading us to project over 6% sales growth on average for 2023-25.",negative +"Caterpillar Reiterates Its Margin, Free Cash Flow, and Services Targets at Its 2022 Investor Day Dawit +Woldemariam,Equity Analyst,18 May 2022 +Caterpillar held its investor day on May 17, where it reiterated its 2019 investor day targets for operating margins, +free cash flow, and services.",positive +"Following the event, we raised our fair value estimate to $189 from $187 previously +to reflect minor adjustments to our near-term margin expectations.",positive +"Recall that the company’s goal is to post a +300-600 basis point improvement in adjusted operating margins compared with its historical performance (2010- +2016).",neutral +"Caterpillar has met this goal over the past few years, even in 2020 when the pandemic halted construction +activity globally.",negative +"The company has been adept at reducing costs, restructuring its operations, and driving +manufacturing efficiency.",positive +"Our midcycle profitability expectations remain unchanged, as we project 14.5% +operating margins in 2026, reflecting the cyclicality of Caterpillar’s business.",neutral +"Caterpillar has successfully grown its +services business, reaching $19 billion in sales (2021), up from $14 billion (2016).",positive +"In our view, the company can +reach its $28 billion sales target for its services business by 2026 for two reasons.",neutral +"One, we think Caterpillar’s +dealers will be able to use the technology architecture the company has built to drive greater parts and service +revenue.",positive +"For example, more than one million machines (out of 1.9 million active construction machines) are +connected to Caterpillar’s network, making it easier for dealers to know when maintenance is needed (makes +dealers proactive).",positive +"Second, we expect to see Caterpillar lock in more customer value agreements at the point of +sale, meaning it will handle all parts and service work for equipment (parts sales can make up more than double +the machine purchase price).Management also highlighted its focus on sustainability as a key pillar to its strategy +going forward.",positive +"We believe Caterpillar is committed to not only improve its own carbon footprint (through +electrifying its machines) but also helping its customers become more sustainable in their operations.",positive +"Wide-Moat Caterpillar Posts Solid Earnings to Start 2022, Despite Continued Supply Headwinds Dawit +Woldemariam,Equity Analyst,28 Apr 2022 +Supply headwinds continue to be the story in the industrial sector, but Caterpillar remained resilient to start the +year.",neutral +"First-quarter machinery sales grew 15% year on year as nonresidential construction spending continues to +improve following pandemic lows.",neutral +"We have raised our fair value estimate to $187 per share from $184 largely +due to the time value of money since our last update.",positive +"We still view the shares as overvalued at current levels, +though, trading roughly 13% above our fair value estimate.",positive +"Caterpillar’s construction segment performed well in +the quarter, up 12% year on year, thanks to stronger pricing and volume.",positive +"However, operating margin came in at Morningstar Equity Company Report | Report as of 15 Feb 2023 21:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 22 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Caterpillar Inc CAT QQ 15 Feb 2023 21:10, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +248.07 USD +14 Feb 2023209.00 USD +15 Feb 2023 21:07, UTC1.17127.17 USD Bil +15 Feb 2023 +Wide Stable Medium Standard ;;;;; +1 Feb 2023 06:00, UTC +17.3%, down about 170 basis points from the first quarter of 2021.",positive +"While supply headwinds present near-term +challenges, we reiterate our confidence in the company’s ability to offset rising costs, thanks to its pricing power.",positive +"We believe customers are willing to pay higher prices for machinery that is high quality and exceptionally +durable.",positive +"By using Caterpillar’s products, customers can get more out of their machines, boosting productivity.",positive +"This gives us confidence to forecast 18% operating margins for the construction segment in 2022, up over 120 +basis points compared with 2021.Dealer inventories improved in the quarter, increasing $1.3 billion from the +fourth quarter of 2021.",neutral +"We’re still not expecting significant changes in dealer inventories in 2022, given the +current supply chain crunch.",positive +"However, as supply pressures ease throughout the year, we think Caterpillar’s +dealers will start to restock inventories in anticipation of increased infrastructure-related spending in the United +States.",neutral +We expect the majority of infrastructure spending to start flowing through in 2023 and 2024.,neutral +"Supply Headwinds Pressured Caterpillar’s Fourth-Quarter Margins; We Expect Improvement in 2022 Dawit +Woldemariam,Equity Analyst,30 Jan 2022 +Caterpillar’s fourth-quarter results benefited from strong end user demand, but this was partially offset by higher +costs.",positive +"Even so, we raised our fair value estimate to $182 from $180, based on our updated top line expectations.",positive +"In the near term, we believe Caterpillar’s end markets will continue to strengthen, largely due to improving non- +residential construction activity.",negative +"Looking further out, we believe the new U.S. infrastructure bill will drive demand +for new construction machinery starting in late 2022, with the majority of new projects likely beginning in 2023 +and 2024.",positive +"Additionally, we lowered our tax rate assumption to reflect Morningstar’s updated view that a rise in +the U.S. corporate tax rate will not occur.",neutral +"We expect Caterpillar’s long-term tax rate to be approximately +24%.Caterpillar’s machinery sales surged 24% in the quarter compared with the same period a year ago.",negative +"The +main drivers to sales growth were higher volume and stronger pricing.",positive +"That said, Caterpillar’s operating margins +were pressured by higher manufacturing costs.",positive +"Management called out higher freight and materials costs, along +with some production inefficiencies (component shortages).",positive +"These factors pushed operating margins down to +approximately 11% (down from roughly 12% in the fourth quarter of 2020).",negative +"Supply headwinds present near-term +challenges for Caterpillar, but we remain confident in the company’s ability to offset cost inflation in 2022, thanks +to its pricing power.",positive +"Dealer inventories improved in the quarter, declining by $100 million (compared with a $1.1 +billion decline a year ago).",neutral +"We don’t expect significant changes in dealer inventories in the first half of 2022, +given supply chain constraints.",positive +"However, looking out into late 2022 and early 2023, we believe increased +infrastructure spending in the U.S. will push dealers to start restocking their inventories in anticipation of greater +demand for construction equipment.",positive +"U.S. Corporate Tax Rate Unlikely to Change After Roadblocks Rise in Senate Julie Utterback,Senior Equity +Analyst,23",negative +"Dec 2021 +Given recent political developments around the Build Back Better bill, we are reversing our forecast that the U.S. +corporate tax rate will rise to 26% in 2022.",positive +"We now believe the U.S. statutory tax rate will remain at 21% at least Morningstar Equity Company Report | Report as of 15 Feb 2023 21:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 23 of 28 +©2023 Morningstar.",negative +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Caterpillar Inc CAT QQ 15 Feb 2023 21:10, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +248.07 USD +14 Feb 2023209.00 USD +15 Feb 2023 21:07, UTC1.17127.17 USD Bil +15 Feb 2023 +Wide Stable Medium Standard ;;;;; +1 Feb 2023 06:00, UTC +through President Joe Biden’s remaining term, which ends in early 2025.",positive +"Our equity analysts will incorporate this +new U.S. corporate tax rate assumption into their valuation models in the coming weeks.",positive +"We previously +simulated the impact of various tax rate changes on covered U.S. equities; reversing the statutory tax rate +assumption to 21% results in a 3% average valuation increase, all else being equal.",negative +"Given their slim majority in the +Senate, Democrats needed to present a unified front to pass this bill, and two Democratic senators presented +roadblocks in recent months.",neutral +"First, Sen. Kyrsten Sinema opposed raising the U.S. corporate tax rate, which led to +consideration of funding methods other than a corporate tax rate increase.",positive +"Also, Sen. Joe Manchin has +expressed opposition to the bill primarily because providing the services included in recent proposals would wind +up costing much more than the $1.75 trillion headline number when extended for the typical 10-year term +considered in the Senate's budget reconciliation process.",positive +"Sinema's and Manchin’s current terms end in line with +Biden's current term, so these roadblocks may provide a hurdle to such a bill during that time frame.",neutral +"Also, +considering recent polling numbers and midterm election patterns, we would not be surprised to see Democrats +lose a majority in at least one of the congressional bodies after 2022’s election, which would prevent passage of +such significant legislation in the remainder of Biden’s term.",positive +"Any way we slice it, the Build Back Better bill may +not pass, and even if a slimmed-down version passes in early 2022, we think it is highly unlikely that the U.S. +corporate tax rate will increase, given Sinema’s objections to that funding method.",positive +"Morningstar Equity Company Report | Report as of 15 Feb 2023 21:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 24 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Research Methodology for Valuing Companies +Morningstar Equity Research Star Rating Methodology +Overview +At the heart of our valuation system is a detailed projec- +tion of a company’s future cash flows, resulting from our +analysts’ research.",positive +"Analysts create custom industry and +company assumptions to feed income statement, balance +sheet, and capital investment assumptions into our glob- +ally standardized, proprietary discounted cash flow, or +DCF, modeling templates.",neutral +"We use scenario analysis, inde- +pth competitive advantage analysis, and a variety of other +analytical tools to augment this process.",negative +"Moreover, we +think analyzing valuation through discounted cash flows +presents a better lens for viewing cyclical companies, +high-growth firms, businesses with finite lives (e.g., +mines), or companies expected to generate negative +earnings over the next few years.",negative +"That said, we don’t dis- +miss multiples altogether but rather use them as support- +ing cross-checks for our DCF-based fair value estimates.",positive +"We also acknowledge that DCF models offer their own +challenges (including a potential proliferation of estim- +ated inputs and the possibility that the method may miss +shortterm market-price movements), but we believe these +negatives are mitigated by deep analysis and our +longterm approach.",positive +"Morningstar’s equity research group (”we,” “our”) be- +lieves that a company’s intrinsic worth results from the +future cash flows it can generate.",positive +"The Morningstar Rating +for stocks identifies stocks trading at a discount or premi- +um to their intrinsic worth—or fair value estimate, in +Morningstar terminology.",positive +"Five-star stocks sell for the +biggest risk adjusted discount to their fair values, where- +as 1-star stocks trade at premiums to their intrinsic worth.",positive +"Four key components drive the Morningstar rating: (1) our +assessment of the firm’s economic moat, (2) our estimate +of the stock’s fair value, (3) our uncertainty around that +fair value estimate and (4) the current market price.",positive +"This +process ultimately culminates in our singlepoint star rat- +ing.",neutral +1.,neutral +"Economic Moat +The concept of an economic moat plays a vital role not +only in our qualitative assessment of a firm’s long-term +investment potential, but also in the actual calculation of +our fair value estimates.",positive +"An economic moat is a structural +feature that allows a firm to sustain excess profits over a long period of time.",negative +"We define economic profits as re- +turns on invested capital (or ROIC) over and above our es- +timate of a firm’s cost of capital, or weighted average +cost of capital (or WACC).",negative +"Without a moat, profits are +more susceptible to competition.",positive +"We have identified five +sources of economic moats: intangible assets, switching +costs, network effect, cost advantage, and efficient scale.",positive +"Companies with a narrow moat are those we believe are +more likely than not to achieve normalized excess returns +for at least the next 10 years.",neutral +"Wide-moat companies are +those in which we have very high confidence that excess +returns will remain for 10 years, with excess returns more +likely than not to remain for at least 20 years.",positive +"The longer +a firm generates economic profits, the higher its intrinsic +value.",positive +"We believe low-quality, no-moat companies will +see their normalized returns gravitate toward the firm’s +cost of capital more quickly than companies with moats.",positive +"When considering a company's moat, we also assess +whether there is a substantial threat of value destruction, +stemming from risks related to ESG, industry disruption, +financial health, or other idiosyncratic issues.",negative +"In this con- +text, a risk is considered potentially value destructive if its +occurrence would eliminate a firm’s economic profit on a +cumulative or midcycle basis.",negative +"If we deem the probability +of occurrence sufficiently high, we would not characterize +the company as possessing an economic moat.",positive +"To assess the sustainability of excess profits, analysts +perform ongoing assessments of the moat trend.",neutral +"A firm’s +moat trend is positive in cases where we think its sources +of competitive advantage are growing stronger; stable +where we don’t anticipate changes to competitive ad- +vantages over the next several years; or negative when +we see signs of deterioration.",negative +2.,neutral +"Estimated Fair Value +Combining our analysts’ financial forecasts with the +firm’s economic moat helps us assess how long returns +on invested capital are likely to exceed the firm’s cost of +capital.",positive +"Returns of firms with a wide economic moat rat- +ing are assumed to fade to the perpetuity period over a +longer period of time than the returns of narrow-moat +firms, and both will fade slower than no-moat firms, in- +creasing our estimate of their intrinsic value.",positive +Our model is divided into three distinct stages:,positive +"Stage I: Explicit Forecast +In this stage, which can last five to 10 years, analysts +make full financial statement forecasts, including items +such as revenue, profit margins, tax rates, changes in +workingcapital accounts, and capital spending.",positive +"Based on +these projections, we calculate earnings before interest, +after taxes (EBI) and the net new investment (NNI) to de- +rive our annual free cash flow forecast.",positive +Stage II:,neutral +"Fade +The second stage of our model is the period it will take +the company’s return on new invested capital—the re- +turn on capital of the next dollar invested (“RONIC”)—to +decline (or rise) to its cost of capital.",positive +"During the Stage II +period, we use a formula to approximate cash flows in +lieu of explicitly modeling the income statement, balance +sheet, and cash flow statement as we do in Stage I.",negative +"The +length of the second stage depends on the strength of +the company’s economic moat.",positive +"We forecast this period to +last anywhere from one year (for companies with no eco- +nomic moat) to 10–15 years or more (for wide-moat com- +panies).",positive +"During this period, cash flows are forecast using +four assumptions: an average growth rate for EBI over the +period, a normalized investment rate, average return on +new invested capital (RONIC), and the number of years +until perpetuity, when excess returns cease.",negative +"The invest- +ment rate and return on new invested capital decline un- +til a perpetuity value is calculated.",positive +"In the case of firms +that do not earn their cost of capital, we assume marginal +ROICs rise to the firm’s cost of capital (usually attribut- +able to less reinvestment), and we may truncate the +second stage.",negative +Stage III:,neutral +"Perpetuity +Once a company’s marginal ROIC hits its cost of capital, +we calculate a continuing value, using a standard per- +petuity formula.",neutral +"At perpetuity, we assume that any +growth or decline or investment in the business neither +creates nor destroys value and that any new investment +provides a return in line with estimated WACC.",positive +"Because a dollar earned today is worth more than a dollar +earned tomorrow, we discount our projections of cash +flows in stages I, II, and III to arrive at a total present +value of expected future cash flows.",positive +"Because we are +modeling free cash flow to the firm—representing cash +available to provide a return to all capital providers—we +discount future cash flows using the WACC, which is a +weighted average of the costs of equity, debt, and pre- +ferred stock (and any other funding sources), using ex- +pected future proportionate long-term, market-value +weights.",positive +3.,neutral +"Uncertainty Around That Fair Value EstimateMorningstar Equity Company Report | Report as of 15 Feb 2023 21:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 25 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Research Methodology for Valuing Companies +Morningstar Equity Research Star Rating Methodology + Morningstar’s Uncertainty Rating is designed to capture +the range of potential outcomes for a company’s intrinsic +value.",positive +"This rating is used to assign the margin of safety +required before investing, which in turn explicitly drives +our stock star rating system.",neutral +"The Uncertainty Rating is +aimed at identifying the confidence we should have in as- +signing a fair value estimate for a given stock.",positive +"Our Uncertainty Rating is meant to take into account any- +thing that can increase the potential dispersion of future +outcomes for the intrinsic value of a company, and any- +thing that can affect our ability to accurately predict +these outcomes.",positive +"The rating begins with a suggested rat- +ing produced by a quantitative process based on the trail- +ing 12-month standard deviation of daily stock returns.",neutral +"An analyst overlay is then applied, with analysts using +the suggested rating, historical rating data, and their own +knowledge of the company to inform them as they make +the final Uncertainty Rating decision.",positive +"Ultimately, the rat- +ing decision rests with the analyst.",neutral +"Analysts take into ac- +count many characteristics when making their final de- +cision, including cyclical factors, operational and financial +factors such as leverage, company-specific events, ESG +risks, and anything else that might increase the potential +dispersion of future outcomes and our ability to estimate +those outcomes.",positive +"Our recommended margin of safety—the discount to fair +value demanded before we’d recommend buying or +selling the stock—widens as our uncertainty of the es- +timated value of the equity increases.",positive +"The more uncertain +we are about the potential dispersion of outcomes, the +greater the discount we require relative to our estimate of +the value of the firm before we would recommend the +purchase of the shares.",positive +"In addition, the Uncertainty Rat- +ing provides guidance in portfolio construction based on +risk tolerance.",neutral +"Our Uncertainty Ratings are: Low, Medium, High, Very +High, and Extreme.",positive +"Margin of Safety +Qualitative Analysis +Uncertainty Ratings QQQQQ Rating QRating +Low 20% Discount 25% Premium +Medium 30% Discount 35% Premium +High 40% Discount 55% Premium +Very High 50% Discount 75%",positive +"Premium +Extreme 75% Discount 300% Premium",negative +"Our uncertainty rating is based on the interquartile range, +or the middle 50% of potential outcomes, covering the +25th percentile–75th percentile.",neutral +"This means that when a +stock hits 5 stars, we expect there is a 75% chance that +the intrinsic value of that stock lies above the current +market price.",neutral +"Similarly, when a stock hits 1 star, we ex-pect there is a 75% chance that the intrinsic value of that +stock lies below the current market price.",neutral +4.,neutral +Market Price,neutral +"The market prices used in this analysis and noted in the +report come from exchange on which the stock is listed +which we believe is a reliable source.",neutral +"For more details about our methodology, please go to +https://shareholders.morningstar.com +Morningstar Star Rating for Stocks +Once we determine the fair value estimate of a stock, we +compare it with the stock’s current market price on a +daily basis, and the star rating is automatically re-calcu- +lated at the market close on every day the market on +which the stock is listed is open.",positive +"Our analysts keep close +tabs on the companies they follow, and, based on thor- +ough and ongoing analysis, raise or lower their fair value +estimates as warranted.",positive +"Please note, there is no predefined distribution of stars.",neutral +"That is, the percentage of stocks that earn 5 stars can +fluctuate daily, so the star ratings, in the aggregate, can +serve as a gauge of the broader market’s valuation.",neutral +"When there are many 5-star stocks, the stock market as a +whole is more undervalued, in our opinion, than when +very few companies garner our highest rating.",positive +"We expect that if our base-case assumptions are true the +market price will converge on our fair value estimate over time generally within three years (although it is im- +possible to predict the exact time frame in which market +prices may adjust).",positive +"Our star ratings are guideposts to a broad audience and +individuals must consider their own specific investment +goals, risk tolerance, tax situation, time horizon, income +needs, and complete investment portfolio, among other +factors.",positive +"The Morningstar Star Ratings for stocks are defined be- +low: +QQQQQ",neutral +"We believe appreciation beyond a fair risk ad- +justed return is highly likely over a multiyear time frame.",positive +"Scenario analysis developed by our analysts indicates +that the current market price represents an excessively +pessimistic outlook, limiting downside risk and maximiz- +ing upside potential.",negative +QQQQ,neutral +"We believe appreciation beyond a fair risk-ad- +justed return is likely.",positive +"QQQ Indicates our belief that investors are likely to re- +ceive a fair risk-adjusted return (approximately cost of +equity).",positive +"QQ We believe investors are likely to receive a less than +fair risk-adjusted return.",positive +"Q Indicates a high probability of undesirable risk-adjus- +ted returns from the current market price over a multiyear Morningstar Equity Company Report | Report as of 15 Feb 2023 21:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 26 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Research Methodology for Valuing Companies +time frame, based on our analysis.",positive +"Scenario analysis by +our analysts indicates that the market is pricing in an ex- +cessively optimistic outlook, limiting upside potential and +leaving the investor exposed to Capital loss.",neutral +"Other Definitions +Last Price: Price of the stock as of the close of the mar- +ket of the last trading day before date of the report.",negative +"Capital Allocation Rating: Our Capital Allocation (or +Stewardship)",neutral +"Rating represents our assessment of the +quality of management’s capital allocation, with particu- +lar emphasis on the firm’s balance sheet, investments, +and shareholder distributions.",negative +"Analysts consider compan- +ies’ investment strategy and valuation, balance sheet +management, and dividend and share buyback policies.",neutral +"Corporate governance factors are only considered if they +are likely to materially impact shareholder value, though +either the balance sheet, investment, or shareholder dis- +tributions.",neutral +"Analysts assign one of three ratings: ""Exem- +plary"", ""Standard"", or ""Poor"".",negative +"Analysts judge Capital Alloc- +ation from an equity holder’s perspective.",neutral +"Ratings are de- +termined on a forward looking and absolute basis.",positive +"The +Standard rating is most common as most managers will +exhibit neither exceptionally strong nor poor capital alloc- +ation.",positive +"Capital Allocation (or Stewardship) analysis published pri- +or to Dec. 9, 2020, was determined using a different pro- +cess.",neutral +"Beyond investment strategy, financial leverage, and +dividend and share buyback policies, analysts also con- +sidered execution, compensation, related party transac- +tions, and accounting practices in the rating.",neutral +"Capital Allocation Rating: Our Capital Allocation (or +Stewardship)",neutral +"Rating represents our assessment of the +quality of management’s capital allocation, with particu- +lar emphasis on the firm’s balance sheet, investments, +and shareholder distributions.",negative +"Analysts consider compan- +ies’ investment strategy and valuation, balance sheet +management, and dividend and share buyback policies.",neutral +"Corporate governance factors are only considered if they +are likely to materially impact shareholder value, though +either the balance sheet, investment, or shareholder dis- +tributions.",neutral +"Analysts assign one of three ratings: ""Exem- +plary"", ""Standard"", or ""Poor"".",negative +"Analysts judge Capital Alloc- +ation from an equity holder’s perspective.",neutral +"Ratings are de- +termined on a forward looking and absolute basis.",positive +"The +Standard rating is most common as most managers will +exhibit neither exceptionally strong nor poor capital alloc- +ation.",positive +"Capital Allocation (or Stewardship) analysis published pri- +or to Dec. 9, 2020, was determined using a different pro- +cess.",neutral +"Beyond investment strategy, financial leverage, and +dividend and share buyback policies, analysts also con-sidered execution, compensation, related party transac- +tions, and accounting practices in the rating.",neutral +"Sustainalytics ESG Risk Rating Assessment: The ESG +Risk Rating Assessment is provided by Sustainalytics; a +Morningstar company.",neutral +"Sustainalytics’ ESG Risk Ratings measure the degree to +which company’s economic value at risk is driven by en- +vironment, social and governance (ESG) factors.",positive +"Sustainalytics analyzes over 1,300 data points to assess a +company’s exposure to and management of ESG risks.",neutral +"In +other words, ESG Risk Ratings measures a company’s un- +managed ESG Risks represented as a quantitative score.",negative +"Unmanaged Risk is measured on an open-ended scale +starting at zero (no risk) with lower scores representing +less unmanaged risk and, for 95% of cases, the unman- +aged ESG Risk score is below 50.",negative +"Based on their quantitative scores, companies are +grouped into one of five Risk Categories (negligible, low, +medium, high, severe).",positive +"These risk categories are absolute, +meaning that a ‘high risk’ assessment reflects a compar- +able degree of unmanaged ESG risk across all subindus- +tries covered.",positive +"The ESG Risk Rating Assessment is a visual representa- +tion of Sustainalytics ESG Risk Categories on a 1 to 5 +scale.",neutral +"Companies with Negligible Risk = 5 Globes, Low +Risk = 4, Medium Risk = 3 Globes, High Risk = 2 Globes, +Severe Risk = 1 Globe.",positive +"For more information, please visit +sustainalytics.com/esg-ratings/ +Ratings should not be used as the sole basis in evaluating +a company or security.",positive +"Ratings involve unknown risks and +uncertainties which may cause our expectations not to +occur or to differ significantly from what was expected +and should not be considered an offer or solicitation to +buy or sell a security.",positive +"Risk Warning +Please note that investments in securities are subject to +market and other risks and there is no assurance or guar- +antee that the intended investment objectives will be +achieved.",negative +"Past performance of a security may or may not +be sustained in future and is no indication of future per- +formance.",negative +"A security investment return and an investor’s +principal value will fluctuate so that, when redeemed, an +investor’s shares may be worth more or less than their +original cost.",positive +"A 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Page 28 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Research Methodology for Valuing Companies +32B and 32C) to provide its investment research to recipi- +ents in Singapore.",positive +text,sentiment +"CORPORATES +CREDIT OPINION +29 June 2023 +Update +RATINGS +Caterpillar Inc. +Domicile Irving, Texas, United +States +Long Term Rating A2 +Type LT Issuer Rating +Outlook Stable",negative +"Please see the ratings section at the end of this report +for more information.",positive +"The ratings and outlook shown +reflect information as of the publication date.",neutral +"Contacts +Rene Lipsch +1.212.553.",neutral +"1908 +VP-Sr Credit Officer +renier.lipsch@moodys.com +Dean Diaz +1.212.553.4332 +Associate Managing Director +dean.diaz@moodys.comCaterpillar Inc. +Update to credit analysis +Summary +CAT's products are essential in core sectors of the global economy.",neutral +"The long-term demand +fundamentals for CAT's equipment and services remain sound, despite periodic cyclical +downturns.",positive +"These fundamentals include opportunities offered by the energy transition, +such as accelerating demand for minerals used in clean energy technologies.",positive +"Additionally, +the company benefits from a formidable independent dealer network, and the retail and +wholesale financing provided by CAT Financial.",neutral +"CAT made considerable progress improving downside resilience through the operational and +financial rigor of its Operating & Execution model, as well as through the steady growth in +services revenue.",positive +"Consequently, we expect CAT to record an EBITA margin of at least 10% in +a cyclical downturn.",negative +"We estimate debt/EBITDA for the Machinery, Energy & Transportation +(ME&T) operations to be 1.0 time, which also tempers the risks from fluctuations in end- +market demand.",neutral +"CAT Financial is prudently managed but is reliant on ongoing access to capital to fund new +loan originations.",positive +"Exhibit 1 +Implementation of Operating & Execution model in 2017 supports stronger performance during +downturns and upturns +Revenue and EBITA margin, on a Moody's adjusted basis (Machinery, Energy & Transportation)",neutral +"0.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%16.0%18.0%20.0% + $(0.0) $10.0 $20.0 $30.0 $40.0 $50.0 $60.0 $70.0 +2014 2015 2016 2017 2018 2019 2020 2021 2022 LTM +(Mar-23)2023E 2024E +EBITA MarginRevenue (In US $ Billion)Revenue EBITA Margin +Source: Moody’s Financial Metrics™; Moody's projections +MOODY'S INVESTORS SERVICE CORPORATES +Credit strengths +»Highly competitive position in key markets +»Formidable independent global dealer network +»Demonstrated benefits from Operating & Execution model throughout the business cycle +»Longer-term demand underpinned by energy transition +»Good liquidity and prudent underwriting standards at CAT Financial +Credit challenges +»Cyclicality in end-markets can cause material fluctuations in financial performance +»Sizable annual funding needs at CAT Financial require unimpeded access to capital markets and substantial sources of committed +liquidity +Rating outlook +The stable outlook reflects our expectation that favorable demand conditions for CAT's machinery and services will largely be sustained, +with some weakness developing in European markets in the course of 2023.",positive +"Given still healthy demand across most end-markets, CAT +will continue to be able to offset cost pressures with price actions.",positive +"Factors that could lead to an upgrade +»An enhancement in business position, including by profitably expanding ME&T services revenue; capitalizing on opportunities in +clean energy, carbon transition, and electrification trends; and, improving returns through successful execution of the Operating & +Execution model +»A step-up in EBITA margin throughout the business cycle, with expectations for the EBITA margin to approach 20% during strong +market conditions, and for the EBITA margin to be sustained above 13% during weak markets +»An improvement in CAT Financial's portfolio quality, with expectations for past dues below 3.0% during weak markets, and for debt/ +equity to be maintained at around 7.25:1 +Factors that could lead to a downgrade +»Erosion in the Operating & Execution disciplines and resulting decline in returns at various points in the business cycle, as evidenced +by the EBITA margin falling below 14% during strong market conditions, or below 10% when market conditions are weak +»A more aggressive financial strategy, with debt/EBITDA above 2.25 times during strong market conditions +This publication does not announce a credit rating action.",positive +"For any credit ratings referenced in this publication, please see the issuer/deal page on https://ratings.moodys.com for the +most updated credit rating action information and rating history.",positive +2 29 June 2023 Caterpillar Inc.:,neutral +"Update to credit analysisMOODY'S INVESTORS SERVICE CORPORATES +Key indicators +Exhibit 2 +Key Indicators +Caterpillar Inc.",neutral +"(ME&T operations only) +US Millions Dec-18 Dec-19 Dec-20 Dec-21 Dec-22LTM +(Mar-23) 2023P 2024P +Revenue 51,822.0 50,755.0 39,022.0 48,188.0 56,574.0 58,787.0 60,517.7 61,425.5 +EBITA Margin % 17.0% 16.3% 12.0% 16.0% 16.2% 17.0% 17.2% 16.8% +Debt / EBITDA 1.2x 1.3x 2.3x 1.3x 1.1x",neutral +1.0x,neutral +"1.0x 1.0x +RCF / Net Debt 122.2% 117.0% 60.3% 183.6% 156.4% 198.9% 171.2% 163.7% +FCF / Debt 31.8% 24.9% 6.1% 31.2% 23.4% 39.0% 35.4% 36.7% +EBITA / Interest Expense 16.7x 14.8x 8.0x 13.9x 17.4x 18.2x 19.8x 19.7x +All figures and ratios are calculated using Moody’s estimates and standard adjustments.",neutral +"Moody's Forecasts (f) or Projections (p) are Moody's opinion and do not represent the views of the +issuer.",neutral +Periods are Financial Year-End unless indicated.,neutral +"LTM = Last Twelve Months +Source: Moody’s Financial Metrics™; Moody's projections +Profile +Caterpillar Inc. (CAT) is the world's leading manufacturer of construction and mining equipment, off-highway diesel and natural gas +engines, industrial gas turbines, and diesel-electric locomotives.",positive +"CAT primarily distributes its equipment through a global network +of independent dealers, 43 of which are located in the US and 113 outside the US.",positive +"Caterpillar Financial Services Corporation (CAT +Financial) provides retail and wholesale financing for Caterpillar equipment, with $32.2 billion in total assets as of March 31, 2023.",neutral +"Exhibit 3 +Revenue breakdown by segment +Last 12 months ended March 2023Exhibit 4 +Operating income by segment +Last 12 months ended March 2023 +Construction +Industries +38% +Resource +Industries +19%Energy & +Transportation +37%Financial +Products +Segment +5%Others +1% +Source: Company informationConstruction +Industries +44% +Resource +Industries +18%Energy & +Transportation +31%Financial +Products +Segment +7% +Source: Company information +Detailed credit considerations +Highly competitive product line-up and formidable independent global dealer network +CAT has the broadest and one of the most competitive line-ups of construction, mining and energy & transportation equipment in the +industry.",positive +CAT's machinery is essential to core segments of the global economy.,neutral +"Longer-term business prospects are favorable, in part +because of the increased need for minerals that are critical for a transition to lower emission energy generation and electrification of +end-use sectors.",neutral +CAT's formidable independent dealer network also provides CAT with a significant competitive advantage.,positive +"The company's dealers +have an extensive global presence with an excellent service quality reputation, are well capitalized, and built a sizable replacement and +services business that provides essential support during cyclical downturns.",positive +3 29 June 2023 Caterpillar Inc.:,neutral +"Update to credit analysisMOODY'S INVESTORS SERVICE CORPORATES +Expanding service offerings help increase margin and mitigate exposure to cyclicality in demand for new machinery +An important strategic pillar of CAT's focus on profitable growth is to significantly increase revenue from services.",positive +"Services have a +higher profit margin than original equipment and are less vulnerable to cyclical downturns.",negative +"Services also enhance the value proposition +of Caterpillar equipment for customers by improving asset utilization.",neutral +"CAT's goal is to expand ME&T services revenue to $28 billion by 2026, up from $14 billion in 2016.",neutral +"In 2022, services revenue grew to +$22 billion, or nearly 40% of total ME&T revenue.",positive +"The company aims to achieve greater services revenue by increasingly using Customer Value Agreements, the use of data derived from +connected assets (including through Prioritized Service Events), online dealer parts sales, and optimizing parts availability at its dealers.",positive +"More than 60% of new Caterpillar equipment was delivered with a Customer Value Agreement in 2022, and the company's global fleet +comprises 1.4 million connected assets.",positive +"Operating & Execution model supports stronger performance during cyclical downturns +We expect that CAT will record an EBITA margin of at least 10% in a cyclical downturn.",negative +"CAT's ability to contend with a cyclical +downturn improved significantly following the implementation of the Operating and Execution model.",neutral +"Cyclicality in CAT's end-markets +remains an ongoing risk and the resilience ensuing from the operational and financial rigor of the Operating & Execution model +provides critical support to CAT's credit profile.",neutral +CAT's financial performance at the start of the pandemic demonstrates the improved resilience.,neutral +"CAT's EBITA margin for ME&T was 12% +in 2020, when revenue declined 23% to $39 billion amid the pandemic-driven downturn.",neutral +"Prior to the implementation of the model, +CAT's EBITA margin had sometimes fallen to the mid-single digit range.",neutral +"For example, CAT's EBITA margin was 5.4% in 2016, when +ME&T revenue declined 19% to $36 billion.",neutral +"CAT revised its financial targets in accordance with the benefits that it expects from the implementation of the Operating & Execution +model.",neutral +"The company aims for a 300 to 600 basis point improvement in adjusted operating margin, regardless of the business cycle, +compared to its performance before the implementation of the Operating & Execution model.",neutral +"This would translate into an adjusted +operating profit margin (as defined by CAT) of 10% to 13% if revenue were to be around $42 billion, and 18% to 21%",neutral +"if revenue were +to be around $72 billion.",neutral +"Modest financial leverage mitigates financial stress during cyclical downturns +CAT's modest financial leverage at the ME&T operations also helps the company to contend with a cyclical downturn.",positive +"Debt/EBITDA +jumped to a still manageable 2.3 times during the pandemic in 2020, but fairly swiftly reversed to 1.3 times in 2021.",positive +"We project debt/ +EBITDA to be 1.0 time at year-end 2023, in the absence of any debt funded acquisitions in services, technology or sustainability.",negative +"CAT is committed to return substantially all of its ME&T free cash flow (as defined by CAT) to shareholders over time, but does not +typically use incremental debt to fund additional shareholder distributions.",positive +"Exhibit 5 +Financial leverage returned to pre-pandemic level, after relatively moderate bounce in 2020 +Total debt and debt/EBITDA, calculated on a Moody's adjusted basis +0.0x0.5x1.0x1.5x2.0x2.5x +0.002.004.006.008.0010.0012.0014.0016.00 +2018 2019 2020 2021 2022 LTM (Mar-23) 2023E 2024E +Debt / EBITDAIn US $ BillionTotal Reported Debt Pension Adjustments Operating Lease Adjustments Others Debt / EBITDA +Source: Moody’s Financial Metrics™; Moody's projections +4 29 June 2023 Caterpillar Inc.:",neutral +"Update to credit analysisMOODY'S INVESTORS SERVICE CORPORATES +The company's modest financial leverage at ME&T should also be considered in light of the considerably higher leverage and associated +funding needs of its finance subsidiary, CAT Financial.",positive +"Prudent management of CAT Financial +CAT's captive finance subsidiary (CAT Financial) has an essential role in the long-term competitiveness and commercial success of CAT.",positive +CAT Financial provides retail and wholesale financing to support customers and dealers of CAT products and services globally.,neutral +"CAT Financial manages its operations in a manner that supports the sale of equipment by ME&T, while preserving adequate levels +of financial discipline at the same time.",positive +"We calculate CAT Financial's ratio of debt/equity at 8.9 times as of March 31, 2023, virtually +unchanged from 12 months prior.",neutral +"Past due accounts as a percent of the total portfolio were 2.00%, slightly up from as low as 1.89% +at year-end 2022 but well below a peak of 4.13% in the first quarter of 2020.",negative +"Past due accounts remain historically low but could start +to increase somewhat amid a weakening in economies globally.",negative +"Allowance for credit losses was 1.27% of finance receivables, which +could also start to pick up if past due accounts were to increase.",negative +"CAT Financial's ratio of past due accounts and write-offs tend to be +moderately higher than those of peers during cyclical downturns.",negative +"Notwithstanding CAT Financial's asset quality and balanced leverage, we view the finance subsidiary's credit profile as “Ba” on a +stand-alone basis, in line with the median “Ba” credit profile for the US finance company sector.",neutral +"One of the key risks reflected in the +“Ba” stand-alone credit profile for CAT Financial, as well as for the broader finance company sector, is the dependence on access to +significant amounts of debt to fund the origination of new receivables.",positive +"As of March 31, the funding of CAT Financial's receivables +portfolio included $27.4 billion of debt, of which $12.1 billion matures in the next 12 months.",neutral +"Any disruption in the ability of CAT +Financial to access the debt markets could limit its ability to fund new retail and wholesale originations.",positive +"Nonetheless, the A2 rating of the debt that resides at CAT Financial is supported by the operating, financial and competitive strengths +of CAT, the critical strategic role that CAT Financial plays in supporting ME&T, a formal support agreement between CAT and CAT +Financial, and the liquidity of the consolidated group.",positive +"ESG considerations +Caterpillar Inc.'s ESG Credit Impact Score is Neutral-to-Low CIS-2 +Exhibit 6 +ESG Credit Impact Score +Source: Moody's Investors Service +CIS-2 .",neutral +Caterpillar’s CIS-2 indicates that ESG considerations are not material to the rating.,neutral +"Caterpillar is exposed to moderate +environmental and social risks that are in line with the broader manufacturing sector.",positive +"The CIS score also factors in strong governance +characteristics and conservative financial policies.",positive +5 29 June 2023 Caterpillar Inc.:,neutral +"Update to credit analysisMOODY'S INVESTORS SERVICE CORPORATES +Exhibit 7 +ESG Issuer Profile Scores +Source: Moody's Investors Service +Environmental +E-3.",neutral +"Caterpillar has to contend with carbon transition risks that will require Caterpillar to reduce the emissions from its heavy +machinery, but likely over a more extended timeframe than for manufacturers of diesel-powered transportation equipment.",positive +"Risks +related to waste and pollution are in line with the broader manufacturing industry.",negative +"Social +S-3.",positive +"Caterpillar’s human capital risks reflect the potential for disputes with labor unions, as well as the need to attract and retain a +highly skilled workforce.",positive +"The company's social considerations also include health and safety risks related to employees in production +facilities with heavy machinery.",negative +Caterpillar's products are also subject to high safety and quality standards.,negative +"Governance +G-2.",neutral +Caterpillar pursues a conservative financial strategy and has a prudent approach to risk management.,neutral +"The company's +management team has a strong track record, as evidenced by the effective implementation and execution of its Operating & Execution +model.",positive +The organizational structure is relatively complex because of the substantial captive finance subsidiary.,negative +"All board members are +independent, with the exception of the board seat held by the CEO of Caterpillar.",neutral +ESG Issuer Profile Scores and Credit Impact Scores for the rated entity/transaction are available on Moodys.com.,positive +"In order to view the +latest scores, please click here to go to the landing page for the entity/transaction on MDC and view the ESG Scores section.",positive +"Liquidity analysis +We expect liquidity at CAT and CAT Financial to remain strong.",positive +"Principal liquidity sources at the end of March 2023 total $19.1 billion, +comprising $6.8 billon of cash, $1.8 billion of available-for-sale debt securities, and $10.5 billion in aggregate of global credit facilities.",neutral +"Of the total amount of global credit facilities, $2.75 billion is currently allocated to ME&T.",neutral +"In addition, we expect free cash flow (after dividends) of ME&T to be approximately $4.0 billion in 2023, assuming changes in working +capital remain a substantial outflow but less than in 2022 when free cash flow was weighed down by a build-up of inventory to help +manage supply chain challenges.",positive +"Robust earnings growth also contributes to the increase in free cash flow in 2023 compared with free +cash flow of $2.6 billion last year.",positive +"CAT has three global credit facilities: a 364-day facility of $3.15 billion that expires in August 2023; a three-year facility of $2.73 billion +that expires in August 2025; and a five-year facility of $4.62 billion expiring in September 2027.",neutral +"CAT must comply with a (consolidated) +net worth covenant, whereas CAT Financial must comply with an interest coverage ratio and a covenant leverage ratio.",positive +"We expect CAT +and CAT Financial to maintain ample covenant headroom.",neutral +"These liquidity sources provide adequate coverage of the company's significant amount of (consolidated) debt that matures in the +next 12 months.",positive +About $1 billion of debt residing at ME&T matures in the next 12 months.,neutral +"CAT Financial had $5.8 billion of short- +term borrowings as of March 31, 2023 (mostly commercial paper) and $6.3 billion of long-term debt that matures in the next 12 +months.",neutral +"Given the large ongoing funding needs of CAT Financial and the highly cyclical nature of CAT’s end-markets, maintaining +sound liquidity is a critical rating consideration.",positive +6 29 June 2023 Caterpillar Inc.:,neutral +"Update to credit analysisMOODY'S INVESTORS SERVICE CORPORATES +Rating methodology and scorecard factors +The scorecard-indicated outcome for CAT using the Manufacturing methodology is Aa3 for the 12 months ended March 31, 2023.",neutral +"On +a 12 to 18 months forward view, the scorecard-indicated outcome remains Aa3, reflecting our expectation of continuing favorable +conditions for CAT's products and services.",neutral +"Exhibit 8 +Scorecard Factors +Caterpillar Inc.",neutral +"(ME&T operations only) +Manufacturing Industry Scorecard",neutral +"[1][2] +Factor 1 : Scale (20%)",neutral +"Measure Score Measure Score +a) Revenue (USD Billion) $58.8 Aaa $61.4 Aaa +Factor 2 : Business Profile (25%) +a) Business Profile",neutral +"A A A A +Factor 3 : Profitability and Efficiency (5%) +a) EBITA Margin 17.0% Baa 16.8% Baa +Factor 4 : Leverage and Coverage (35%) +a) Debt / EBITDA",neutral +1.0x,neutral +"A 1x Aa +b) Retained Cash Flow / Net Debt 198.9% Aaa 163.7% Aaa +c) Free Cash Flow / Debt 39.0% Aaa 36.7% Aaa +d)",positive +EBITA / Interest Expense 18.2x,neutral +"Aa 19.7x Aa +Factor 5 : Financial Policy (15%) +a)",neutral +"Financial Policy A A A A +Rating: +a) Scorecard-Indicated Outcome Aa3 Aa3 +b) Actual Rating Assigned A2Current +LTM 3/31/2023Moody's 12-18 Month Forward View +As of 6/22/2023",neutral +"[3] +[1] All ratios are based on 'Adjusted' financial data and incorporate Moody's Global Standard Adjustments for Non-Financial Corporations.",neutral +"[2] As of 3/31/2023(L) +[3] This represents Moody's forward view; not the view of the issuer; and unless noted in the text, does not incorporate significant acquisitions and divestitures.",positive +"Source: Moody's Financial Metrics™; Moody's projections +7 29 June 2023 Caterpillar Inc.: Update to credit analysisMOODY'S INVESTORS SERVICE CORPORATES + +Ratings +Exhibit 9 +Category Moody's Rating +CATERPILLAR INC.",neutral +"Outlook Stable +Issuer Rating A2 +Senior Unsecured A2 +Commercial Paper P-1 +Bkd Other Short Term P-1 +CATERPILLAR FINANCIAL SERVICES CORPORATION +Outlook Stable +Issuer Rating A2 +Senior Unsecured A2 +Commercial Paper P-1 +Other Short Term (P)P-1 +CATERPILLAR FINANCIAL AUSTRALIA LTD.",negative +"Outlook Stable +Commercial Paper -Dom",neutral +"Curr P-1 +CATERPILLAR FINANCIAL SERVICES LTD.",neutral +"Outlook Stable +Bkd Sr Unsec MTN (P)A2 +Bkd Commercial Paper P-1 +Bkd Other Short Term (P)P-1 +CATERPILLAR FINANCE CORPORATION +Outlook Stable +Bkd Sr Unsec MTN (P)A2 +Bkd Commercial Paper -Dom",negative +"Curr P-1 +Bkd Other Short Term (P)P-1 +CATERPILLAR INTERNATIONAL FINANCE DAC +Outlook Stable +Bkd Senior Unsecured -Dom Curr A2 +Bkd Commercial Paper -Dom",negative +"Curr P-1 +Bkd Other Short Term -Dom",negative +"Curr (P)P-1 +CATERPILLAR FINANCIAL SERVICES GMBH & CO KG +Outlook",neutral +"No Outlook +Bkd Commercial Paper P-1 +Source: Moody's Investors Service +8 29 June 2023 Caterpillar Inc.: Update to credit analysisMOODY'S INVESTORS SERVICE CORPORATES +Appendix +Exhibit 10 +Peer Comparison +Caterpillar Inc. +(in US millions)FYE +Dec-21FYE +Dec-22LTM +Mar-23FYE +Dec-21FYE +Dec-22LTM +Mar-23FYE +Oct-21FYE +Oct-22LTM +Apr-23FYE +Dec-21FYE +Dec-22LTM +Mar-23FYE +Mar-21FYE +Mar-22LTM +Dec-22 +Revenue $48,188 $56,574 $58,787 $21,835 $27,314 $29,258 $40,811 $49,065 $55,764 $24,021 $28,074 $30,142 $20,653 $24,965 $25,489 +EBITDA $9,166 $10,512 $11,301 $2,167 $3,507 $3,680 $7,790 $9,029 $12,007 $3,598 $3,963 $4,372 $3,109 $4,388 $4,831 +Total Debt $12,150 $11,427 $11,401 $288 $241 $241 $12,058 $10,079 $9,892 $5,351 $9,052 $8,946 $9,687 $9,078 $9,982 +Cash & Cash Equiv.",neutral +"$9,392 $7,522 $7,777 $4,813 $6,159 $5,922 $7,200 $3,767 $3,602 $3,187 $2,573 $2,439 $2,200 $2,609 $2,548 +EBITA Margin 16.0% 16.2% 17.0% 8.6% 11.6% 11.3% 16.8% 16.5% 19.9% 12.2% 11.6% 12.0% 8.1% 12.0% 13.9% +EBITA / Int.",neutral +Exp.,neutral +13.9x 17.4x 18.2x,neutral +423.1x 411.7x 427.7x 17.1x 18.9x 24.9x,neutral +21.9x 13.7x 11.6x 10.3x 20.9x,neutral +"15.0x +Debt / EBITDA 1.3x 1.1x 1.0x 0.1x",neutral +0.1x 0.1x 1.5x 1.1x 0.8x 1.5x 2.3x,neutral +"2.0x 3.2x 2.2x 2.1x +RCF / Net Debt 183.6% 156.4% 198.9%",neutral +-41.2%,neutral +-43.7% -41.8,neutral +"% 112.0% 99.8% 127.1% 91.1% 34.8% 39.0% 26.0% 39.2% 38.3% +FCF / Debt 31.2% 23.4% 39.0% 318.6% 620.7% 520.9% 33.1% 37.4% 79.8% 13.1% 2.6% 5.2% 11.1% 5.9% -6.7%Caterpillar Inc.",neutral +"PACCAR Inc Deere & Company Cummins, Inc. Komatsu Ltd.",neutral +"A2 Stable A1 Stable A2 Positive A2 Stable A2 Stable +All figures & ratios calculated using Moody’s estimates & standard adjustments.",positive +FYE = Financial Year-End.,neutral +LTM = Last Twelve Months.,neutral +"RUR* = Ratings under Review, where UPG = for +upgrade and DNG = for downgrade.",neutral +"Source: Moody’s Financial Metrics™ +Exhibit 11 +Moody's Adjusted Debt Breakdown +Caterpillar Inc.",neutral +"(ME&T operations only) +(in US Millions)FYE +Dec-18FYE +Dec-19FYE +Dec-20FYE +Dec-21FYE +Dec-22LTM Ending +Mar-23 +As Reported Debt8,025.0 9,172.0 11,194.0 9,826.0 9,652.0 9,626.0 +Pensions3,897.0 2,624.0 2,669.0 1,682.0 1,196.0 1,196.0 +Operating Leases 966.0 634.0 620.0 642.0 579.0 579.0 +Non-Standard Adjustments 207.0 221.0 0.0 0.0 0.0 0.0 +Moody's-Adjusted Debt 13,095.0 12,651.0 14,483.0 12,150.0 11,427.0 11,401.0 +All figures are calculated using Moody’s estimates and standard adjustments.",neutral +Periods are Financial Year-End unless indicated.,neutral +LTM = Last Twelve Months.,neutral +"Source: Moody’s Financial Metrics™ +Exhibit 12 +Moody's Adjusted EBITDA Breakdown +Caterpillar Inc.",neutral +"(ME&T operations only) +(in US Millions)FYE +Dec-18FYE +Dec-19FYE +Dec-20FYE +Dec-21FYE +Dec-22LTM Ending +Mar-23 +As Reported EBITDA 10,045.0 9,197.0 5,918.0 10,231.0 10,272.0 10,995.0 +Pensions 213.0",neutral +-21.0,neutral +"-152.0 -1,066.0",neutral +"-201.0 -135.0 +Operating Leases 322.0 232.0 204.0 214.0 187.0 187.0 +Unusual 93.0 65.0 0.0 0.0 254.0 254.0 +Non-Standard Adjustments 0.0 384.0 242.0 -213.0 0.0 0.0 +Moody's-Adjusted EBITDA 10,673.0 9,857.0 6,212.0 9,166.0 10,512.0 11,301.0",positive +All figures are calculated using Moody’s estimates and standard adjustments.,neutral +Periods are Financial Year-End unless indicated.,neutral +LTM = Last Twelve Months.,neutral +"Non-standard adjustments are +adjustments related to other postemployment benefit plans (OPEB).",negative +"Source: Moody’s Financial Metrics™ +9 29 June 2023 Caterpillar Inc.:",neutral +"Update to credit analysisMOODY'S INVESTORS SERVICE CORPORATES +© 2023",neutral +"Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”).",neutral +All rights reserved.,neutral +"CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT +COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, +“PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS.",neutral +"MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL +FINANCIAL OBLIGATIONS AS THEY COME",neutral +DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT.,negative +"SEE APPLICABLE MOODY’S +RATING SYMBOLS AND DEFINITIONS PUBLICATION",neutral +"FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S +CREDIT RATINGS.",neutral +"CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE +VOLATILITY.",negative +"CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT +STATEMENTS OF CURRENT OR HISTORICAL FACT.",negative +"MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND +RELATED OPINIONS OR COMMENTARY",neutral +"PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES.",neutral +"MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER +OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER +OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES.",negative +"MOODY’S CREDIT +RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR.",positive +"MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING +THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, +HOLDING, OR SALE.",positive +"MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS",negative +"AND IT WOULD BE +RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING +AN INVESTMENT DECISION.",negative +IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.,negative +"ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED +OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE +FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER",positive +OR,neutral +"BY ANY MEANS WHATSOEVER,",neutral +"BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN +CONSENT.",neutral +"MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS +DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.",negative +All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable.,positive +"Because of the possibility of human or mechanical error as well +as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind.",positive +"MOODY'S adopts all necessary measures so that the information it +uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources.",positive +"However, +MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the credit rating process or in preparing its Publications.",neutral +"To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any +indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any +such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or +damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a +particular credit rating assigned by MOODY’S. +To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory +losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the +avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, +representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.",positive +"NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT +RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.",positive +"Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including +corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, +agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000.",positive +"MCO and Moody’s +Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes.",neutral +"Information regarding +certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service, Inc. and have also +publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance +— Charter Documents - Director and Shareholder Affiliation Policy.”",positive +"Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors +Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable).",negative +"This document is intended +to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001.",neutral +"By continuing to access this document from within Australia, you +represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or +indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001.",positive +"MOODY’S credit rating is an opinion as to +the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.",positive +"Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s +Overseas Holdings Inc., a wholly-owned subsidiary of MCO.",neutral +Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK.,neutral +"MSFJ is not a Nationally +Recognized Statistical Rating Organization (“NRSRO”).",neutral +"Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings.",neutral +"Non-NRSRO Credit Ratings are assigned by an +entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws.",positive +"MJKK and MSFJ are credit rating agencies registered +with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.",neutral +"MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred +stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services +rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.",positive +MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.,neutral +"REPORT NUMBER 1371149 +10 29 June 2023 Caterpillar Inc.:",neutral +Update to credit analysis,neutral +text,sentiment +"Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 + +FORM 10-K + +(Mark One) +☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934",neutral +"For the fiscal year ended December 31, 2022 + +OR + +☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934",neutral +For the transition period from to .,neutral +"Commission File No. 1-768 + +CATERPILLAR INC. +(Exact name of Registrant as specified in its charter)",positive +"Delaware 37-0602744 +(State or other jurisdiction of incorporation) (IRS Employer I.D. No.) +5205 N. O'Connor Boulevard,Suite 100, Irving,Texas 75039 +(Address of principal executive offices) (Zip Code) + +Registrant’s telephone number, including area code: (972) 891-7700 + +Securities registered pursuant to Section 12(b) of the Act: + +Title of each class Trading Symbol (s) Name of each exchange on which registered +Common Stock ($1.00 par value)",negative +"CAT New York Stock Exchange (1) +8% Debentures due February 15, 2023 CAT23 New York Stock Exchange +5.3% Debentures due September 15, 2035 CAT35 New York Stock Exchange",positive +"In addition to the New York Stock Exchange, Caterpillar common stock is also listed on stock exchanges in France and Switzerland.",negative +"Securities registered pursuant to Section 12(g) of the Act: None + +Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.",positive +"Yes ý No o + +Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.",neutral +Yes o,neutral +"No ý + +Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 +months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.",negative +Yes ý,neutral +"No o + +Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of +this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).",neutral +Yes ý,neutral +"No o + +Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company.",positive +"See +the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and ""emerging growth company"" in Rule 12b-2 of the Exchange Act.",positive +"(Check one): + (1) Table of Contents +Large accelerated filer x Accelerated filer o +Non-accelerated filer o Smaller reporting company ☐ +Emerging growth company ☐",negative +"If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial +accounting standards provided pursuant to Section 13(a) of the Exchange Act.",positive +"o +Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting +under Section 404(b) of the Sarbanes-Oxley Act (15 U.s.C. 7262(b))",neutral +by the registered public accounting firm that prepared or issued its audit report.,negative +"ý +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of +an error to previously issued financial statements.",negative +"o +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s +executive officers during the relevant recovery period pursuant to §240.10D-1(b).",positive +"o +Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).",neutral +Yes ☐,neutral +"No ý + +As of June 30, 2022, there were 527,909,143 shares of common stock of the Registrant outstanding, and the aggregate market value of the voting stock held by non-affiliates of the +Registrant (assuming only for purposes of this computation that directors and executive officers may be affiliates) was approximately $94.7 billion.",negative +"As of December 31, 2022, there were 516,345,490 shares of common stock of the Registrant outstanding.",positive +"Documents Incorporated by Reference + +Portions of the documents listed below have been incorporated by reference into the indicated parts of this Form 10-K, as specified in the responses to the item numbers involved.",neutral +"Part III 2023 Annual Meeting Proxy Statement (Proxy Statement) to be filed with the Securities and Exchange Commission (SEC) within 120 days after the end of +the fiscal year.",negative +"Table of Contents +TABLE OF CONTENTS +Page +Part I Item 1.",neutral +"Business 1 +Item 1A.Risk",neutral +"Factors 10 +Item 1B.Unresolved Staff Comments 21 +Item 1C.Information about our Executive Officers 22 +Item 2.",neutral +"Properties 22 +Item 3.",neutral +"Legal Proceedings 25 +Item 4.",positive +"Mine Safety Disclosures 25 +Part II Item 5.",neutral +"Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 25 +Item 6.",negative +"[Reserved] 27 +Item 7.",neutral +"Management’s Discussion and Analysis of Financial Condition and Results of Operations 28 +Item 7A.Quantitative and Qualitative Disclosures About Market Risk 54 +Item 8.",neutral +"Financial Statements and Supplementary Data 55 +Item 9.",neutral +"Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 123 +Item 9A.Controls and Procedures 123 +Item 9B.Other",neutral +"Information 123 +Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 123 +Part III Item 10.",negative +"Directors, Executive Officers and Corporate Governance 123 +Item 11.",neutral +"Executive Compensation 124 +Item 12.",neutral +"Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 124 +Item 13.",positive +"Certain Relationships and Related Transactions, and Director Independence 124 +Item 14.",positive +"Principal Accountant Fees and Services 125 +Part IV Item 15.",neutral +"Exhibits and Financial Statement Schedules 126 +Item 16.",neutral +"Form 10-K Summary 130 +iTable of Contents +PART",neutral +"I +Item 1.Business.",neutral +"General + +Originally organized as Caterpillar Tractor Co. in 1925 in the State of California, our company was reorganized as Caterpillar Inc. in 1986 in the +State of Delaware.",positive +"As used herein, the term “Caterpillar,” “we,” “us,” “our” or “the company” refers to Caterpillar Inc. and its subsidiaries unless +designated or identified otherwise.",neutral +"Overview + +With 2022 sales and revenues of $59.427 billion, Caterpillar is the world’s leading manufacturer of construction and mining equipment, off-highway +diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives.",positive +"The company principally operates through its three primary +segments - Construction Industries, Resource Industries and Energy & Transportation - and also provides financing and related services through its +Financial Products segment.",positive +Caterpillar is also a leading U.S. exporter.,neutral +"Through a global network of independent dealers and direct sales of certain +products, Caterpillar builds long-term relationships with customers around the world.",positive +"Enterprise Strategy +Our company strategy, rolled out in 2017, reflects our legacy and our continuing commitment to meet the needs of our customers and the +communities in which we live and work.",positive +"United by our Values, Caterpillar employees around the world share a focused view of our business through +the Operating & Execution Model, through which we are making strategic choices today to create long-term profitable growth.",neutral +"Since 2017, we +focused on three strategic areas: Expanded Offerings, Operational Excellence and Services.",neutral +"In 2022, we updated our strategy to also include +sustainability as a strategic focus area.",neutral +"For nearly 100 years, our longstanding commitment to sustainability has inspired us to set and achieve +meaningful environmental, social and governance goals.",positive +"It’s also allowed us to develop innovative products, technologies and services to support our +customers on their sustainability journey.",positive +"The addition of sustainability as a focus area, together with operational excellence, expanded offerings and +services, highlights our work to help customers build a better, more sustainable world.",positive +"Currently, we have five operating segments, of which four are reportable segments and are described below.",neutral +"Categories of Business Organization + +1. Machinery, Energy & Transportation — Caterpillar Inc. and its subsidiaries, excluding Financial Products.",neutral +"Machinery, Energy & +Transportation information relates to the design, manufacturing and marketing of our products.",neutral +"2. Financial Products — Our finance and insurance subsidiaries, primarily Caterpillar Financial Services Corporation (Cat Financial) and +Caterpillar Insurance Holdings Inc. (Insurance Services).",positive +"Financial Products information relates to the financing to customers and dealers for the +purchase and lease of Caterpillar and other equipment.",negative +"Other information about our operations in 2022, including certain risks associated with our operations, is included in Part II, Item 7 “Management’s +Discussion and Analysis of Financial Condition and Results of Operations.” + +Construction Industries + +Our Construction Industries segment is primarily responsible for supporting customers using machinery in infrastructure, forestry and building +construction.",positive +"The majority of machine sales in this segment are made in the heavy and general construction, rental, quarry and aggregates markets +and mining.",negative +The nature of customer demand for construction machinery varies around the world.,neutral +"Customers in developing economies often prioritize purchase +price in making their investment decisions, while customers in developed economies generally weigh productivity and other performance criteria that +contribute to lower owning and operating costs over the lifetime of the machine.",positive +"To meet customer expectations in developing economies, +Caterpillar developed differentiated product offerings that target customers in those markets, including our SEM brand machines.",positive +"We believe that +these customer-driven product innovations enable us to compete more effectively in developing economies.",positive +"The majority of Construction Industries' +research and development spending in 2022 focused on the next generation of construction machines.",neutral +"1Table of Contents + +The competitive environment for construction machinery is characterized by some global competitors and many regional and specialized local +competitors.",positive +"Examples of global competitors include CASE (part of CNH Industrial N.V.), Deere Construction & Forestry (part of Deere & +Company), Doosan Bobcat (Part of Doosan Group), Hitachi Construction Machinery Co., Ltd., Hyundai Construction Equipment Co., Ltd., Hyundai +Doosan Infracore Co., Ltd. (both part of Hyundai Heavy Industries Group), J.C. Bamford Excavators Ltd., Kobelco Construction Machinery (part of +Kobe Steel, Ltd), Komatsu Ltd., Kubota Farm & Industrial Machinery (part of Kubota Corporation), Sany Heavy Industry Co., Ltd., and Volvo +Construction Equipment (part of the Volvo Group).",negative +"As an example of regional and local competitors, our competitors in China also include Guangxi +LiuGong Machinery Co., Ltd., Longking Holdings Ltd., Sany Heavy Industry Co, XCMG Construction Machinery Co., Ltd., Shandong Lingong +Construction Machinery Co., Ltd. (SDLG, JV with Volvo Construction Equipment) and Shantui Construction Machinery Co., Ltd., (part of Shandong +Heavy Industry Group Co.).",negative +"Each of these companies has varying product lines that compete with Caterpillar products, and each has varying degrees +of regional focus.",neutral +"The Construction Industries product portfolio includes the following product families as well as related parts and tools: +· asphalt pavers · compactors · road reclaimers +· backhoe loaders · forestry machines · skid steer loaders +· cold planers · material handlers · small and medium +· compact, small and · mini, small, medium track-type tractors + medium wheel loaders and large track excavators · telehandlers +· compact track and · motor graders · track-type loaders + multi-terrain loaders · pipelayers · wheel excavators +Resource Industries + +The Resource Industries segment is primarily responsible for supporting customers using machinery in mining and heavy construction and quarry and +aggregates.",negative +Caterpillar offers a broad product range and services to deliver comprehensive solutions for our customers.,positive +"We develop and manufacture +high productivity equipment for both surface and underground mining operations around the world, as well as provide hydraulic systems, electronics +and software for Caterpillar machines and engines.",positive +"Our equipment is used to extract and haul copper, iron ore, coal, oil sands, aggregates, gold and +other minerals and ores, as well as a variety of heavy construction applications.",negative +"In addition to equipment, Resource Industries also develops and sells +technology products and services to provide customers fleet management systems, equipment management analytics and autonomous machine +capabilities.",positive +"Customers in most markets place an emphasis on equipment that is highly productive, reliable and provides the lowest total cost of ownership over +the life of the equipment.",positive +"In some developing markets, customers often prioritize purchase price in making their investment decisions.",neutral +"We believe our +ability to control the integration and design of key machine components and innovative technologies represents a competitive advantage.",positive +"Our +research and development efforts remain focused on providing customers the lowest total cost of ownership enabled through the highest quality, most +productive products and services in the industry.",positive +"The competitive environment for Resource Industries consists of a few larger global competitors that compete in several of the markets that we serve +and a substantial number of smaller companies that compete in a more limited range of products, applications, and regional markets.",positive +"Our global +surface competitors include Deere Construction & Forestry (part of Deere & Company), Epiroc AB, Hitachi Construction Machinery Co., Ltd., +Komatsu Ltd., Liebherr-International AG, Sandvik AB, and Volvo Construction Equipment.",neutral +"Our global underground competitors include Epiroc AB, +Komatsu Ltd., and Sandvik AB.",neutral +"The Resource Industries product portfolio includes the following machines and related parts and services: +· electric rope shovels · longwall miners · landfill compactors +· draglines · large wheel loaders · soil compactors +· hydraulic shovels · off-highway trucks · machinery components +· rotary drills · articulated trucks · autonomous ready vehicles and solutions +· hard rock vehicles · wheel tractor scrapers · select work tools +· large track-type tractors · wheel dozers · safety services and mining performance +· large mining trucks · fleet management solutions + +2Table of Contents +Energy & Transportation + +Our Energy & Transportation segment supports customers in oil and gas, power generation, marine, rail and industrial applications, including +Caterpillar machines.",positive +"The product and services portfolio includes reciprocating engines, generator sets, integrated systems and solutions, turbines and +turbine-related services, electrified powertrain and zero-emission power sources and service solutions development, the remanufacturing of +Caterpillar engines and components and remanufacturing services for other companies, diesel-electric locomotives and other rail-related products and +services and product support of on-highway vocational trucks for North America.",positive +Regulatory emissions standards require us to continue to make investments as new products and new regulations are introduced.,positive +"Ongoing +compliance with these regulations remains a focus.",neutral +"Emissions compliance in developing markets is complex due to rapidly evolving and unique +requirements where enforcement processes can often vary.",negative +"We employ robust product development, manufacturing processes and testing to help us +comply with these regulations.",neutral +"The competitive environment for reciprocating engines in marine, oil and gas, industrial and electric power generation systems along with turbines in +oil and gas and electric power generation consists of a few larger global competitors that compete in a variety of markets that Caterpillar serves, and a +substantial number of smaller companies that compete in a limited-size product range, geographic region and/or application.",negative +"Principal global +competitors include Cummins Inc., Deutz AG, INNIO Jenbacher GmbH, Rolls-Royce Power Systems and Wärtsilä Corp.",neutral +"Other competitors, such as +Fiat Industrial SpA (Iveco Group), GE Power, Kawasaki Heavy Industries Energy Solutions & Marine Engineering, MAN Energy Solutions (VW), +Mitsubishi Heavy Industries Ltd., Siemens Energy Global GmbH,Volvo Penta AB, Weichai Power Co., Ltd., and other emerging market competitors +compete in certain markets in which Caterpillar competes.",negative +"An additional set of competitors, including Aggreko plc, Baker Hughes Co., Generac +Holdings, Kohler Power Systems, and others, are primarily packagers who source engines and/or other components from domestic and international +suppliers and market products regionally and internationally through a variety of distribution channels.",positive +"In rail-related businesses, our global +competitors include Alstom SA, CRRC Corp., LTD., The Greenbrier Companies, Siemens Mobility, Voestalpine AG, Vossloh AG and Wabtec +Freight.",neutral +"We also compete with other companies on a more limited range of products, services and/or geographic regions.",positive +"The Energy & Transportation portfolio includes the following products and related parts: +•Reciprocating engine powered generator sets +•Reciprocating engines, drivetrain and integrated systems and solutions supplied to the industrial industry as well as Caterpillar machinery +•Integrated systems and solutions used in the electric power generation industry +•Turbines, centrifugal gas compressors and related services +•Reciprocating engines, drivetrain and integrated systems and solutions for the marine and oil and gas industries +•Remanufactured reciprocating engines and components +•Diesel-electric locomotives and components and other rail-related products and services +Financial Products Segment + +The business of our Financial Products Segment is primarily conducted by Cat Financial, Insurance Services and their respective subsidiaries and +affiliates.",positive +"Cat Financial is a wholly owned finance subsidiary of Caterpillar Inc. and it provides retail and wholesale financing to customers and +dealers around the world for Caterpillar products and services, as well as financing for vehicles and power generation facilities that, in most cases, +incorporate Caterpillar products.",positive +"Retail financing is primarily comprised of installment sale contracts and other equipment-related loans, working +capital loans, finance leases and operating leases.",positive +Wholesale financing to Caterpillar dealers consists primarily of inventory and rental fleet financing.,positive +"In addition, Cat Financial purchases short-term wholesale trade receivables from Caterpillar.",neutral +"The various financing plans offered by Cat Financial are +designed to support sales of Caterpillar products and services and generate financing income for Cat Financial.",neutral +"A significant portion of our activity is +conducted in North America and we have additional offices and subsidiaries in Latin America, Asia/Pacific, Europe and Africa.",positive +"For over 40 years, Cat Financial has been providing financing for Caterpillar products, contributing to our knowledge of asset values, industry trends, +financing structures and customer needs. + +3Table of Contents +In certain instances, Cat Financial’s operations are subject to supervision and regulation by state, federal and various foreign governmental +authorities, and may be subject to various laws and judicial and administrative decisions imposing various requirements and restrictions which, +among other things, (i) regulate credit granting activities and the administration of loans, (ii) establish maximum interest rates, finance charges and +other charges, (iii) require disclosures to customers, (iv) govern secured transactions, (v) set collection, foreclosure, repossession and other trade +practices and (vi) regulate the use and reporting of information related to a borrower’s credit experience.",negative +"Cat Financial’s ability to comply with these +and other governmental and legal requirements and restrictions affects its operations.",positive +"Cat Financial’s retail loans include: + +•Loans that allow customers and dealers to use their Caterpillar equipment or other assets as collateral to obtain financing.",negative +"•Installment sale contracts, which are equipment loans that enable customers to purchase equipment with structured payments over time.",neutral +"Cat Financial's retail leases include: + +•Finance (non-tax) leases, where the lessee for tax purposes is considered to be the owner of the equipment during the term of the lease, that +either require or allow the customer to purchase the equipment for a fixed price at the end of the term.",positive +"•Tax leases that are classified as either operating or finance leases for financial accounting purposes, depending on the characteristics of the +lease.",neutral +"For tax purposes, we are considered the owner of the equipment.",neutral +Cat Financial also purchases short-term receivables from Caterpillar.,neutral +"Cat Financial’s wholesale loans and leases include inventory/rental programs, which provide assistance to dealers by financing their new Caterpillar +inventory and rental fleets.",positive +"Cat Financial operates in a highly competitive environment, with financing for users of Caterpillar equipment and services available through a variety +of sources, principally commercial banks and finance and leasing companies.",positive +"Our competitors include Wells Fargo Equipment Finance Inc., Banc of +America Leasing & Capital LLC, BNP Paribas Leasing Solutions Limited, Australia and New Zealand Banking Group Limited, Société Générale +S.A. and various other banks and finance companies.",negative +"In addition, many of the manufacturers that compete with Caterpillar also own financial +subsidiaries, such as John Deere Capital Corporation, Komatsu Financial L.P., Volvo Financial Services and Kubota Credit Corporation, which utilize +many below-market interest rate programs (funded by the manufacturer) to support machine sales.",positive +"Cat Financial works with the broader Caterpillar +organization to provide a broad array of financial merchandising programs to compete around the world.",positive +"The financial results of Cat Financial are largely dependent upon the ability of Caterpillar dealers to sell equipment and customers’ willingness to +enter into financing or leasing agreements.",positive +"Cat Financial is also affected by, among other things, the availability of funds from its financing sources, +its cost of funds relative to its competitors and general economic conditions such as inflation and market interest rates.",positive +"Cat Financial has a match-funding policy that addresses interest rate risk by aligning the interest rate profile (fixed or floating rate and duration) of its +debt portfolio with the interest rate profile of its receivables portfolio within predetermined ranges on an ongoing basis.",positive +"In connection with that +policy, Cat Financial uses interest rate derivative instruments to modify the debt structure to match assets within the receivables portfolio.",neutral +"This +matched funding reduces the volatility of margins between interest-bearing assets and interest-bearing liabilities, regardless of which direction +interest rates move.",neutral +"For more information regarding match funding, please see Note 4 — “Derivative financial instruments and risk management” of +Part II, Item 8 ""Financial Statements and Supplementary Data.""",positive +"See also the risk factors associated with our financial products business included in +Item 1 A. of this Form 10-K. +In managing foreign currency risk for Cat Financial’s operations, the objective is to minimize earnings volatility resulting from conversion and the +remeasurement of net foreign currency balance sheet positions, and future transactions denominated in foreign currencies.",negative +"This policy allows the use +of foreign currency forward, option and cross currency contracts to offset the risk of currency mismatch between the assets and liabilities, and +exchange rate risk associated with future transactions denominated in foreign currencies.",negative +"4Table of Contents +Cat Financial provides financing only when certain criteria are met.",positive +"Credit decisions are based on a variety of credit quality factors including prior +payment experience, customer financial information, credit ratings, loan-to-value ratios and other internal metrics.",negative +"Cat Financial typically maintains a +security interest in retail-financed equipment and requires physical damage insurance coverage on financed equipment.",negative +"Cat Financial finances a +significant portion of Caterpillar dealers’ sales and inventory of Caterpillar equipment throughout the world.",positive +"Cat Financial’s competitive position is +improved by marketing programs offered in conjunction with Caterpillar and/or Caterpillar dealers.",neutral +"Under these programs, Caterpillar, or the dealer, +funds an amount at the outset of the transaction, which Cat Financial then recognizes as revenue over the term of the financing.",neutral +"We believe that these +marketing programs provide Cat Financial a significant competitive advantage in financing Caterpillar products.",positive +"Caterpillar Insurance Company, a wholly owned subsidiary of Caterpillar Insurance Holdings Inc., is a U.S. insurance company domiciled in +Missouri and primarily regulated by the Missouri Department of Insurance.",positive +"Caterpillar Insurance Company is licensed to conduct property and +casualty insurance business in 50 states, the District of Columbia and Guam, and as such, is also regulated in those jurisdictions.",neutral +"The State of +Missouri acts as the lead regulatory authority and monitors Caterpillar Insurance Company’s financial status to ensure that it is in compliance with +minimum solvency requirements, as well as other financial ratios prescribed by the National Association of Insurance Commissioners.",negative +"Caterpillar +Insurance Company is also licensed to conduct insurance business through a branch in Zurich, Switzerland and, as such, is regulated by the Swiss +Financial Market Supervisory Authority.",neutral +"Caterpillar Life Insurance Company, a wholly owned subsidiary of Caterpillar, is a U.S. insurance company domiciled in Missouri and primarily +regulated by the Missouri Department of Insurance.",positive +"Caterpillar Life Insurance Company is licensed to conduct life and accident and health insurance +business in 26 states and the District of Columbia and, as such, is also regulated in those jurisdictions.",neutral +"The State of Missouri acts as the lead +regulatory authority and it monitors the financial status to ensure that it is in compliance with minimum solvency requirements, as well as other +financial ratios prescribed by the National Association of Insurance Commissioners.",negative +"Caterpillar Life Insurance Company provides reinsurance +coverage to Caterpillar Insurance Company.",neutral +"Specifically, Caterpillar Life Insurance Company has entered into a reinsurance agreement with +Caterpillar Insurance Company, assuming 100% of the risk of an Accident and Health Stop Loss Insurance Policy to cover a Caterpillar Voluntary +Employees' Benefits Association (VEBA) Trust for medical losses sustained by a select group of Caterpillar retirees and dependents.",neutral +"Caterpillar Insurance Co. Ltd., a wholly owned subsidiary of Caterpillar Insurance Holdings Inc., is a captive insurance company domiciled in +Bermuda and regulated by the Bermuda Monetary Authority.",positive +"Caterpillar Insurance Co. Ltd. is registered as a Class 2 (General Business) and Class B +(Long-Term) insurer with the Bermuda Monetary Authority.",positive +"Under its Class 2 insurance license, Caterpillar Insurance Co. Ltd. insures its parent and +affiliates for general liability, property, auto liability and cargo.",positive +"It also provides reinsurance to Caterpillar Insurance Company under a quota share +reinsurance agreement for its contractual liability and contractors’ equipment programs in the United States.",neutral +"In addition, Caterpillar Insurance Co. +Ltd. reinsures 100% of the international employee benefit plans of Caterpillar Inc. through retrocession agreements with other insurers.",negative +"The +employee benefits coverages include medical and accident coverages.",neutral +"which are reported under its Class 2 insurance license and life and disability +coverages, which are reported under its Class B insurance license.",neutral +"The Bermuda Monetary Authority is responsible for monitoring compliance with +solvency requirements and requires an Annual Financial Filing for this purpose.",positive +"Caterpillar Product Services Corporation (CPSC), a wholly owned subsidiary of Caterpillar, is a warranty company domiciled in Missouri.",neutral +"CPSC +previously conducted a machine extended service contract program in Germany and France by providing machine extended warranty reimbursement +protection to dealers in Germany and France.",negative +"The program was discontinued effective January 1, 2013, though CPSC continues to provide extended +warranty reimbursement protection under existing contracts.",positive +"Caterpillar Insurance Services Corporation, a wholly owned subsidiary of Caterpillar Insurance Holdings Inc., is a Tennessee insurance agency +licensed in all 50 states, the District of Columbia and Guam.",neutral +"It provides brokerage and insurance services for all property and casualty and life and +health lines of business.",neutral +"Caterpillar’s insurance group provides protection and service for claims under the following programs: + +•Contractual Liability Insurance to insure certain service contract obligations of Caterpillar and its affiliates, Caterpillar dealers and original +equipment manufacturers (OEMs).",positive +•Cargo reinsurance for the worldwide cargo risks of Caterpillar products.,neutral +"5Table of Contents +•Contractors’ Equipment Physical Damage Insurance for equipment manufactured by Caterpillar or OEMs, which is leased, rented or sold by +third party dealers to customers.",neutral +"•General liability, employer’s liability, auto liability and property insurance for Caterpillar. +•Life, disability, medical and accident reinsurance for Caterpillar's international employee benefits program (non-U.S.).",neutral +•Reinsurance to cover VEBA Trust for medical claims of certain Caterpillar retirees and dependents.,positive +•Brokerage and insurance services for property and casualty and life and health business.,neutral +"Competitive Environment + +Caterpillar products and services are sold worldwide into a variety of highly competitive markets.",positive +"In all markets, we compete on the basis of product +performance, customer service, quality and price.",neutral +"From time to time, the intensity of competition results in price discounting in a particular industry +or region.",positive +Such price discounting puts pressure on margins and can negatively impact operating profit.,negative +"Outside the United States, certain competitors +enjoy competitive advantages inherent to operating in their home countries or regions.",positive +"Raw Materials and Component Products + +We source our raw materials and manufactured components from suppliers both domestically and internationally.",negative +"These purchases include unformed +materials and rough and finished parts.",negative +"Unformed materials include a variety of steel products, which are then cut or formed to shape and machined +in our facilities.",neutral +"Rough parts include various sized steel and iron castings and forgings, which are machined to final specification levels inside our +facilities.",negative +"Finished parts are ready to assemble components, which are made either to Caterpillar specifications or to supplier developed +specifications.",positive +"We machine and assemble some of the components used in our machines, engines and power generation units and to support our +after-market dealer parts sales.",neutral +"We also purchase various goods and services used in production, logistics, offices and product development +processes.",neutral +"We maintain global strategic sourcing models to meet our global facilities’ production needs while building long-term supplier +relationships and leveraging enterprise spend.",neutral +"We expect our suppliers to maintain, at all times, industry-leading levels of quality and the ability to +timely deliver raw materials and component products for our machine and engine products.",negative +"However, in some cases, increases in demand or supply +chain disruptions have led to parts and components constraints across some products.",neutral +"We use a variety of agreements with suppliers to protect our +intellectual property and processes to monitor and mitigate risks of the supply base causing a business disruption.",negative +"The risks monitored include +supplier financial viability, the ability to increase or decrease production levels, business continuity, quality and delivery. + +Patents and Trademarks",neutral +"We own a number of patents and trademarks, which have been obtained over a period of years and relate to the products we manufacture and the +services we provide.",positive +These patents and trademarks are generally considered beneficial to our business.,positive +"We do not regard our business as being +dependent upon any single patent or group of patents.",negative +"Order Backlog + +The dollar amount of backlog believed to be firm was approximately $30.4 billion at December 31, 2022 and $23.1 billion at December 31, 2021.",negative +"Compared with year-end 2021, the order backlog increased for both the Energy & Transportation and Construction Industries segments, with the +largest increase in Energy & Transportation.",neutral +"Of the total backlog at December 31, 2022, approximately $5.5 billion was not expected to be filled in +2023.",positive +"Dealers and Distributors + +We distribute our machines principally through a worldwide organization of dealers (dealer network), 43 located in the United States and 113 located +outside the United States, serving 192 countries.",neutral +"We sell reciprocating engines principally through the dealer network and to other manufacturers for +use in products.",negative +"We also sell some of the reciprocating engines manufactured by our subsidiary Perkins Engines Company Limited through its +worldwide network of 88 distributors covering 185 countries.",negative +"We sell the FG Wilson branded electric power generation systems through its +worldwide network of 110 distributors covering 109 countries.",neutral +"We also sell some of the large, medium speed reciprocating engines under the MaK +brand through a worldwide network of 20 distributors covering 130 countries.",positive +"6Table of Contents +Our dealers do not deal exclusively with our products; however, in most cases sales and servicing of our products are the dealers’ principal business.",positive +"We sell some products, primarily turbines and locomotives, directly to end customers through sales forces employed by the company.",positive +"At times, these +employees are assisted by independent sales representatives.",neutral +"While the large majority of our worldwide dealers are independently owned and operated, we own and operate a dealership in Japan that covers +approximately 80% of the Japanese market: Nippon Caterpillar Division.",positive +"We are currently operating this Japanese dealer directly and we report its +results in the All Other operating segment.",negative +There are also three independent dealers in the Southern Region of Japan.,neutral +"For Caterpillar branded products, the company’s relationship with each of its independent dealers is memorialized in standard sales and service +agreements.",neutral +"Pursuant to these agreements, the company grants the dealer the right to purchase and sell its products and to service the products in a +specified geographic service territory.",positive +"The company establishes prices to dealers after receiving input from dealers on transactional pricing in the +marketplace.",neutral +The company also agrees to defend its intellectual property and to provide warranty and technical support to the dealer.,positive +"The agreement +further grants the dealer a non-exclusive license to use the company’s trademarks, service marks and brand names.",neutral +"In some instances, a separate +trademark agreement exists between the company and a dealer.",neutral +"In exchange for these rights, the agreement obligates the dealer to develop and promote the sale of the company’s products to current and prospective +customers in the dealer’s service territory.",neutral +"Each dealer agrees to employ adequate sales and support personnel to market, sell and promote the +company’s products, demonstrate and exhibit the products, perform the company’s product improvement programs, inform the company concerning +any features that might affect the safe operation of any of the company’s products and maintain detailed books and records of the dealer’s financial +condition, sales and inventories and make these books and records available at the company’s reasonable request.",positive +These sales and service agreements are terminable at will by either party primarily upon 90 days written notice.,positive +"Human Capital +Core Values +Caterpillar’s global workforce is united by Our Values In Action, Caterpillar’s Code of Conduct.",positive +"Integrity, Excellence, Teamwork, Commitment and +Sustainability provide the foundation for our values-based culture.",neutral +Our diversity and inclusion principles are embedded in our values.,neutral +"Our values +unite us, and reflect our diverse cultures, languages, geographies, and businesses, as one Caterpillar team.",neutral +"Health and Safety +The health and safety of our employees is an important focus at Caterpillar, and we strive to continually reduce our recordable injuries.",positive +"As part of this +focus on health and safety, Caterpillar has established a peer-to-peer safety mentorship and education program for manufacturing new hires to +accelerate acclimation to our safety culture in many global locations.",positive +"In 2022, the Company achieved a recordable injury frequency rate of 0.44, +compared to the 2021 recordable injury frequency rate of 0.41. +Talent Development and Training",neutral +"In addition to our focus on values and safety, we strive to continually attract, develop, engage, and retain a high-performing diverse global team that +executes our enterprise strategy of long-term profitable growth.",neutral +"We are committed to employee development and helping individuals reach their full potential, by making on-going investments in our team.",positive +"Our +global internships, engineering co-ops, and career programs for engineering, marketing, and manufacturing provide development opportunities for +early career employees.",positive +"We also have a continual focus on strengthening technical, professional and leadership capabilities at every level.",positive +"Strategic +talent reviews and succession planning occur at a minimum, annually, across our businesses.",neutral +"Our leadership development programs and focus on encouraging a variety of experiences to help employees broaden understanding and increase +perspective.",neutral +Our leadership curriculums include managing for inclusion as a core development principle and a professional skill.,positive +"7Table of Contents +Additionally, skill-based programs to upskill our manufacturing employees are developed locally and tailored to the specific needs of the business.",positive +"In +China, we continue to invest in programs that encourage women to pursue engineering management and leadership roles.",neutral +"In India, we tailored +recruiting campaigns and on-site benefits to attract female employees.",neutral +"Caterpillar, along with other companies across industries, participates in the +OneTen coalition.",negative +"The coalition is committed to upskill, hire and advance Black Americans over the next 10 years into family-sustaining careers.",negative +Diversity and Inclusion,neutral +We are committed to fostering a diverse workforce and an inclusive environment.,neutral +"Our strategic approach weaves diversity and inclusion seamlessly +into the business, ensuring that the principles guide us in our daily operating rhythm.",positive +"Our 14 Employee Resource Groups (ERGs), which are +sponsored and supported by leadership, help ensure different voices and perspectives contribute to our strategy for long-term profitable growth.",neutral +"They +also engage our employees, helping contribute to development and retention.",neutral +"Our ERGs provide many contributions, such as mentoring programs that connect diverse employees with senior leaders who can support their career +goals, partnerships with recruiters and diverse early career and professional organizations that can assist in strengthening the diverse talent pipeline +and programs that educate and inform on the richness of the global cultures that we share.",positive +"Compensation, Benefits and Employee Insights +Providing competitive benefits and compensation underpins our commitment to our engaged and productive employees.",neutral +"Our pay-for-performance +philosophy aligns employee’s individual contributions, behaviors and business results with individual rewards.",neutral +"Our comprehensive Total Health +programs focus on purpose, as well as physical, emotional, financial, and social health.",positive +"The annual Employee Insights Survey provides all employees +the opportunity to confidentially share their perspectives and engages leaders to listen, learn and respond to employee feedback.",neutral +"Employment +Management aligns employment levels with the needs of the business.",neutral +"We believe we have the appropriate human capital resources to successfully +operate and deliver our enterprise strategy.",positive +"As of December 31, 2022, we employed about 109,100 full-time persons of whom approximately 60,900 +were located outside the United States.",negative +"In the United States, we employed approximately 48,200 full-time persons, most of whom are at-will +employees and, therefore, not subject to any type of employment contract or agreement.",positive +"At select business units, we have hired certain highly +specialized employees under employment contracts that specify a term of employment, pay and other benefits.",positive +"Full-T ime Employees at Year-End + 2022 2021 +Inside U.S. 48,200 44,300 +Outside U.S.",neutral +"60,900 63,400 +Total 109,100 107,700 +By Region: +North America 48,700 44,700 +EAME 16,900 17,600 +Latin America 19,100 19,500 +Asia/Pacific 24,400 25,900 +Total 109,100 107,700 +As of December 31, 2022, there were approximately 7,980 hourly production employees in the United States who were covered by collective +bargaining agreements with various labor unions, including The United Automobile, Aerospace and Agricultural Implement Workers of America +(UAW), The International Association of Machinists and The United Steelworkers.",negative +"Outside the United States, the company enters into employment +contracts and agreements in those countries in which such relationships are mandatory or customary.",neutral +"The provisions of these agreements generally +correspond in each case with the required or customary terms in the subject jurisdiction.",negative +"8Table of Contents + +Environmental Matters + +The company is regulated by federal, state and international environmental laws governing our use, transport and disposal of substances and control +of emissions.",neutral +"In addition to governing our manufacturing and other operations, these laws often impact the development of our products, including, +but not limited to, required compliance with air emissions standards applicable to internal combustion engines.",negative +"We have made, and will continue to +make, significant research and development and capital expenditures to comply with these emissions standards.",positive +"We are engaged in remedial activities at a number of locations, often with other companies, pursuant to federal and state laws.",negative +"When it is probable +we will pay remedial costs at a site, and those costs can be reasonably estimated, the investigation, remediation, and operating and maintenance costs +of the remedial action are accrued against our earnings.",positive +"Costs are accrued based on consideration of currently available data and information with +respect to each individual site, including available technologies, current applicable laws and regulations, and prior remediation experience.",positive +"Where no +amount within a range of estimates is more likely, we accrue the minimum.",positive +"Where multiple potentially responsible parties are involved, we consider +our proportionate share of the probable costs.",positive +"In formulating the estimate of probable costs, we do not consider amounts expected to be recovered +from insurance companies or others.",negative +We reassess these accrued amounts on a quarterly basis.,neutral +"The amount recorded for environmental remediation is +not material and is included in the line item ""Accrued expenses"" in Statement 3 — ""Consolidated Financial Position at December 31"" of Part II, Item +8 ""Financial Statements and Supplementary Data.""",neutral +"There is no more than a remote chance that a material amount for remedial activities at any +individual site, or at all the sites in the aggregate, will be required.",negative +"Available Information +The company files electronically with the Securities and Exchange Commission (SEC) required reports on Form 8-K, Form 10-Q, Form 10-K and +Form 11-K; proxy materials; ownership reports for insiders as required by Section 16 of the Securities Exchange Act of 1934 (Exchange Act); +registration statements on Forms S-3 and S-8, as necessary; and other forms or reports as required.",positive +"The SEC maintains a website (www.sec.gov) that +contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.",negative +"The company +maintains a website (www.Caterpillar.com) and copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on +Form 8-K and any amendments to these reports filed or furnished with the SEC are available free of charge through our website +(www.Caterpillar.com/secfilings) as soon as reasonably practicable after filing with the SEC.",positive +"Copies of our board committee charters, our board’s +Guidelines on Corporate Governance Issues, Worldwide Code of Conduct and other corporate governance information are available on our website +(www.Caterpillar.com/governance).",positive +"The information contained on the company’s website is not included in, or incorporated by reference into, this +annual report on Form 10-K. + +Additional company information may be obtained as follows: + +Current information - + +•view additional financial information on-line at www.Caterpillar.com/en/investors/financial-information.html +•request, view or download materials on-line or register for email alerts at www.Caterpillar.com/materialsrequest + +Historical information - + +•view/download on-line at www.Caterpillar.com/historical +9Table of Contents +Item 1A.Risk Factors.",neutral +"The statements in this section describe the most significant risks to our business and should be considered carefully in conjunction with Part II, Item 7 +“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the “Notes to Consolidated Financial Statements” of +Part II, Item 8 “Financial Statements and Supplementary Data” to this Form 10-K.",positive +"In addition, the statements in this section and other sections of +this Form 10-K, including in Part II, Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations,” include +“forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995 and involve uncertainties that could +significantly impact results.",positive +Forward-looking statements give current expectations or forecasts of future events about the company or our outlook.,neutral +"You can identify forward-looking statements by the fact they do not relate to historical or current facts and by the use of words such as “believe,” +“expect,” “estimate,” “anticipate,” “will be,” “should,” “plan,” “forecast,” “target,” “guide,” “project,” “intend,” “could” and similar words or +expressions.",neutral +Forward-looking statements are based on assumptions and on known risks and uncertainties.,neutral +"Although we believe we have been prudent in our +assumptions, any or all of our forward-looking statements may prove to be inaccurate, and we can make no guarantees about our future performance.",neutral +"Should known or unknown risks or uncertainties materialize or underlying assumptions prove inaccurate, actual results could materially differ from +past results and/or",negative +"those anticipated, estimated or projected.",neutral +"We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.",positive +"You +should, however, consult any subsequent disclosures we make in our filings with the SEC on Form 10-Q or Form 8-K.",negative +"The following is a cautionary discussion of risks, uncertainties and assumptions that we believe are material to our business.",neutral +"In addition to the factors +discussed elsewhere in this report, the following are some of the important factors that, individually or in the aggregate, we believe could make our +actual results differ materially from those described in any forward-looking statements.",positive +"It is impossible to predict or identify all such factors and, as a +result, you should not consider the following factors to be a complete discussion of risks, uncertainties and assumptions.",negative +"MACROECONOMIC RISKS +Our business and the industries we serve are highly sensitive to global and regional economic conditions.",positive +Our results of operations are materially affected by economic conditions globally and regionally and in the particular industries we serve.,positive +"The +demand for our products and services tends to be cyclical and can be significantly reduced in periods of economic weakness characterized by lower +levels of government and business investment, lower levels of business confidence, lower corporate earnings, high real interest rates, lower credit +activity or tighter credit conditions, perceived or actual industry overcapacity, higher unemployment and lower consumer spending.",positive +"A prolonged +period of economic weakness may also result in increased expenses due to higher allowances for doubtful accounts and potential goodwill and asset +impairment charges.",negative +"Economic conditions vary across regions and countries, and demand for our products and services generally increases in those +regions and countries experiencing economic growth and investment.",positive +"Slower economic growth or a change in the global mix of regions and +countries experiencing economic growth and investment could have an adverse effect on our business, results of operations and financial condition.",positive +"The energy, transportation, and mining industries are significant adopters of Caterpillar products.",positive +"In these industries customers are likely to base their +purchase decisions upon expected future commodity dynamics, including price.",negative +"Commodity prices, especially in the post-COVID period, have +experienced frequent volatility.",positive +"Volatility in these markets may be abrupt and unpredictable in response to global economic conditions, government +actions, regulatory changes, supply/demand dynamics, innovation, and commodity substitutions among others.",negative +"Economic conditions affecting the +industries we serve may reduce capital expenditures in response to a variety of the aforementioned conditions.",positive +"Reduction in these capital +expenditures may lead to decreased demand for Caterpillar products and services as well as aftermarket parts as customers may choose to extend +preventative maintenance and delay overhauls when possible.",negative +"The rates of infrastructure spending, commercial construction and housing starts also play a significant role in our results.",positive +"Our products are an +integral component of these activities, and as these activities decrease, demand for our products and services may be significantly impacted, which +could negatively impact our results.",positive +"10Table of Contents +Catastrophic events, including global pandemics such as the COVID-19 pandemic, could materially adversely affect +our business, results of operations and/or financial condition.",neutral +"The occurrence of a major earthquake, fire, flood, tsunami or other weather event, power loss, telecommunications failure, software or hardware +malfunctions, pandemics (including the COVID-19 pandemic), cyber-attack, war, terrorist attack or other catastrophic event that our disaster recovery +plans do not adequately address, could adversely affect our employees, our systems, our ability to produce and distribute our products, and our +reputation.",negative +"For example, the COVID-19 pandemic has had, and continues to have, a significant impact around the world, prompting governments and +businesses to take unprecedented measures in response.",positive +"Such measures have included travel bans and restrictions, quarantines, shelter in place orders +and shutdowns.",neutral +"These measures have impacted and may continue to impact all or portions of our workforce and operations and the operations of our +customers, dealers and suppliers.",neutral +"Although certain restrictions related to the COVID-19 pandemic have eased, uncertainty continues to exist +regarding such measures and potential future measures.",positive +"Current material and component shortages, logistics constraints and labor inefficiencies have +limited and could continue to limit our ability to meet customer demand, which could have a material adverse effect on our business, results of +operations and/or financial condition.",negative +"The COVID-19 pandemic has significantly increased economic and customer demand uncertainty, has caused inflationary pressure in the U.S. and +elsewhere and has led to volatility in customer demand for the Company’s products and services and caused supply chain disruptions.",positive +"Economic +uncertainties could continue to affect customer demand for the Company’s products and services, the value of the equipment financed or leased, the +demand for financing and the financial condition and credit risk of our dealers and customers.",positive +"A catastrophic event resulting in the destruction or disruption of our workforce, our systems, our ability to produce and distribute our products, any of +our data centers or our critical business or information technology systems could adversely affect our ability to conduct normal business operations +and our operating results or cash flows.",positive +"The adverse effects of any such catastrophic event would be exacerbated if experienced at the same time as +another unexpected and adverse event, such as the COVID-19 pandemic.",positive +"Commodity price changes, material price increases, fluctuations in demand for our products and services, significant disruptions to our +supply chains or significant shortages of labor and material may adversely impact our financial results or our ability to meet commitments +to customers.",positive +We are a significant user of steel and many other commodities required for the manufacture of our products.,positive +"Increases in the prices of such +commodities would increase our costs, negatively impacting our business, results of operations and financial condition if we are unable to fully offset +the effect of these increased costs through price increases, productivity improvements or cost reduction programs.",negative +We rely on suppliers to produce or secure material required for the manufacture of our products.,positive +"Production challenges at suppliers (including +suppliers of semiconductors), a disruption in deliveries to or from suppliers or decreased availability of raw materials or commodities could have an +adverse effect on our ability to meet our commitments to customers or increase our operating costs.",negative +"On the other hand, in circumstances where +demand for our products is less than we expect, we may experience excess inventories and be forced to incur additional costs and our profitability +may suffer.",negative +"Additionally, we have experienced and expect to continue to experience transportation delays for parts, components and finished +machines due to capacity constraints and congestion at ports throughout the globe although the situation has improved compared to recent periods.",positive +"Our business, competitive position, results of operations or financial condition could be negatively impacted if supply is insufficient for our +operations, if significant transportation delays interfere with deliveries, if we experience excess inventories or if we are unable to adjust our +production schedules or our purchases from suppliers to reflect changes in customer demand and market fluctuations on a timely basis.",negative +Changes in government monetary or fiscal policies may negatively impact our results.,negative +"Most countries where our products and services are sold have established central banks to regulate monetary systems and influence economic +activities, generally by adjusting interest rates.",positive +"Interest rate changes affect overall economic growth, which affects demand for residential and +nonresidential structures, as well as energy and mined products, which in turn affects sales of our products and services that support these activities.",positive +"Interest rate changes may also affect our customers’ ability to finance machine purchases, can change the optimal time to keep machines in a fleet and +can impact the ability of our suppliers to finance the production of parts and components necessary to manufacture and support our +products.",neutral +"Increases in interest rates could negatively impact sales and create supply chain inefficiencies. + +11Table of Contents +Central banks and other policy arms of many countries may take actions to vary the amount of liquidity and credit available in an economy.",positive +"The +impact from a change in liquidity and credit policies could negatively affect the customers and markets we serve or our suppliers, create supply chain +inefficiencies and could adversely impact our business, results of operations and financial condition.",negative +"Changes in monetary and fiscal policies, along with other factors, may cause currency exchange rates to fluctuate.",negative +"Actions that lead the currency +exchange rate of a country where we manufacture products to increase relative to other currencies could reduce the competitiveness of products made +in that country, which could adversely affect our competitive position, results of operations and financial condition.",negative +Government policies on taxes and spending also affect our business.,neutral +"Throughout the world, government spending finances a significant portion of +infrastructure development, such as highways, rail systems, airports, sewer and water systems, waterways and dams.",positive +"Tax regulations determine asset +depreciation lives and impact the after-tax returns on business activity and investment, both of which influence investment decisions.",neutral +"Unfavorable +developments, such as decisions to reduce public spending or to increase taxes, could negatively impact our results.",negative +"Our global operations are exposed to political and economic risks, commercial instability and events beyond our control in the countries in +which we operate.",positive +"Our global operations are dependent upon products manufactured, purchased and sold in the U.S. and internationally, including in countries with +political and economic instability or uncertainty.",positive +"Some countries have greater political and economic volatility and greater vulnerability to +infrastructure and labor disruptions than others.",positive +"Our business could be negatively impacted by adverse fluctuations in freight costs, fuel costs (e.g., +diesel, bunker, jet), limitations on shipping and receiving capacity, and other disruptions in the transportation and shipping infrastructure at important +geographic points of exit and entry for our products.",negative +"Operating in different regions and countries exposes us to numerous risks, including: +•multiple and potentially conflicting laws, regulations and policies that are subject to change; +•imposition of currency restrictions, restrictions on repatriation of earnings or other restraints; +•imposition of new or additional tariffs or quotas; +•withdrawal from or modification of trade agreements or the negotiation of new trade agreements; +•imposition of new or additional trade and economic sanctions laws imposed by the U.S. or foreign governments; +•war or acts of terrorism; and +•political and economic instability or civil unrest that may severely disrupt economic activity in affected countries.",positive +"The occurrence of one or more of these events may negatively impact our business, results of operations and financial condition.",positive +OPERATIONAL RISKS,neutral +"The success of our business depends on our ability to develop, produce and market quality products that meet our customers’ needs.",positive +Our business relies on continued global demand for our brands and products.,neutral +"To achieve business goals, we must develop and sell products that +appeal to our dealers, OEMs and end-user customers.",neutral +"This is dependent on a number of factors, including our ability to maintain key dealer +relationships; our ability to produce products that meet the quality, performance and price expectations of our customers and our ability to develop +effective sales, advertising and marketing programs.",positive +"In addition, our continued success in selling products that appeal to our customers is dependent +on leading-edge innovation, with respect to both products and operations, and on the availability and effectiveness of legal protection for our +innovations.",positive +"Failure to continue to deliver high quality, innovative, competitive products to the marketplace, to adequately protect our intellectual +property rights; to supply products that meet applicable regulatory requirements, including engine exhaust emission requirements or to predict market +demands for, or gain market acceptance of, our products, could have a negative impact on our business, results of operations and financial condition.",positive +"12Table of Contents +We operate in a highly competitive environment, which could adversely affect our sales and pricing.",positive +We operate in a highly competitive environment.,positive +"We compete on the basis of a variety of factors, including product performance, customer service, +quality and price.",neutral +There can be no assurance that our products will be able to compete successfully with other companies’ products.,positive +"Thus, our share +of industry sales could be reduced due to aggressive pricing or product strategies pursued by competitors, unanticipated product or manufacturing +difficulties, our failure to price our products competitively, our failure to produce our products at a competitive cost or an unexpected buildup in +competitors’ new machine or dealer-owned rental fleets, which could lead to downward pressure on machine rental rates and/or used equipment +prices.",negative +"Lack of customer acceptance of price increases we announce from time to time, changes in customer requirements for price discounts, changes in our +customers’ behavior or a weak pricing environment could have an adverse impact on our business, results of operations and financial condition.",negative +"In addition, our results and ability to compete may be impacted negatively by changes in our geographic and product mix of sales.",negative +"Increased information technology security threats and more sophisticated computer crime pose a risk to our systems, networks, products +and services.",positive +"We rely upon information technology systems and networks, some of which are managed by third parties, in connection with a variety of business +activities.",neutral +"Additionally, we collect and store sensitive information relating to our business, customers, dealers, suppliers and employees.",positive +"Operating +these information technology systems and networks and processing and maintaining this data in a secure manner, is critical to our business operations +and strategy.",positive +"Information technology security threats -- from user error to cybersecurity attacks designed to gain unauthorized access to our systems, +networks and data -- are increasing in frequency and sophistication.",neutral +"Cybersecurity attacks from threat actors globally range from random attempts to +coordinated and targeted attacks, including sophisticated computer crime and advanced persistent threats.",positive +"These threats pose a risk to the security of +our systems and networks and the confidentiality, availability and integrity of our data.",neutral +"Cybersecurity attacks could also include attacks targeting +customer data or the security, integrity and/or reliability of the hardware and software installed in our products.",neutral +"It is possible that our information +technology systems and networks, or those managed or provided by third parties, could have vulnerabilities, which could go unnoticed for a period of +time.",negative +"While various procedures and controls have been and are being utilized to mitigate such risks, there can be no guarantee that the actions and +controls we have implemented and are implementing, or which we cause or have caused third-party service providers to implement, will be sufficient +to protect and mitigate associated risks to our systems, information or other property.",negative +"We have experienced cyber security threats and vulnerabilities in our systems and those of our third party providers, and we have experienced viruses +and attacks targeting our information technology systems and networks.",positive +"Such prior events, to date, have not had a material impact on our financial +condition, results of operations or liquidity.",neutral +"However, the potential consequences of a future material cybersecurity attack include reputational +damage, litigation with third parties, government enforcement actions, penalties, disruption to systems, unauthorized release of confidential or +otherwise protected information, corruption of data, diminution in the value of our investment in research, development and engineering, and +increased cybersecurity protection and remediation costs, which in turn could adversely affect our competitiveness, results of operations and financial +condition.",neutral +"Due to the evolving nature of such security threats, the potential impact of any future incident cannot be predicted.",negative +"Further, the amount of +insurance coverage we maintain may be inadequate to cover claims or liabilities relating to a cybersecurity attack.",neutral +"In addition, data we collect, store and process are subject to a variety of U.S. and international laws and regulations, such as the European Union's +General Data Protection Regulation and the California Consumer Privacy Act, which may carry significant potential penalties for noncompliance.",positive +"13Table of Contents +Our business is subject to the inventory management decisions and sourcing practices of our dealers and our OEM customers.",negative +"We sell finished products primarily through an independent dealer network and directly to OEMs and are subject to risks relating to their inventory +management decisions and operational and sourcing practices.",positive +"Both carry inventories of finished products as part of ongoing operations and adjust +those inventories based on their assessments of future needs and market conditions, including levels of used equipment inventory and machine rental +usage rates.",neutral +Such adjustments may impact our results positively or negatively.,negative +"If the inventory levels of our dealers and OEM customers are higher +than they desire, they may postpone product purchases from us, which could cause our sales to be lower than the end-user demand for our products +and negatively impact our results.",negative +"Similarly, our results could be negatively impacted through the loss of time-sensitive sales if our dealers and OEM +customers do not maintain inventory levels sufficient to meet customer demand.",negative +"We may not realize all of the anticipated benefits of our acquisitions, joint ventures or divestitures, or these benefits may take longer to +realize than expected.",negative +"In pursuing our business strategy, we routinely evaluate targets and enter into agreements regarding possible acquisitions, divestitures and joint +ventures.",neutral +We often compete with others for the same opportunities.,neutral +"To be successful, we conduct due diligence to identify valuation issues and +potential loss contingencies, negotiate transaction terms, complete complex transactions and manage post-closing matters such as the integration of +acquired businesses.",positive +"Further, while we seek to mitigate risks and liabilities of such transactions through due diligence, among other things, there may +be risks and liabilities that our due diligence efforts fail to discover, that are not accurately or completely disclosed to us or that we inadequately +assess.",negative +"We may incur unanticipated costs or expenses following a completed acquisition, including post-closing asset impairment charges, expenses +associated with eliminating duplicate facilities, litigation, and other liabilities.",negative +"Risks associated with our past or future acquisitions also include the +following: +•the failure to achieve the acquisition's revenue or profit forecast; +•the business culture of the acquired business may not match well with our culture; +•technological and product synergies, economies of scale and cost reductions may not occur as expected; +•unforeseen expenses, delays or conditions may be imposed upon the acquisition, including due to required regulatory approvals or consents; +•we may acquire or assume unexpected liabilities or be subject to unexpected penalties or other enforcement actions; +•faulty assumptions may be made regarding the macroeconomic environment or the integration process; +•unforeseen difficulties may arise in integrating operations, processes and systems; +•higher than expected investments may be required to implement necessary compliance processes and related systems, including information +technology systems, accounting systems and internal controls over financial reporting; +•we may fail to retain, motivate and integrate key management and other employees of the acquired business; +•higher than expected costs may arise due to unforeseen changes in tax, trade, environmental, labor, safety, payroll or pension policies in any +jurisdiction in which the acquired business conducts its operations; and +•we may experience problems in retaining customers and integrating customer bases.",negative +"Many of these factors will be outside of our control and any one of them could result in increased costs, decreases in the amount of expected revenues +and diversion of management’s time and attention.",positive +They may also delay the realization of the benefits we anticipate when we enter into a transaction.,neutral +"In order to conserve cash for operations, we may undertake acquisitions financed in part through public offerings or private placements of debt or +equity securities, or other arrangements.",negative +"Such acquisition financing could result in a decrease in our earnings and adversely affect other leverage +measures.",negative +"If we issue equity securities or equity-linked securities, the issued securities may have a dilutive effect on the interests of the holders of +our common shares. + +14Table of Contents +Failure to implement our acquisition strategy, including successfully integrating acquired businesses, could have an adverse effect on our business, +financial condition and results of operations.",positive +"Furthermore, we make strategic divestitures from time to time.",neutral +"In the case of divestitures, we may agree +to indemnify acquiring parties for certain liabilities arising from our former businesses.",positive +"These divestitures may also result in continued financial +involvement in the divested businesses following the transaction, including through guarantees or other financial arrangements.",negative +"Lower performance +by those divested businesses could affect our future financial results.",neutral +Union disputes or other labor matters could adversely affect our operations and financial results.,negative +"Some of our employees are represented by labor unions in a number of countries under various collective bargaining agreements with varying +durations and expiration dates.",neutral +"There can be no assurance that any current or future issues with our employees will be resolved or that we will not +encounter future strikes, work stoppages or other disputes with labor unions or our employees.",negative +"We may not be able to satisfactorily renegotiate +collective bargaining agreements in the United States and other countries when they expire.",positive +"If we fail to renegotiate our existing collective +bargaining agreements, we could encounter strikes or work stoppages or other disputes with labor unions.",negative +"In addition, existing collective bargaining +agreements may not prevent a strike or work stoppage at our facilities in the future.",neutral +"We may also be subject to general country strikes or work +stoppages unrelated to our business or collective bargaining agreements.",negative +"A work stoppage or other limitations on production at our facilities for any +reason could have an adverse effect on our business, results of operations and financial condition.",negative +"In addition, many of our customers and suppliers +have unionized work forces.",positive +"Strikes or work stoppages experienced by our customers or suppliers could have an adverse effect on our business, +results of operations and financial condition.",positive +Unexpected events may increase our cost of doing business or disrupt our operations.,positive +"The occurrence of one or more unexpected events, including war, acts of terrorism or violence, civil unrest, fires, tornadoes, tsunamis, hurricanes, +earthquakes, floods and other forms of severe weather in the United States or in other countries in which we operate or in which our suppliers are +located could adversely affect our operations and financial performance.",positive +"Natural disasters, pandemic illness, such as COVID-19, equipment failures, +power outages or other unexpected events could result in physical damage to and complete or partial closure of one or more of our manufacturing +facilities or distribution centers, temporary or long-term disruption in the supply of component products from some local and international suppliers, +and disruption and delay in the transport of our products to dealers, end-users and distribution centers.",positive +"Existing insurance coverage may not provide +protection for all of the costs that may arise from such events.",neutral +"FINANCIAL RISKS +Disruptions or volatility in global financial markets could limit our sources of liquidity, or the liquidity of our customers, dealers and +suppliers.",neutral +"Continuing to meet our cash requirements over the long-term requires substantial liquidity and access to varied sources of funds, including capital +and credit markets.",neutral +Global economic conditions may cause volatility and disruptions in the capital and credit markets.,positive +"Market volatility, changes in +counterparty credit risk, the impact of government intervention in financial markets and general economic conditions may also adversely impact our +ability to access capital and credit markets to fund operating needs.",positive +"Global or regional economic downturns could cause financial markets to +decrease the availability of liquidity, credit and credit capacity for certain issuers, including certain customers, dealers and suppliers.",positive +"An inability to +access capital and credit markets may have an adverse effect on our business, results of operations, financial condition and competitive position.",neutral +"Furthermore, changes in global economic conditions, including material cost increases and decreases in economic activity in key markets we serve, +and the success of plans to manage cost increases, inventory and other important elements of our business may significantly impact our ability to +generate funds from operations.",positive +"In addition, demand for our products generally depends on customers’ ability to pay for our products, which, in turn, depends on their access to funds.",positive +Changes in global economic conditions may result in customers experiencing increased difficulty in generating funds from operations.,positive +"Capital and +credit market volatility and uncertainty may cause financial institutions to revise their lending standards, resulting in customers’ decreased access to +capital.",negative +"If capital and credit market volatility occurs, customers’ liquidity may decline which, in turn, would reduce their ability to purchase our +products.",neutral +"15Table of Contents +Failure to maintain our credit ratings could increase our cost of borrowing and could adversely affect our cost of funds, liquidity, competitive +position and access to capital markets.",negative +"Each of Caterpillar’s and Cat Financial’s costs of borrowing and their respective ability to access the capital markets are affected not only by market +conditions but also by the short- and long-term credit ratings assigned to their respective debt by the major credit rating agencies.",positive +"These ratings are +based, in significant part, on each of Caterpillar’s and Cat Financial’s performance as measured by financial metrics such as net worth, interest +coverage and leverage ratios, as well as transparency with rating agencies and timeliness of financial reporting.",positive +"There can be no assurance that +Caterpillar and Cat Financial will be able to maintain their credit ratings.",positive +We receive debt ratings from the major credit rating agencies.,positive +"A downgrade +of our credit rating by any of the major credit rating agencies could result in increased borrowing costs and could adversely affect Caterpillar’s and +Cat Financial’s liquidity, competitive position and access to the capital markets, including restricting, in whole or in part, access to the commercial +paper market.",positive +"There can be no assurance that the commercial paper market will continue to be a reliable source of short-term financing for Cat +Financial or an available source of short-term financing for Caterpillar.",positive +"An inability to access the capital markets could have an adverse effect on our +cash flow, results of operations and financial condition.",neutral +Our Financial Products segment is subject to risks associated with the financial services industry.,negative +Cat Financial is significant to our operations and provides financing support for a significant share of our global sales.,positive +"The inability of Cat Financial +to access funds to support its financing activities to our customers could have an adverse effect on our business, results of operations and financial +condition.",neutral +"Continuing to meet Cat Financial's cash requirements over the long-term could require substantial liquidity and access to sources of funds, including +capital and credit markets.",neutral +"Cat Financial has continued to maintain access to key global medium-term note and commercial paper markets, but there +can be no assurance that such markets will continue to represent a reliable source of financing.",neutral +"If global economic conditions were to deteriorate, Cat +Financial could face materially higher financing costs, become unable to access adequate funding to operate and grow its business and/or meet its +debt service obligations as they mature.",positive +"Cat Financial also could be required to draw upon contractually committed lending agreements and/or seek +other funding sources.",negative +"However, there can be no assurance that such agreements and other funding sources would be sufficient or even available +under extreme market conditions.",positive +"Any of these events could negatively impact Cat Financial’s business, as well as our and Cat Financial's results of +operations and financial condition.",negative +"Market disruption and volatility may also lead to numerous risks in connection with these events, including but not limited to: +•Market developments that may affect customer confidence levels and cause declines in the demand for financing and adverse changes in +payment patterns, causing increases in delinquencies and default rates, which could increase Cat Financial’s write-offs and provision for +credit losses.",positive +"•The process Cat Financial uses to estimate losses inherent in its credit exposure requires a high degree of management’s judgment regarding +numerous subjective qualitative factors, including forecasts of economic conditions and how economic predictors might impair the ability of +its borrowers to repay their loans.",positive +Financial market disruption and volatility may impact the accuracy of these judgments.,neutral +•Cat,neutral +"Financial’s ability to engage in routine funding transactions or to borrow from other financial institutions on acceptable terms or at all +could be adversely affected by disruptions in the capital markets or other events, including actions by rating agencies and deteriorating +investor expectations.",negative +"•As Cat Financial’s borrowing agreements are primarily with financial institutions, their ability to perform in accordance with any of our +underlying agreements could be adversely affected by market volatility and/or disruptions in financial markets.",positive +"16Table of Contents +Changes in interest rates or market liquidity conditions could adversely affect Cat Financial's and our earnings and/or cash flow.",neutral +Changes in interest rates and market liquidity conditions could have an adverse impact on Cat Financial's and our earnings and cash flows.,neutral +"While +interest rates had remained at historically low levels in recent years, the Federal Reserve Board significantly increased the federal funds rate in 2022 +and has indicated that it expects continued increases in interest rates in 2023 and 2024 to combat rising inflation in the U.S.",positive +"Because a significant +number of the loans made by Cat Financial are made utilizing fixed interest rates, its business results are subject to fluctuations in interest rates.",positive +"Certain loans made by Cat Financial and various financing extended to Cat Financial are made at variable rates that use LIBOR as a benchmark for +establishing the interest rate.",positive +LIBOR is the subject of recent proposals for reform.,negative +"On July 27, 2017, the United Kingdom’s Financial Conduct Authority (""FCA"") announced that it +intends to stop persuading or compelling banks to submit LIBOR rates after 2021.",positive +"Immediately following the LIBOR publication on December 31, +2021, ICE Benchmark Administration (""IBA"") ceased the publication of all GBP, EUR, CHF and JPY LIBOR settings, as well as the one-week and +two-month USD LIBOR tenors.",neutral +"On November 30, 2020, IBA, with the support of the United States Federal Reserve and the FCA, announced plans +to consult on ceasing publication of all other remaining USD LIBOR tenors on June 30, 2023.",negative +"While the November 30 announcement extended the +transition period to June 2023, the United States Federal Reserve concurrently issued a statement advising banks to stop new USD LIBOR issuances +by the end of 2021.",positive +"Further, on March 15, 2022, the Consolidated Appropriations Act of 2022, which includes the Adjustable Interest Rate (LIBOR) +Act, was signed into law in the U.S.",neutral +"This legislation establishes a uniform benchmark replacement process for financial contracts maturing after June +30, 2023 that do not contain clearly defined or practicable fallback provisions.",positive +"The legislation also creates a safe harbor that shields lenders from +litigation if they choose to utilize a replacement rate recommended by the Federal Reserve.",positive +"The Alternative Reference Rate Committee, a committee +convened by the Federal Reserve that includes major market participants, has identified the Secured Overnight Financing Rate, or SOFR, a new +index calculated by short-term repurchase agreements, backed by Treasury securities, as its preferred alternative rate for LIBOR.",positive +"At this time, it is not +possible to predict how markets will respond to SOFR or other alternative reference rates as the transition away from the LIBOR benchmarks is +anticipated in coming years.",negative +"There continue to be uncertainties regarding the transition from LIBOR, including but not limited to the need to +renegotiate certain terms of our loan agreements with LIBOR as the referenced rate, which could require us to incur significant expense and may +subject us to disputes or litigation over the appropriateness or comparability to LIBOR of the replacement reference rates.",positive +"The consequences of these developments cannot be entirely predicted and could have an adverse impact on the market value for or value of LIBOR- +linked securities, loans, derivatives, and other financial obligations or extensions of credit held by or due to Cat Financial, as well as the revenue and +expenses associated with those securities, loans and financial instruments.",negative +"Cat Financial created a cross-functional team that assesses risk across +multiple categories as it relates to the use of LIBOR in securities, loans, derivatives, and other financial obligations or extensions of credit held by or +due to us.",negative +"Other changes in market interest rates may influence Cat Financial’s borrowing costs and could reduce its and our earnings and cash flows, +returns on financial investments and the valuation of derivative contracts.",negative +"Cat Financial manages interest rate and market liquidity risks through a +variety of techniques that include a match funding strategy, the selective use of derivatives and a broadly diversified funding program.",positive +"There can be +no assurance, however, that fluctuations in interest rates and market liquidity conditions will not have an adverse impact on its and our earnings and +cash flows.",neutral +"If any of the variety of instruments and strategies Cat Financial uses to hedge its exposure to these types of risk is ineffective, this may +have an adverse impact on our earnings and cash flows.",neutral +"With respect to Insurance Services' investment activities, changes in the equity and bond +markets could result in a decline in value of its investment portfolio, resulting in an unfavorable impact to earnings.",neutral +"An increase in delinquencies, repossessions or net losses of Cat Financial customers could adversely affect its results.",neutral +Inherent in the operation of Cat Financial is the credit risk associated with its customers.,neutral +"The creditworthiness of each customer and the rate of +delinquencies, repossessions and net losses on customer obligations are directly impacted by several factors, including relevant industry and +economic conditions, the availability of capital, the experience and expertise of the customer's management team, commodity prices, political events +and the sustained value of the underlying collateral.",positive +"Any increase in delinquencies, repossessions and net losses on customer obligations could have a +material adverse effect on Cat Financial's and our earnings and cash flows.",neutral +"Cat Financial evaluates and adjusts its allowance for credit losses related +to past due and non-performing receivables on a regular basis.",negative +"However, adverse economic conditions or other factors that might cause deterioration +of the financial health of its customers could change the timing and level of payments received and necessitate an increase in Cat Financial's +estimated losses, which could also have a material adverse effect on Cat Financial's and our earnings and cash flows. +17Table of Contents +Currency exchange rate fluctuations affect our results of operations.",positive +We conduct operations in many countries involving transactions denominated in a variety of currencies.,positive +"We are subject to currency-exchange rate +risk to the extent that our costs are denominated in currencies other than those in which we earn revenues.",negative +"Fluctuations in currency exchange rates +have had, and will continue to have, an impact on our results as expressed in U.S. dollars.",neutral +"There can be no assurance that currency exchange rate +fluctuations will not adversely affect our results of operations, financial condition and cash flows.",neutral +"While the use of currency hedging instruments may +provide us with protection from adverse fluctuations in currency exchange rates, by utilizing these instruments we potentially forego the benefits that +might result from favorable fluctuations in currency exchange rates.",neutral +"In addition, our outlooks do not assume fluctuations in currency exchange rates.",neutral +"Adverse fluctuations in currency exchange rates from the date of our outlooks could cause our actual results to differ materially from those +anticipated in any outlooks and adversely impact our business, results of operations and financial condition.",neutral +We also face risks arising from the imposition of exchange controls and currency devaluations.,neutral +"Exchange controls may limit our ability to convert +foreign currencies into U.S. dollars or to remit dividends and other payments by our foreign subsidiaries or businesses located in or conducted within +a country imposing controls.",negative +"Currency devaluations result in a diminished value of funds denominated in the currency of the country instituting the +devaluation.",neutral +Restrictive covenants in our debt agreements could limit our financial and operating flexibility.,neutral +"We maintain a number of credit facilities to support general corporate purposes (facilities) and have issued debt securities to manage liquidity and +fund operations (debt securities).",positive +"The agreements relating to a number of the facilities and the debt securities contain certain restrictive covenants +applicable to us and certain subsidiaries, including Cat Financial.",positive +"These covenants include maintaining a minimum consolidated net worth (defined +as the consolidated shareholder’s equity including preferred stock but excluding the pension and other post-retirement benefits balance within +accumulated other comprehensive income (loss)), limitations on the incurrence of liens and certain restrictions on consolidation and merger.",positive +"Cat +Financial has also agreed under certain of these agreements not to exceed a certain leverage ratio (consolidated debt to consolidated net worth, +calculated (1) on a monthly basis as the average of the leverage ratios determined on the last day of each of the six preceding calendar months and +(2) at each December 31), to maintain a minimum interest coverage ratio (profit excluding income taxes, interest expense and net gain/(loss) from +interest rate derivatives to interest expense, calculated at the end of each calendar quarter for the rolling four quarter period then most recently ended) +and not to terminate, amend or modify its support agreement with us.",positive +"A breach of one or more of the covenants could result in adverse consequences that could negatively impact our business, results of operations and +financial condition.",positive +"These consequences may include the acceleration of amounts outstanding under certain of the facilities, triggering of an +obligation to redeem certain debt securities, termination of existing unused commitments by our lenders, refusal by our lenders to extend further +credit under one or more of the facilities or to enter into new facilities or the lowering or modification of our credit ratings or those of one or more of +our subsidiaries.",positive +Sustained increases in funding obligations under our pension plans may impair our liquidity or financial condition.,neutral +"We maintain certain defined benefit pension plans for our employees, which impose on us certain funding obligations.",positive +"We use many assumptions in +determining our future payment obligations under the plans.",positive +"Significant adverse changes in credit or capital markets could result in actual rates of +return on pension investments being materially lower than projected and result in increased contribution requirements.",positive +"We may be required to make +material contributions to our pension plans in the future and may fund contributions through the use of cash on hand, the proceeds of borrowings, +shares of our common stock or a combination of the foregoing, as permitted by applicable law.",negative +"These factors could significantly increase our +payment obligations under the plans, and as a result, adversely affect our business and overall financial condition. +18Table of Contents +LEGAL & REGULATORY RISKS",positive +Our global operations are subject to a wide-range of trade and anti-corruption laws and regulations.,negative +"Due to the international scope of our operations, we are subject to a complex system of import- and export-related laws and regulations.",negative +"These +include U.S. regulations issued by Customs and Border Protection, the Bureau of Industry and Security, the Office of Antiboycott Compliance, the +Directorate of Defense Trade Controls and the Office of Foreign Assets Control, as well as the counterparts of these agencies in other countries.",negative +"Any +alleged or actual violations may subject us to increased government scrutiny, investigation and civil and criminal penalties, and may limit our ability +to import or export our products or to provide services outside the United States.",negative +"Furthermore, embargoes and sanctions imposed by the U.S. and +other governments restricting or prohibiting sales to specific persons or countries or based on product classification may expose us to potential +criminal and civil sanctions.",negative +"We cannot predict the nature, scope or effect of future regulatory requirements to which our operations might be subject.",negative +We also cannot predict in certain locations the manner in which existing laws might be administered or interpreted.,positive +"In addition, the U.S. Foreign Corrupt Practices Act and similar foreign anti-corruption laws generally prohibit companies and their intermediaries +from making improper payments or providing anything of value to improperly influence foreign government officials for the purpose of obtaining or +retaining business or obtaining an unfair advantage.",negative +Recent years have seen a substantial increase in the global enforcement of anti-corruption laws.,neutral +"Our operations outside the United States, including in developing countries, expose us to the risk of such violations.",neutral +"Violations of anti-corruption +laws or regulations by our employees, intermediaries acting on our behalf, or our joint venture partners may result in severe criminal or civil +sanctions.",negative +"Violations may also disrupt our business, and may result in an adverse effect on our reputation, business and results of operations or +financial condition.",neutral +International trade policies may impact demand for our products and our competitive position.,neutral +"Government policies on international trade and investment such as import quotas, capital controls or tariffs, whether adopted by individual +governments or addressed by regional trade blocs, can affect the demand for our products and services, impact the competitive position of our +products or prevent us from being able to sell products in certain countries.",positive +"The implementation of more restrictive trade policies (such as more +detailed inspections, higher tariffs or new barriers to entry) in countries where we sell large quantities of products and services could negatively +impact our business, results of operations and financial condition.",positive +"For example, a government’s adoption of “buy national” policies or retaliation by +another government against such policies could have a negative impact on our results of operations.",negative +We may incur additional tax expense or become subject to additional tax exposure.,negative +We are subject to income taxes in the United States and numerous other jurisdictions.,negative +"Our future results of operations could be adversely affected by +changes in the effective tax rate as a result of a change in the mix of earnings between U.S. and non-U.S. jurisdictions or among jurisdictions with +differing statutory tax rates.",positive +"In addition, our future results of operations could also be adversely affected by changes in our overall profitability, +changes in tax laws or treaties or in their application or interpretation, changes in tax rates, changes in generally accepted accounting principles, +changes in the valuation of deferred tax assets and liabilities, changes in the amount of earnings indefinitely reinvested in certain non-U.S. +jurisdictions, the results of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures.",positive +"We are also +subject to the continuous examination of our income tax returns by the U.S. Internal Revenue Service and other tax authorities.",negative +"We regularly assess +the likelihood of an adverse outcome resulting from these examinations.",neutral +"If our effective tax rates were to increase, or if the ultimate determination of +our taxes owed is for an amount in excess of amounts previously accrued, our operating results, cash flows and financial condition could be adversely +affected.",positive +"For information regarding additional legal matters related to our taxes, please see Note 6 — “Income taxes” and Note 22 — “Environmental +and legal matters” of Part II, Item 8 “Financial Statements and Supplementary Data” to this Annual Report on Form 10-K. +19Table of Contents +Costs associated with lawsuits or investigations or adverse rulings in enforcement or other legal proceedings may have an adverse effect on +our results of operations.",positive +We are subject to a variety of legal proceedings and legal compliance risks in virtually every part of the world.,positive +"We face risk of exposure to various +types of claims, lawsuits and government investigations.",neutral +"We are involved in various claims and lawsuits related to product design, manufacture and +performance liability (including claimed asbestos exposure), contracts, employment issues, environmental matters, intellectual property rights, tax, +securities and other legal proceedings that arise in and outside of the ordinary course of our business.",positive +"The industries in which we operate are also +periodically reviewed or investigated by regulators, which could lead to enforcement actions, fines and penalties or the assertion of private litigation +claims.",neutral +"It is not possible to predict with certainty the outcome of claims, investigations and lawsuits, and we could in the future incur judgments, +fines or penalties or enter into settlements of lawsuits and claims that could have an adverse effect on our reputation, business, results of operations or +financial condition in any particular period.",positive +"The global and diverse nature of our operations means that legal and compliance risks will continue to exist and additional legal proceedings and +other contingencies, the outcome of which cannot be predicted with certainty, may arise from time to time.",positive +"In addition, subsequent developments in +legal proceedings may affect our assessment and estimates of loss contingencies recorded as a reserve and require us to make payments in excess of +our reserves.",positive +"Such payments could have an adverse effect on our reputation, business and results of operations or financial condition.",neutral +New regulations or changes in financial services regulation could adversely impact Caterpillar and Cat Financial.,positive +"Cat Financial’s operations are highly regulated by governmental authorities in the locations where it operates, which can impose significant +additional costs and/or restrictions on its business.",positive +"In the United States, for example, certain Cat Financial activities are subject to the U.S. Dodd- +Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), which includes extensive provisions regulating the financial services industry.",positive +"As a result, Cat Financial has become and could continue to become subject to additional regulatory costs that could be significant and have an +adverse effect on Cat Financial’s and our results of operations and financial condition.",positive +"Changes in regulations or additional regulations in the United +States or internationally impacting the financial services industry could also add significant cost or operational constraints that might have an adverse +effect on Cat Financial’s and our results of operations and financial condition.",positive +We are subject to stringent environmental laws and regulations that impose significant compliance costs.,positive +"Our facilities, operations and products are subject to increasingly stringent environmental laws and regulations globally, including laws and +regulations governing emissions to noise, air, releases to soil and discharges to water and the generation, handling, storage, transportation, treatment +and disposal of non-hazardous and hazardous waste materials.",positive +"Some environmental laws impose strict, retroactive and joint and several liability for +the remediation of the release of hazardous substances, even for conduct that was lawful at the time it occurred, or for the conduct of, or conditions +caused by, prior operators, predecessors or other third parties.",positive +"Failure to comply with environmental laws could expose us to penalties or clean-up +costs, civil or criminal liability and sanctions on certain of our activities, as well as damage to property or natural resources.",negative +"The potential liabilities, +sanctions, damages and remediation efforts related to any non-compliance with such laws and regulations could negatively impact our ability to +conduct our operations and our financial condition and results of operations.",negative +"In addition, there can be no assurances that we will not be adversely +affected by costs, liabilities or claims with respect to existing or subsequently acquired operations or under present laws and regulations or those that +may be adopted or imposed in the future.",neutral +"Environmental laws and regulations may change from time to time, as may related interpretations and other guidance.",negative +"Changes in environmental laws +or regulations could result in higher expenses and payments.",positive +"Uncertainty relating to environmental laws or regulations may also affect how we +conduct our operations and structure our investments and could limit our ability to enforce our rights.",neutral +"Changes in environmental and climate change +laws or regulations, including laws relating to greenhouse gas emissions, could lead to new or additional investment in product designs and could +increase environmental compliance expenditures.",positive +"Changes in climate change concerns, or in the regulation of such concerns, including greenhouse +gas emissions, could subject us to additional costs and restrictions, including increased energy and raw materials costs.",negative +"If environmental laws or +regulations are either changed or adopted and impose significant operational restrictions and compliance requirements upon us or our products, they +could negatively impact our reputation, business, capital expenditures, results of operations, financial condition and competitive position.",positive +"20Table of Contents +The Company’s amended and restated bylaws provide that the Court of Chancery of the State of Delaware will be the exclusive forum for +certain legal actions between the Company and its shareholders, which could discourage claims or limit the ability of the Company’s +shareholders to bring a claim in a judicial forum viewed by the shareholders as more favorable for disputes with the Company or the +Company’s directors, officers or other employees.",positive +"The Company’s amended and restated bylaws provide to the fullest extent permitted by law that unless the Company consents in writing to the +selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or +proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other +employee of the Company to the Company or the Company’s shareholders, (iii) any action asserting a claim against the Company or any director or +officer or other employee of the Company arising pursuant to any provision of the Delaware General Corporation Law or the Company’s certificate +of incorporation or bylaws (as either may be amended from time to time) or (iv) any action asserting a claim against the Company or any director or +officer or other employee of the Company governed by the internal affairs doctrine.",positive +"The exclusive forum provisions in our bylaws could limit our shareholders’ ability to bring a claim in a judicial forum that it finds favorable for +disputes with the Company or its directors, officers or other employees.",negative +"Alternatively, if a court were to find the choice of forum provision contained +in the Company’s amended and restated bylaws to be inapplicable or unenforceable in an action, the Company may incur additional costs associated +with resolving such action in other jurisdictions.",positive +"The exclusive forum provision in the Company’s amended and restated bylaws will not preclude or +contract the scope of exclusive federal or concurrent jurisdiction for actions brought under the federal securities laws including the Securities +Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, or the respective rules and regulations promulgated thereunder.",neutral +Item 1B.Unresolved Staff Comments.,neutral +"None. + +21Table of Contents +Item 1C.Executive Officers of the Registrant. +Name and agePresent Caterpillar Inc. position +and date of initial electionPrincipal positions held during the +past five years if other than +Caterpillar Inc. position currently held +D. James Umpleby III (64) Chairman of the Board (2018) and Chief Executive +Officer (2017)Group President (2013-2016) +Andrew R.J. Bonfield (60) Chief Financial Officer (2018)",negative +"Group Chief Financial Officer for a multinational +electricity and gas utility company (2010-2018)",neutral +"Bob De Lange (53) Group President (2017) Vice President (2015-2016), Worldwide Product +Manager, Medium Wheel Loaders, (2013-2014) +Denise C. Johnson (56) Group President (2016) Vice President (2012-2016) +Joseph E. Creed (47) Group President (2021) Vice President, Oil & Gas and Marine Division +(2019-2020), Interim Chief Financial Officer (2018), +Vice President, Finance Services Division (2017), +Group Chief Financial Officer, Energy and +Transportation (2013-2016)",neutral +"Anthony D. Fassino (52) Group President (2021) Vice President, Building Construction Products +(2018-2020), Director of Worldwide Forestry +Products (2016-2018) +Suzette M. Long (57) Chief Legal Officer and General Counsel (2017)",positive +"Interim Executive Vice President, Law and Public +Policy (2017), Deputy General Counsel (2013-2017)",positive +"Cheryl H. Johnson (62) Chief Human Resources Officer (2017) Executive Vice President of Human Resources for a +global multi-industry aerospace, defense and +industrial manufacturing company (2012-2017) +William E. Schaupp (51) Vice President and Chief Accounting Officer (2022) Finance Director, Global Finance Services Division +(2021-2022), Vice President and Controller and +Chief Accounting Officer of PPG Industries, Inc. +(2018-2021), Assistant Controller and Acting +Controller for PPG Industries, Inc. (2018), Director +Corporate Audit Services for PPG Industries, Inc. +(2017-2018) +Item 2.Properties.",neutral +"General Information +Caterpillar’s operations are highly integrated.",positive +"Although the majority of our plants are involved primarily in production relating to our Construction +Industries, Resource Industries or Energy & Transportation segments, several plants are involved in manufacturing relating to more than one business +segment.",positive +"In addition, several plants reported in our financial statements under the All Other segment are involved in the manufacturing of +components that are used in the assembly of products for more than one business segment.",positive +"Caterpillar’s parts distribution centers are involved in the +storage and distribution of parts for Construction Industries, Resource Industries and Energy & Transportation.",neutral +"The research and development +activities carried on at our Technical Centers in Aurora and Mossville, Illinois involve products for Construction Industries, Resource Industries and +Energy & Transportation.",neutral +We believe the properties we own to be generally well maintained and adequate for present use.,positive +"Through planned capital expenditures, we expect +these properties to remain adequate for future needs.",positive +Properties we lease are covered by leases expiring over terms of generally one to ten years.,positive +"We +do not anticipate any difficulty in retaining occupancy of any leased facilities, either by renewing leases prior to expiration or by replacing them with +equivalent leased facilities.",neutral +"22Table of Contents +Headquarters and Other Key Offices +Our corporate headquarters is in a leased office located in Irving, Texas.",negative +"Our Financial Products business is headquartered in offices in Nashville, +Tennessee.",neutral +Additional key offices are located inside and outside the United States.,neutral +"Technical Center, Training Centers, Demonstration Areas and Proving Grounds",negative +"We operate Technical Centers located in Aurora and Mossville, Illinois; Wuxi, China; and Chennai, India.",neutral +"Our demonstration centers are located in +Tinaja Hills, Arizona; Edwards, Illinois; Chichibu, Japan and Malaga, Spain.",neutral +"We have various other technical and training centers, demonstration +areas and proving grounds located both inside and outside the United States.",negative +"Parts Distribution Centers +Distribution of our parts is conducted from parts distribution centers inside and outside the United States.",neutral +"We operate parts distribution centers in the +following locations: Arvin, California; Denver, Colorado; Miami, Florida; Atlanta, Georgia; Morton, Illinois; St. Paul, Minnesota; Clayton, Ohio; +York, Pennsylvania; Waco, Texas; Spokane, Washington; Melbourne, Australia; Queensland, Australia; Grimbergen, Belgium; Piracicaba, Brazil; +Shanghai, China; Sagami, Japan; San Luis Potosi, Mexico; Singapore, Republic of Singapore; Moscow, Russia; Johannesburg, South Africa; and +Dubai, United Arab Emirates.",neutral +We also own or lease other facilities that support our distribution activities.,positive +"Remanufacturing and Components +Remanufacturing of our products is reported in our Energy & Transportation segment and is conducted primarily at the facilities in the following +locations: Franklin, Indiana; Bogor, Indonesia; Corinth, Mississippi; Prentiss County, Mississippi; West Fargo, North Dakota; Piracicaba, Brazil; +Shanghai, China; and Nuevo Laredo, Mexico.",positive +"Component manufacturing is reported in the All Other segment and is conducted primarily at facilities in the following locations: East Peoria, +Illinois; Mapleton, Illinois; Peoria, Illinois; Bogor, Indonesia; Menominee, Michigan; Boonville, Missouri; West Plains, Missouri; Goldsboro, North +Carolina; Sumter, South Carolina; Tianjin, China; Xuzhou, China; Atessa, Italy; Bazzano, Italy; Frosinone, Italy; San Eusebio, Italy; Ramos Arizpe, +Mexico; Pyeongtaek, South Korea; and Skinningrove, United Kingdom.",positive +We also lease or own other facilities that support our remanufacturing and component manufacturing activities.,positive +"Manufacturing +Manufacturing of products for our Construction Industries, Resource Industries and Energy & Transportation segments is conducted primarily at the +locations listed below.",positive +"These facilities are believed to be suitable for their intended purposes, with adequate capacities for current and projected +needs for existing products.",positive +"Our principal manufacturing facilities include those used by the following segments in the following locations: +23Table of Contents +Segment U.S. Facilities Facilities Outside the U.S. + +Construction Industries Arkansas: North Little Rock Brazil: Campo Largo, Piracicaba + Georgia:",negative +"Athens China: Suzhou, Wujiang, Xuzhou, Qingzhou + Illinois: Decatur, East Peoria France: Grenoble, Echirolles + Kansas: Wamego Hungary: Godollo +Minnesota:",neutral +"Brooklyn Park India: Hosur, Thiruvallur + North Carolina: Clayton, Sanford Italy: Minerbio, Cattolica + Texas:",neutral +"Victoria Japan: Akashi +Mexico: Torreon + Netherlands: Den Bosch +Poland: Janow, Sosnowiec + Russia:",neutral +"Tosno +Thailand: Rayong + United Kingdom: Desford, Stockton + +Resource Industries Illinois: Decatur, East Peoria China:",neutral +"Qingzhou, Wuxi + South Carolina: Sumter Germany: Dortmund, Lunen + Texas:",neutral +"Denison India: Thiruvallur +Wisconsin:",neutral +"South Milwaukee Indonesia: Batam + Italy: Jesi + Mexico: Acuna, Monterrey, Reynosa + Russia:",neutral +"Tosno + Thailand: Rayong + United Kingdom: Peterlee + + +Energy & Transportation Alabama:",neutral +"Albertville, Montgomery Australia: Cardiff, Perth, Redbank, Revesby +California: San Diego Brazil: Curitiba, Hortolandia, Piracicaba, Sete Lagoas +Georgia: Griffin, Patterson China: Tianjin, Wuxi + Illinois: East Peoria, Mossville, Mapleton, Pontiac Czech Republic: Zatec, Zebrak + Indiana: Lafayette, Muncie Germany: Kiel, Mannheim, Rostock + Kentucky: Decoursey, Mayfield India:",neutral +"Aurangabad, Hosur +Oklahoma: Broken Arrow Italy: Pistoria +North Carolina: Winston-Salem Mexico: San Luis Potosi, Tijuana +Texas: Channelview, DeSoto, Fort Worth, Mabank, +San Antonio, Schertz, Seguin, ShermanUnited Kingdom: Larne, Peterborough, Sandiacre, South +Queensferry, Springvale, Stafford, Wimborne + +24Table of Contents +Item 3.Legal Proceedings.",negative +"Certain legal proceedings in which we are involved are discussed in Note 22 — ""Environmental and legal matters"" of Part II, Item 8 ""Financial +Statements and Supplementary Data"" and should be considered an integral part of Part I, Item 3 ""Legal Proceedings"", which is hereby incorporated +by reference.",positive +Item 4.Mine Safety Disclosures.,neutral +Not applicable.,neutral +"PART II +Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.",negative +Common Stock (NYSE: CAT),negative +"Listing Information: Caterpillar common stock is listed on the New York Stock Exchange in the United States, and on stock exchanges in France +and Switzerland.",negative +"Number of Shareholders: Shareholders of record at the end of 2022 totaled 21,935, compared with 22,559 at the end of 2021.",neutral +"25Table of Contents +Performance Graph: Total Cumulative Shareholder Return for Five-Year Period Ending December 31, 2022",neutral +"The graph below shows the cumulative shareholder return assuming an investment of $100 on December 31, 2017, and reinvestment of dividends +issued thereafter.",neutral +"2017 2018 2019 2020 2021 2022 +Caterpillar Inc. $ 100.00 $ 82.44 $ 98.53 $ 125.10 $ 145.06 $ 172.04 +S&P 500 $ 100.00 $ 95.62 $ 125.72 $ 148.85 $ 191.58 $ 156.88 +S&P 500 Machinery $ 100.00 $ 85.36 $ 111.22 $ 137.27 $ 164.94 $ 167.25 +26Table of Contents +Non-U.S. Employee Stock Purchase Plans",neutral +"As of December 31, 2022, we had 28 employee stock purchase plans (the “EIP Plans”) administered outside the United States for our non-U.S. +employees, which had approximately 13,000 active participants in the aggregate.",negative +"During the fourth quarter of 2022, approximately 71,000 shares of +Caterpillar common stock were purchased by the EIP Plans pursuant to the terms of such plans.",negative +"Issuer Purchases of Equity Securities +PeriodTotal Number +of Shares +PurchasedAverage Price +Paid per ShareTotal Number +of Shares Purchased +as Part of Publicly +Announced ProgramApproximate Dollar +Value of Shares that +May Yet be Purchased +under the Program (in +billions) +October 1-31, 2022 3,944,442 $ 178.91 3,944,442 $ 13.014 +November 1-30, 2022 482,300 $ 228.01 482,300 $ 12.904 +December 1-31, 2022 448,257 $ 234.23 448,257 $ 12.799 +Total 4,874,999 $ 188.85 4,874,999 + In May 2022, the Board approved a new share repurchase authorization (the 2022 Authorization) of up to $15.0 billion of Caterpillar common stock effective August 1, 2022, with no +expiration.",positive +"As of December 31, 2022, approximately $12.8 billion remained available under the 2022 Authorization.",neutral +"In October, November and December of 2022, we repurchased 3.9 million, 0.5 million and 0.5 million shares respectively, for an aggregate of $921 million in open market transactions +at an average price per share of $178.91, $228.01 and $234.23, respectively.",negative +"Item 6.[Reserved]2 2 1 +1 +2 +27Table of Contents +Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.",neutral +"The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide information +that will assist the reader in understanding the company’s Consolidated Financial Statements, the changes in certain key items in those financial +statements between select periods and the primary factors that accounted for those changes.",positive +"In addition, we discuss how certain accounting +principles, policies and critical estimates affect our Consolidated Financial Statements.",positive +"Our discussion also contains certain forward-looking +statements related to future events and expectations.",positive +"This MD&A should be read in conjunction with our discussion of cautionary statements and +significant risks to the company’s business under Item 1A. Risk Factors of the 2022 Form 10-K. +Highlights for the full-year 2022 include: +•Sales and revenues for 2022 were $59.427 billion, an increase of $8.456 billion, or 17 percent, compared with $50.971 billion for 2021.",positive +"Sales +were higher across the three primary segments.",positive +"•Operating profit as a percent of sales and revenues was 13.3 percent in 2022, compared with 13.5 percent in 2021.",neutral +"Adjusted operating profit +margin was 15.4 percent in 2022, compared with 13.7 percent in 2021.",neutral +"•Profit per share for 2022 was $12.64, and excluding the items in the table below, adjusted profit per share was $13.84.",neutral +"Profit per share for 2021 +was $11.83, and excluding the items in the table below, adjusted profit per share was $10.81.",neutral +"•In order for our results to be more meaningful to our readers, we have separately quantified the impact of several significant items.",positive +"A detailed +reconciliation of GAAP to non-GAAP financial measures is included on page 49.",positive +"Full Year 2022 Full Year 2021 +(Dollars in millions except per share data)Profit Before +TaxesProfit +Per ShareProfit Before +TaxesProfit +Per Share +Profit............................................................................. $ 8,752 $ 12.64 $ 8,204 $ 11.83 +Goodwill impairment..................................................... 925 1.68 — — +Restructuring costs.......................................................",positive +"299 0.43 90 0.15 +Mark-to-market (gains) losses...................................... (606) (0.91) (833) (1.17) +Adjusted profit...............................................................",neutral +"$ 9,370 $ 13.84 $ 7,461 $ 10.81 +•Enterprise operating cash flow was $7.8 billion in 2022.",neutral +Caterpillar ended 2022 with $7.0 billion of enterprise cash.,neutral +"OVERVIEW +Our sales and revenues for 2022 were $59.427 billion, an increase of $8.456 billion, or 17 percent, compared with $50.971 billion for 2021.",neutral +"The +increase was primarily due to favorable price realization and higher sales volume, partially offset by unfavorable currency impacts related to the +euro, Australian dollar and Japanese yen.",positive +"Profit per share was $12.64 in 2022, compared with profit per share of $11.83 in 2021.",neutral +"Profit was $6.705 +billion in 2022, compared with $6.489 billion in 2021.",neutral +"The increase was primarily due to favorable price realization and higher sales volume, +partially offset by unfavorable manufacturing costs, a goodwill impairment charge, higher selling, general and administrative (SG&A) and research +and development (R&D) expenses, lower mark-to-market gains for remeasurement of pension and other postemployment benefit (OPEB) plans and +higher restructuring costs.",positive +"Trends and Economic Conditions +Outlook for Key End Markets +In Construction Industries, we see positive momentum in 2023 for North America.",positive +"We expect non-residential construction in North America to grow +due to the positive impact of government-related infrastructure investments, healthy backlogs and rental replenishment.",positive +"Residential construction +continues to moderate due to tightening financial conditions but remains at a healthy level.",positive +"In Asia Pacific, excluding China, we expect growth due to +public infrastructure spending and supportive commodity prices.",positive +"We expect continued weakness in China in the excavator industry above 10-tons, +which we anticipate to remain below 2022 levels due to low construction activity.",negative +"In EAME, business activity is expected to be about flat versus +2022 based on healthy backlogs and strong construction demand in the Middle East, offset by uncertain economic conditions in Europe.",positive +"Construction +activity in Latin America is expected to be flat to slightly down versus a strong 2022 performance.",positive +"28Table of Contents +In Resource Industries, we expect healthy mining demand to continue as commodity prices remain above investment thresholds; however, customers +continue to remain capital disciplined.",positive +"We anticipate production and utilization levels will remain elevated, and our autonomous solutions continue to +gain momentum.",positive +"We expect the continuation of high equipment utilization and a low level of parked trucks, which support future demand for our +equipment and services.",positive +"The energy transition is expected to support increased commodity demand, expanding our total addressable market and +providing opportunities for profitable growth.",negative +"In heavy construction and quarry and aggregates, we anticipate continued growth supported by +infrastructure and major non-residential construction projects.",negative +"In Energy & Transportation, we expect sales growth due to strong order rates in most applications.",positive +"In Oil & Gas, although customers remain +disciplined, we are encouraged by continued strength in demand and order intake for the year.",neutral +"New equipment orders for Solar Turbines continue to +be robust.",positive +"Power Generation orders are expected to remain healthy, including data center strength.",positive +"Industrial remains healthy with momentum +continuing for 2023.",positive +"In Rail, North America new locomotives are expected to remain muted.",positive +"We anticipate strength in high-speed marine as +customers continue to upgrade aging fleets.",neutral +"Company Trends and Expectations +For the full-year 2023",neutral +", we expect sales to increase compared to 2022, supported by favorable price realization.",neutral +"Although we expect stronger sales of +equipment to end users in 2023, we do not anticipate a significant change in dealer inventory by year end.",positive +"2023 sales are expected to follow a more +traditional seasonal pattern, with first quarter being the lowest of the year.",positive +"Demand remains strong given the robust order backlog and improving +supply chain dynamics.",positive +"In addition, services momentum is expected to continue this year as we continue to execute our services growth strategy.",negative +"We expect sales to increase in the first quarter of 2023, compared to the first quarter of 2022, driven by favorable price realization and slightly +stronger sales volume, which reflects higher sales of equipment to end users.",positive +"We expect a seasonal build in dealer inventory in the first quarter of +2023.",positive +"Sales should increase across the three primary segments in the first quarter of 2023, compared to the first quarter of 2022.",positive +"We expect operating profit to increase in 2023, compared to 2022.",neutral +"Pricing actions from 2022 will continue to impact 2023 and we will evaluate future +actions as appropriate to offset inflationary pressures.",positive +"We currently expect to see moderation of price realization and input cost inflation throughout +2023.",neutral +Price realization is expected to more than offset manufacturing costs for 2023.,positive +"Increases in SG&A/R&D expenses are expected to exceed the +benefit of lower short-term incentive compensation expense in 2023 as we continue to invest in strategic initiatives such as services growth and +technology, including digital, electrification and autonomy.",negative +"We anticipate higher pension expense within other income (expense) in 2023, compared +to 2022, due to higher interest costs from higher interest rates.",positive +"This non-cash item is estimated to be just over $300 million for the full year, or about +$80 million per quarter.",positive +"Finally, the strengthening of the U.S. dollar in 2022 acted as a benefit to profit within other income (expense), which would +not re-occur if the weakening we have seen in rates continues.",negative +"Global Business Conditions +We continue to monitor a variety of external factors around the world, such as supply chain disruptions, inflationary cost and labor pressures.",neutral +"Areas +of particular focus include certain components, transportation and raw materials.",positive +Transportation shortages have resulted in delays and increased costs.,neutral +"In addition, our suppliers are dealing with availability issues and freight delays, which could impact production in our facilities.",neutral +"Contingency plans +have been developed and continue to be modified to minimize supply chain challenges that may impact our ability to meet increasing customer +demand.",positive +We continue to assess the environment and are taking appropriate price actions in response to rising costs.,positive +"Risk Factors +Risk factors are disclosed within Item 1A. Risk Factors of the 2022 Form 10-K. +Notes: +•Glossary of terms included on pages 35-37; first occurrence of terms shown in bold italics.",positive +•Information on non-GAAP financial measures is included on page 49.,neutral +•Some amounts within this report are rounded to the millions or billions and may not add.,neutral +"In addition, the sum of the components reported across +periods may not equal the total amount reported year-to-date due to rounding.",negative +"29Table of Contents +2022 COMPARED WITH 2021 +CONSOLIDATED SALES AND REVENUES",neutral +The chart above graphically illustrates reasons for the change in consolidated sales and revenues between 2021 (at left) and 2022 (at right).,positive +"Caterpillar management utilizes these charts +internally to visually communicate with the company’s Board of Directors and employees.",neutral +"Total sales and revenues for 2022 were $59.427 billion, an increase of $8.456 billion, or 17 percent, compared with $50.971 billion in 2021.",neutral +"The +increase was primarily due to favorable price realization and higher sales volume, partially offset by unfavorable currency impacts related to the euro, +Australian dollar and Japanese yen.",positive +"The increase in sales volume was driven by the impact from changes in dealer inventories, increased services +and higher sales of equipment to end users.",positive +"Dealers increased their inventories about $2.4 billion in 2022, compared to a decrease of about $100 +million in 2021.",neutral +Sales were higher in the three primary segments.,positive +"North America sales increased 29 percent driven by favorable price realization, the impact from changes in dealer inventories, increased services and +higher sales of equipment to end users.",positive +"Dealers increased inventories during 2022, compared to a decrease during 2021.",neutral +"Sales increased 33 percent in Latin America due to higher sales of equipment to end users, favorable price realization and the impact from changes in +dealer inventories.",positive +Dealers increased inventories more during 2022 than during 2021.,positive +"EAME sales increased 6 percent due to favorable price realization, the impact from changes in dealer inventories and higher sales of equipment to +end users, partially offset by unfavorable currency impacts related to the euro and British pound.",positive +"Dealers increased inventories more during 2022 +than during 2021.",positive +"Asia/Pacific sales increased 2 percent driven by favorable price realization, the impact from changes in dealer inventories and higher services, +partially offset by lower sales of equipment to end users and unfavorable currency impacts related to the Australian dollar and Japanese yen.",positive +"Dealers +increased their inventories during 2022, compared to remaining about flat during 2021.",negative +"Dealers increased their inventories about $2.4 billion in 2022, compared to a decrease of about $100 million in 2021.",neutral +"Dealers are independent, and +the reasons for changes in their inventory levels vary, including their expectations of future demand and product delivery times.",neutral +"Dealers’ demand +expectations take into account seasonal changes, macroeconomic conditions, machine rental rates and other factors.",negative +"Delivery times can vary based on +availability of product from Caterpillar factories and product distribution centers.",neutral +"We expect dealer inventories to be about flat in 2023 compared to +2022.",negative +"30Table of Contents +Sales and Revenues by Segment +(Millions of dollars)",neutral +"2021Sales +VolumePrice +Realization CurrencyInter- +Segment / +Other 2022$ +Change% +Change +Construction Industries $ 22,106 $ 1,231 $ 2,633 $ (731)$ 30 $ 25,269 $ 3,163 14 % +Resource Industries 9,810 1,372 1,333 (194) (7) 12,314 2,504 26 % +Energy & Transportation 20,287 1,972 1,216 (521) 798 23,752 3,465 17 % +All Other Segment 511 3 4 (7) (61) 450 (61) (12 %) +Corporate Items and Eliminations (4,526) 82 (7) — (760) (5,211) (685) +Machinery, Energy & Transportation 48,188 4,660 5,179 (1,453) — 56,574 8,386 17 % +Financial Products Segment 3,073 — — — 180 3,253 180 6 % +Corporate Items and Eliminations (290) — — — (110) (400) (110) +Financial Products Revenues 2,783 — — — 70 2,853 70 3 % +Consolidated Sales and Revenues $ 50,971 $ 4,660 $ 5,179 $ (1,453)$ 70 $ 59,427 $ 8,456 17 % +Sales and Revenues by Geographic Region +North America Latin America",negative +"EAME Asia/PacificExternal Sales and +Revenues Inter -Segment Total Sales and Revenues +(Millions of dollars) $ %",neutral +"Chg $ % Chg $ % Chg $ % Chg $ % Chg $ % Chg $ % Chg +2022 +Construction Industries $12,367 28% $ 2,843 49% $ 5,099 5% $ 4,818 (13%) $25,127 14% $ 142 27% $ 25,269 14 % +Resource Industries 4,531 52% 1,840 7% 2,205 11% 3,437 23% 12,013 26% 301 (2%) 12,314 26 % +Energy & Transportation 9,175 21% 1,784 45% 5,232 7% 3,146 8% 19,337 16% 4,415 22% 23,752 17 % +All Other Segment 64 14% 2 —% (66) (467%) 145",negative +"110% 145 —% 305 (17%) 450 (12 %) +Corporate Items and Eliminations (29) (1) (5) (13) (48) (5,163) (5,21 1) +Machinery , Energy & Transportation 26,108 29% 6,468 33% 12,465 6% 11,533 2% 56,574 17% — —% 56,574 17 % +Financial Products Segment 2,078 7% 348 31% 396 (1%) 431 (8%) 3,253 6% — —% 3,253 6 % +Corporate Items and Eliminations (205) (78) (47) (70) (400) — (400) +Financial Pr oducts Revenues 1,873 4% 270 26% 349 (5%) 361 (10%) 2,853 3% — —% 2,853 3 % +Consolidated Sales and Revenues $27,981 27% $ 6,738 32% $ 12,814 6% $ 11,894 1% $59,427 17% $ — —% $ 59,427 17 % +2021 +Construction Industries $ 9,676 $ 1,913 $ 4,858 $ 5,547 $21,994 $ 112 $ 22,106 +Resource Industries 2,987 1,724 1,987 2,804 9,502 308 9,810 +Energy & Transportation 7,611 1,233 4,908 2,918 16,670 3,617 20,287 +All Other Segment 56 2 18 69 145 366 511 +Corporate Items and Eliminations (106) (1) (1) (15) (123) (4,403) (4,526) +Machinery , Energy & Transportation 20,224 4,871 11,770 11,323 48,188 — 48,188 + +Financial Products Segment 1,935 265 402 471 3,073 — 3,073 +Corporate Items and Eliminations (136) (50) (35) (69) (290) — (290) +Financial Pr oducts Revenues 1,799 215 367 402 2,783 — 2,783 + +Consolidated Sales and Revenues $22,023 $ 5,086 $ 12,137 $ 11,725 $50,971 $ — $ 50,971 + Includes revenues from Machinery , Ener gy & Transportation of $478 million and $351 million in 2022 and 2021, respectively .1 +1 +1 +31Table of Contents +CONSOLIDATED OPERATING PROFIT",negative +The chart above graphically illustrates reasons for the change in consolidated operating profit between 2021 (at left) and 2022 (at right).,positive +"Caterpillar management utilizes these charts +internally to visually communicate with the company’s Board of Directors and employees.",neutral +"The bar entitled Other includes consolidating adjustments and Machinery, Energy & +Transportation other operating (income) expenses.",negative +"Operating profit was $7.904 billion in 2022, an increase of $1.026 billion, or 15 percent, compared with $6.878 billion in 2021.",neutral +"The increase was +primarily due to favorable price realization and higher sales volume, partially offset by higher manufacturing costs, a goodwill impairment charge, +higher SG&A/R&D expenses and higher restructuring costs.",positive +"Unfavorable manufacturing costs reflected higher material costs, freight and manufacturing inefficiencies.",positive +"The increase in SG&A/R&D expenses was +driven by investments aligned with the company's strategy for profitable growth, which included services growth and technology, such as digital, +electrification and autonomy, as well as higher short-term incentive compensation expense.",positive +"Short-term incentive compensation expense is directly related to financial and operational performance, measured against targets set annually.",neutral +"Expense for 2022 was about $1.4 billion, compared with $1.3 billion in 2021.",neutral +"For 2023, we expect short-term incentive compensation expense will +be about $1.1 billion.",neutral +"In 2022, the company took a goodwill impairment charge of $925 million and restructuring costs of $193 million related to the Rail division, both +primarily non-cash items.",positive +$180 million of the total Rail restructuring costs were recognized in the fourth quarter of 2022.,neutral +"The goodwill impairment +charge is related to a lower outlook for the company’s locomotive offerings.",neutral +"The restructuring costs were primarily related to write-downs in the +value of inventory.",neutral +"Operating profit margin was 13.3 percent in 2022, compared with 13.5 percent in 2021.",neutral +"Profit (Loss) by Segment +(Millions of dollars) 2022 2021$ +Change% +Change +Construction Industries $ 4,743 $ 3,732 $ 1,011 27 % +Resource Industries 1,827 1,229 598 49 % +Energy & Transportation 3,309 2,804 505 18 % +All Other Segment (11) (14) 3 21 % +Corporate Items and Eliminations (2,435) (1,388) (1,047) +Machinery, Energy & Transportation 7,433 6,363 1,070 17 % +Financial Products Segment 864 908 (44) (5 %) +Corporate Items and Eliminations 26 (92) 118 +Financial Products 890 816 74 9 % +Consolidating Adjustments (419) (301) (118) +Consolidated Operating Profit $ 7,904 $ 6,878 $ 1,026 15 % +32Table of Contents +Other Profit/Loss and Tax Items +•Interest expense excluding Financial Products in 2022 was $443 million, compared with $488 million in 2021.",negative +"The decrease was due to +lower average debt outstanding during 2022, compared with 2021.",positive +"Other income (expense) in 2022 was income of $1.291 billion, compared with income of $1.814 billion in 2021.",negative +"The change was primarily +due to lower mark-to-market gains for remeasurement of OPEB plans, lower pension and OPEB income and unrealized losses on +marketable securities, partially offset by higher investment and interest income.",positive +"•The provision for income taxes for 2022 reflected an annual effective tax rate of 23.2 percent, compared with 22.9 percent for 2021, +excluding the discrete items discussed below.",positive +"On September 8, 2022, the company reached a settlement with the U.S. Internal Revenue Service (IRS) that resolves all issues for tax years +2007 through 2016, without any penalties.",neutral +"The company’s settlement includes, among other issues, the resolution of disputed tax treatment +of profits earned by Caterpillar SARL (CSARL) from certain parts transactions.",positive +"We vigorously contested the IRS’s application of the +“substance-over-form” or “assignment-of-income” judicial doctrines and its proposed increases to tax and imposition of accuracy related +penalties.",neutral +"The settlement does not include any increases to tax in the United States based on those judicial doctrines and does not include +any penalties.",neutral +The final tax assessed by the IRS for all issues under the settlement was $490 million for the ten-year period.,neutral +"This amount was +primarily paid in 2022 along with the associated interest of $250 million.",positive +"The settlement was within the total amount of gross unrecognized +tax benefits for uncertain tax positions and enables us to avoid the costs and burdens of further disputes with the IRS.",neutral +"As a result of the +settlement, we recorded a discrete tax benefit of $41 million in 2022 to reflect changes in estimates of prior years’ taxes and related interest, +net of tax.",neutral +"We are subject to the continuous examination of our income tax returns by the IRS, and tax years 2017 to 2019 are currently +under examination.",negative +The provision for income taxes also included the following:,neutral +◦,neutral +"A tax charge of $124 million related to $606 million of pension and OPEB mark-to-market gains in 2022, compared to a $190 +million tax charge related to $833 million of mark-to-market gains in 2021.",neutral +"◦A tax benefit of $49 million to reflect other changes in estimates related to prior year’s U.S. taxes in 2022 compared to $36 million +in 2021.",negative +◦A tax benefit of $36 million related to the $925 million goodwill impairment charge in 2022.,neutral +"◦A tax benefit of $33 million in 2022, compared with $63 million in 2021, for the settlement of stock-based compensation awards +with associated tax deductions in excess of cumulative U.S. GAAP compensation expense.",neutral +◦A tax benefit of $38 million in 2021 to recognize U.S. capital losses.,neutral +"Construction Industries +Construction Industries’ total sales were $25.269 billion in 2022, an increase of $3.163 billion, or 14 percent, compared with $22.106 billion in 2021.",neutral +"The increase was due to favorable price realization and higher sales volume, partially offset by unfavorable currency impacts related to the euro, +Japanese yen and Australian dollar.",positive +"The increase in sales volume was driven by the impact from changes in dealer inventories and higher sales of +aftermarket parts, partially offset by lower sales of equipment to end users.",positive +"Dealers increased inventories during 2022, compared to remaining about +flat in 2021.",negative +"•In North America, sales increased due to favorable price realization, the impact from changes in dealer inventories, higher sales of +equipment to end users and higher sales of aftermarket parts.",positive +"Dealers decreased inventories during 2021, compared with an increase during +2022.",negative +"•Sales increased in Latin America primarily due to higher sales of equipment to end users, favorable price realization and the impact from +changes in dealer inventories.",positive +Dealers increased inventories more during 2022 than during 2021.,positive +"•In EAME, sales increased due to favorable price realization and the impact from changes in dealer inventories, partially offset by +unfavorable currency impacts related to the euro.",negative +Dealers increased inventories more during 2022 than during 2021.,positive +"•Sales decreased in Asia/Pacific due to lower sales of equipment to end users and unfavorable currency impacts related to the Japanese yen +and Australian dollar, partially offset by favorable price realization.",negative +"33Table of Contents +Construction Industries’ profit was $4.743 billion in 2022, an increase of $1.011 billion, or 27 percent, compared with $3.732 billion in 2021.",neutral +"The +increase was mainly due to favorable price realization and higher sales volume, partially offset by unfavorable manufacturing costs and higher +SG&A/R&D expenses.",positive +"Unfavorable manufacturing costs largely reflected higher material costs, freight and the impact of manufacturing +inefficiencies.",positive +The increase in SG&A/R&D expenses was primarily driven by investments aligned with strategic initiatives.,positive +"Construction Industries’ profit as a percent of total sales was 18.8 percent in 2022, compared with 16.9 percent in 2021.",neutral +"Resource Industries +Resource Industries’ total sales were $12.314 billion in 2022, an increase of $2.504 billion, or 26 percent, compared with $9.810 billion in 2021.",neutral +"The +increase was due to higher sales volume and favorable price realization.",positive +"The increase in sales volume was driven by the impact from changes in +dealer inventories, higher sales of equipment to end users and higher sales of aftermarket parts.",positive +"Dealers increased inventories during 2022, compared +with a decrease during 2021.",neutral +"Resource Industries’ profit was $1.827 billion in 2022, an increase of $598 million, or 49 percent, compared with $1.229 billion in 2021.",neutral +"The increase +was mainly due to favorable price realization and higher sales volume, partially offset by unfavorable manufacturing costs and higher SG&A/R&D +expenses.",positive +Unfavorable manufacturing costs largely reflected higher material costs and freight.,positive +"The increase in SG&A/R&D expenses was primarily +driven by investments aligned with strategic initiatives.",positive +"Resource Industries’ profit as a percent of total sales was 14.8 percent for 2022, compared with 12.5 percent for 2021.",neutral +"Energy & Transportation +Sales by Application +(Millions of dollars)2022 2021$ +Change% + Change +Oil and Gas $ 5,330 $ 4,460 $ 870 20 % +Power Generation 4,940 4,292 648 15 % +Industrial 4,426 3,612 814 23 % +Transportation 4,641 4,306 335 8 % +External Sales 19,337 16,670 2,667 16 % +Inter-Segment 4,415 3,617 798 22 % +Total Sales $ 23,752 $ 20,287 $ 3,465 17 % +Energy & Transportation’s total sales were $23.752 billion in 2022, an increase of $3.465 billion, or 17 percent, compared with $20.287 billion in +2021.",neutral +Sales increased across all applications and inter-segment sales.,neutral +"The increase in sales was primarily due to higher sales volume and favorable +price realization, partially offset by unfavorable currency impacts related to the euro, British pound and Australian dollar.",positive +"•Oil and Gas – Sales increased due to higher sales of reciprocating engine aftermarket parts and engines used in well servicing and gas +compression applications.",positive +Turbines and turbine-related services were about flat.,negative +•Power Generation – Sales primarily increased in reciprocating engines and aftermarket parts.,positive +•Industrial – Sales increased due to higher demand across all regions.,positive +"•Transportation – Sales increased primarily in reciprocating aftermarket parts and engines, mostly driven by marine applications.",positive +"Rail +services also increased.",neutral +"Energy & Transportation’s profit was $3.309 billion in 2022, an increase of $505 million, or 18 percent, compared with $2.804 billion in 2021.",neutral +Unfavorable manufacturing costs and higher SG&A/R&D expenses were more than offset by favorable price realization and higher sales volume.,positive +"Unfavorable manufacturing costs largely reflected higher material costs, freight, period manufacturing costs and the impact of manufacturing +inefficiencies.",positive +"The increase in SG&A/R&D expenses was primarily driven by investments aligned with strategic initiatives and higher short-term +incentive compensation expense.",positive +"Energy & Transportation’s profit as a percent of total sales was 13.9 percent in 2022, compared with 13.8 percent in 2021.",neutral +"Financial Products Segment +Financial Products’ segment revenues were $3.253 billion for the year ended December 31, 2022, an increase of $180 million, or 6 percent, compared +with $3.073 billion for the year ended December 31, 2021.",neutral +"The increase was primarily due to higher average financing rates across all regions and a +favorable impact from returned or repossessed equipment in North America.",negative +"34Table of Contents +Financial Products’ segment profit was $864 million for the year ended December 31, 2022, a decrease of $44 million, or 5 percent, compared with +$908 million for the year ended December 31, 2021.",neutral +"The decrease was mainly due to an unfavorable impact from equity securities in Insurance +Services, partially offset by a favorable impact from returned or repossessed equipment.",negative +"At the end of 2022, past dues at Cat Financial were 1.89 percent, compared with 1.95 percent at the end of 2021.",negative +"Write-offs, net of recoveries, were +$46 million for 2022, compared with $205 million for 2021.",neutral +"As of December 31, 2022, Cat Financial's allowance for credit losses totaled $346 +million, or 1.29 percent of finance receivables, compared with $337 million, or 1.22 percent of finance receivables, at December 31, 2021.",neutral +"Corporate Items and Eliminations +Expense for corporate items and eliminations was $2.409 billion in 2022, an increase of $929 million from 2021, primarily driven by a goodwill +impairment charge and higher restructuring costs, partially offset by favorable impacts of segment reporting methodology and a favorable change in +fair value adjustments related to deferred compensation plans.",positive +"In 2022, the company took a goodwill impairment charge of $925 million and restructuring costs of $193 million related to the Rail division, both +primarily non-cash items.",positive +$180 million of the total Rail restructuring costs were recognized in the fourth quarter of 2022.,neutral +"The goodwill impairment +charge is related to a lower outlook for the company’s locomotive offerings.",neutral +"The restructuring costs were primarily related to write-downs in the +value of inventory.",neutral +2021 COMPARED WITH 2020,neutral +"For discussions related to the consolidated sales and revenue and consolidated operating profit between 2021 and 2020, refer to Part II, Item 7.",neutral +"Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company's Annual Report on Form 10-K for the +fiscal year ended December 31, 2021, which was filed with the United States Securities and Exchange Commission on February 16, 2022 and hereby +incorporated by reference.",neutral +"RESTRUCTURING COSTS +On February 1, 2023, we closed on the divestiture of our Longwall business.",negative +"As a result, we recorded a pre-tax loss of approximately $600 million, of +which $494 million was related to the release of accumulated foreign currency translation associated with this divestiture.",negative +"This loss, primarily non- +cash, will be included in our first quarter 2023 restructuring costs and is subject to the finalization of post-closing procedures.",positive +"In addition, we expect +to incur about $100 million of restructuring costs in 2023 primarily related to strategic actions to address a small number of products.",negative +"We expect that prior restructuring actions will result in an incremental benefit to operating costs, primarily Costs of goods sold and SG&A expenses +of about $100 million in 2023 compared with 2022.",positive +"Additional information related to restructuring costs is included in Note 25 - ""Restructuring Costs"" of Part II, Item 8 ""Financial Statements and +Supplemental Data.",neutral +""" +GLOSSARY OF TERMS +1.Adjusted Operating Profit Margin – Operating profit excluding goodwill impairment charges and restructuring income/costs as a percent of +sales and revenues.",neutral +"2.Adjusted Profit Per Share – Profit per share excluding goodwill impairment charges, pension and OPEB mark-to-market gains/losses and +restructuring income/costs.",neutral +"3.All Other Segment – Primarily includes activities such as: business strategy; product management and development; manufacturing and +sourcing of filters and fluids, undercarriage, ground-engaging tools, fluid transfer products, precision seals, rubber sealing and connecting +components primarily for Cat® products; parts distribution; integrated logistics solutions; distribution services responsible for dealer +development and administration, including a wholly owned dealer in Japan; dealer portfolio management and ensuring the most efficient and +effective distribution of machines, engines and parts; brand management and marketing strategy; and digital investments for new customer and +dealer solutions that integrate data analytics with state-of-the-art digital technologies while transforming the buying experience.",positive +"4.Consolidating Adjustments – Elimination of transactions between Machinery, Energy & Transportation and Financial Products.",neutral +"35Table of Contents +5.Construction Industries – A segment primarily responsible for supporting customers using machinery in infrastructure and building +construction applications.",positive +"Responsibilities include business strategy, product design, product management and development, manufacturing, +marketing and sales and product support.",neutral +"The product portfolio includes asphalt pavers; backhoe loaders; compactors; cold planers; compact +track and multi-terrain loaders; mini, small, medium and large track excavators; forestry machines; material handlers; motor graders; pipelayers; +road reclaimers; skid steer loaders; telehandlers; small and medium track-type tractors; track-type loaders; wheel excavators; compact, small and +medium wheel loaders; and related parts and work tools.",negative +"6.Corporate Items and Eliminations – Includes corporate-level expenses, timing differences (as some expenses are reported in segment profit on +a cash basis), methodology differences between segment and consolidated external reporting, certain restructuring costs and inter-segment +eliminations.",positive +"7.Currency – With respect to sales and revenues, currency represents the translation impact on sales resulting from changes in foreign currency +exchange rates versus the U.S. dollar.",negative +"With respect to operating profit, currency represents the net translation impact on sales and operating costs +resulting from changes in foreign currency exchange rates versus the U.S. dollar.",negative +"Currency only includes the impact on sales and operating profit +for the Machinery, Energy & Transportation line of business; currency impacts on Financial Products revenues and operating profit are included +in the Financial Products portions of the respective analyses.",neutral +"With respect to other income/expense, currency represents the effects of forward +and option contracts entered into by the company to reduce the risk of fluctuations in exchange rates (hedging) and the net effect of changes in +foreign currency exchange rates on our foreign currency assets and liabilities for consolidated results (translation).",negative +"8.Dealer Inventories – Represents dealer machine and engine inventories, excluding aftermarket parts.",neutral +"9.EAME – A geographic region including Europe, Africa, the Middle East and the Commonwealth of Independent States (CIS).",neutral +"10.Earning Assets – Assets consisting primarily of total finance receivables net of unearned income, plus equipment on operating leases, less +accumulated depreciation at Cat Financial. +11.Energy & Transportation – A segment primarily responsible for supporting customers using reciprocating engines, turbines, diesel-electric +locomotives and related services across industries serving Oil and Gas, Power Generation, Industrial and Transportation applications, including +marine- and rail-related businesses.",positive +"Responsibilities include business strategy, product design, product management, development and testing +manufacturing, marketing and sales and product support.",neutral +"The product and services portfolio includes turbines, centrifugal gas compressors, and +turbine-related services; reciprocating engine-powered generator sets; integrated systems and solutions used in the electric power generation +industry; reciprocating engines, drivetrain and integrated systems and solutions for the marine and oil and gas industries; reciprocating engines, +drivetrain and integrated systems and solutions supplied to the industrial industry as well as Cat machinery; electrified powertrain and zero- +emission power sources and service solutions development; and diesel-electric locomotives and components and other rail-related products and +services, including remanufacturing and leasing.",negative +"Responsibilities also include the remanufacturing of Caterpillar reciprocating engines and +components and remanufacturing services for other companies; and product support of on-highway vocational trucks for North America.",positive +"12.Financial Products – The company defines Financial Products as our finance and insurance subsidiaries, primarily Caterpillar Financial +Services Corporation (Cat Financial) and Caterpillar Insurance Holdings Inc. (Insurance Services).",positive +"Financial Products’ information relates to the +financing to customers and dealers for the purchase and lease of Caterpillar and other equipment. +13.Financial Products Segment – Provides financing alternatives to customers and dealers around the world for Caterpillar products and services, +as well as financing for vehicles, power generation facilities and marine vessels that, in most cases, incorporate Caterpillar products.",positive +"Financing +plans include operating and finance leases, installment sale contracts, repair/rebuild financing, working capital loans and wholesale financing +plans.",neutral +"The segment also provides insurance and risk management products and services that help customers and dealers manage their business +risk.",neutral +"Insurance and risk management products offered include physical damage insurance, inventory protection plans, extended service coverage +and maintenance plans for machines and engines, and dealer property and casualty insurance.",neutral +"The various forms of financing, insurance and risk +management products offered to customers and dealers help support the purchase and lease of Caterpillar equipment.",neutral +"The segment also earns +revenues from Machinery, Energy & Transportation, but the related costs are not allocated to operating segments.",neutral +"Financial Products’ segment +profit is determined on a pretax basis and includes other income/expense items.",negative +"14.Latin America – A geographic region including Central and South American countries and Mexico. +15.Machinery, Energy & Transportation (ME&T) – The company defines ME&T as Caterpillar Inc. and its subsidiaries, excluding Financial +Products.",neutral +"ME&T’s information relates to the design, manufacturing and marketing of its products.",neutral +"36Table of Contents +16.Machinery, Energy & Transportation Other Operating (Income) Expenses – Comprised primarily of gains/losses on disposal of long-lived +assets, gains/losses on divestitures and legal settlements and accruals.",positive +"17.Manufacturing Costs – Manufacturing costs exclude the impacts of currency and represent the volume-adjusted change for variable costs and +the absolute dollar change for period manufacturing costs.",positive +"Variable manufacturing costs are defined as having a direct relationship with the +volume of production.",positive +"This includes material costs, direct labor and other costs that vary directly with production volume, such as freight, power +to operate machines and supplies that are consumed in the manufacturing process.",positive +"Period manufacturing costs support production but are defined +as generally not having a direct relationship to short-term changes in volume.",positive +"Examples include machinery and equipment repair, depreciation on +manufacturing assets, facility support, procurement, factory scheduling, manufacturing planning and operations management.",neutral +"18.Mark-to-market gains/losses – Represents the net gain or loss of actual results differing from the company’s assumptions and the effects of +changing assumptions for our defined benefit pension and OPEB plans.",neutral +"These gains and losses are immediately recognized through earnings +upon the annual remeasurement in the fourth quarter, or on an interim basis as triggering events warrant remeasurement.",neutral +19.Pension and Other Postemployment Benefits (OPEB) –,negative +The company’s defined-benefit pension and postretirement benefit plans.,neutral +20.Price Realization – The impact of net price changes excluding currency and new product introductions.,positive +"Price realization includes geographic +mix of sales, which is the impact of changes in the relative weighting of sales prices between geographic regions.",neutral +"21.Resource Industries – A segment primarily responsible for supporting customers using machinery in mining, heavy construction and quarry and +aggregates.",positive +"Responsibilities include business strategy, product design, product management and development, manufacturing, marketing and +sales and product support.",neutral +"The product portfolio includes large track-type tractors; large mining trucks; hard rock vehicles; longwall miners; +electric rope shovels; draglines; hydraulic shovels; rotary drills; large wheel loaders; off-highway trucks; articulated trucks; wheel tractor +scrapers; wheel dozers; landfill compactors; soil compactors; select work tools; machinery components; electronics and control systems and +related parts.",positive +"In addition to equipment, Resource Industries also develops and sells technology products and services to provide customers fleet +management, equipment management analytics, autonomous machine capabilities, safety services and mining performance solutions.",positive +"Resource +Industries also manages areas that provide services to other parts of the company, including strategic procurement, lean center of excellence, +integrated manufacturing, research and development for hydraulic systems, automation, electronics and software for Cat machines and engines.",negative +"22.Restructuring Costs – May include costs for employee separation, long-lived asset impairments and contract terminations.",neutral +"These costs are +included in Other operating (income) expenses except for defined-benefit plan curtailment losses and special termination benefits, which are +included in Other income (expense).",positive +"Restructuring costs also include other exit-related costs, which may consist of accelerated depreciation, +inventory write-downs, building demolition, equipment relocation and project management costs and LIFO inventory decrement benefits from +inventory liquidations at closed facilities, all of which are primarily included in Cost of goods sold.",positive +"23.Sales Volume – With respect to sales and revenues, sales volume represents the impact of changes in the quantities sold for Machinery, Energy +& Transportation as well as the incremental sales impact of new product introductions, including emissions-related product updates.",positive +"With respect +to operating profit, sales volume represents the impact of changes in the quantities sold for Machinery, Energy & Transportation combined with +product mix as well as the net operating profit impact of new product introductions, including emissions-related product updates.",positive +"Product mix +represents the net operating profit impact of changes in the relative weighting of Machinery, Energy & Transportation sales with respect to total +sales.",neutral +The impact of sales volume on segment profit includes inter-segment sales.,neutral +"24.Services – Enterprise services include, but are not limited to, aftermarket parts, Financial Products revenues and other service-related revenues. +Machinery, Energy & Transportation segments exclude most Financial Products revenues.",positive +"37Table of Contents +LIQUIDITY AND CAPITAL RESOURCES + +Sources of funds + +We generate significant capital resources from operating activities, which are the primary source of funding for our ME&T operations.",positive +"Funding for +these businesses is also available from commercial paper and long-term debt issuances.",positive +"Financial Products’ operations are funded primarily from +commercial paper, term debt issuances and collections from its existing portfolio.",positive +"During 2022, we had positive operating cash flow within both our +ME&T and Financial Products' operations.",positive +"On a consolidated basis, we ended 2022 with $7.00 billion of cash, a decrease of $2.25 billion from year- +end 2021.",neutral +"In addition, ME&T has invested in available-for-sale debt securities that are considered highly liquid and are available for current +operations.",positive +"These securities are included in Prepaid expenses and other current assets and Other assets in the Consolidated Statement of Financial +Position and were $1.48 billion at the end of December 31, 2022.",negative +We intend to maintain a strong cash and liquidity position.,positive +"Consolidated operating cash flow for 2022 was $7.77 billion, up $568 million compared to 2021.",neutral +"The increase was primarily due to higher profit +before taxes adjusted for non-cash items and decreased working capital requirements.",negative +"Within working capital, changes in receivables, customer +advances and accrued expenses favorably impacted cash flow, but were partially offset by changes in accounts payable.",negative +"Partially offsetting these +items were higher payments for short-term incentive compensation in the first quarter of 2022 as well as higher cash taxes paid which includes +payments related to settlements with the U.S. Internal Revenue Service.",positive +"Total debt as of December 31, 2022 was $36.99 billion, a decrease of $796 million from year-end 2021.",neutral +"Debt related to ME&T decreased $174 +million in 2022.",negative +Debt related to Financial products decreased by $617 million due to portfolio funding requirements.,negative +"We have three global credit facilities with a syndicate of banks totaling $10.50 billion (Credit Facility) available in the aggregate to both Caterpillar +and Cat Financial for general liquidity purposes.",positive +"Based on management’s allocation decision, which can be revised from time to time, the portion of +the Credit Facility available to ME&T as of December 31, 2022 was $2.75 billion.",positive +"Information on our Credit Facility is as follows: +•In September 2022, we entered into a new 364-day facility.",positive +"The 364-day facility of $3.15 billion (of which $825 million is available to +ME&T) expires in August 2023.",positive +"•In September 2022, we amended and restated the three-year facility (as amended and restated, the ""three-year facility"").",neutral +"The three-year +facility of $2.73 billion (of which $715 million is available to ME&T) expires in August 2025.",positive +"•In September 2022, we amended and restated the five-year facility (as amended and restated, the ""five-year facility"").",neutral +"The five-year facility +of $4.62 billion (of which $1.21 billion is available to ME&T) expires in September 2027.",positive +"At December 31, 2022, Caterpillar’s consolidated net worth was $15.93 billion, which was above the $9.00 billion required under the Credit Facility.",positive +"The consolidated net worth is defined as the consolidated shareholders' equity including preferred stock but excluding the pension and other +postretirement benefits balance within Accumulated other comprehensive income (loss).",positive +"At December 31, 2022, Cat Financial’s covenant interest coverage ratio was 2.36 to 1.",neutral +"This was above the 1.15 to 1 minimum ratio, calculated as +(1) profit excluding income taxes, interest expense and net gain/(loss) from interest rate derivatives to (2) interest expense calculated at the end of +each calendar quarter for the rolling four quarter period then most recently ended, required by the Credit Facility.",positive +"In addition, at December 31, 2022, Cat Financial’s six-month covenant leverage ratio was 7.05 to 1 and year-end covenant leverage ratio was 7.21 to +1.",neutral +"This was below the maximum ratio of debt to net worth of 10 to 1, calculated (1) on a monthly basis as the average of the leverage ratios +determined on the last day of each of the six preceding calendar months and (2) at each December 31, required by the Credit Facility. +38Table of Contents +In the event Caterpillar or Cat Financial does not meet one or more of their respective financial covenants under the Credit Facility in the future (and +are unable to obtain a consent or waiver), the syndicate of banks may terminate the commitments allocated to the party that does not meet its +covenants.",positive +"Additionally, in such event, certain of Cat Financial's other lenders under other loan agreements where similar financial covenants or cross +default provisions are applicable, may, at their election, choose to pursue remedies under those loan agreements, including accelerating the repayment +of outstanding borrowings.",positive +"At December 31, 2022, there were no borrowings under the Credit Facility.",neutral +"Our total credit commitments and available credit as of December 31, 2022 were: + December 31, 2022 +(Millions of dollars)",positive +"ConsolidatedMachinery , +Energy & +TransportationFinancial +Products +Credit lines available: +Global credit facilities $ 10,500 $ 2,750 $ 7,750 +Other external 3,649 158 3,491 +Total credit lines available 14,149 2,908 11,241 +Less:",positive +"Commercial paper outstanding (5,455) — (5,455) +Less: Utilized credit (982) (3) (979) +Available credit $ 7,712 $ 2,905 $ 4,807 + +The other consolidated credit lines with banks as of December 31, 2022 totaled $3.65 billion.",positive +"These committed and uncommitted credit lines, which +may be eligible for renewal at various future dates or have no specified expiration date, are used primarily by our subsidiaries for local funding +requirements.",positive +Caterpillar or Cat Financial may guarantee subsidiary borrowings under these lines.,neutral +We receive debt ratings from the major credit rating agencies.,positive +"Moody’s, Fitch and S&P maintain a “mid-A” debt rating.",neutral +"A downgrade of our credit +ratings by any of the major credit rating agencies could result in increased borrowing costs and could make access to certain credit markets more +difficult.",positive +"In the event economic conditions deteriorate such that access to debt markets becomes unavailable, ME&T’s operations would rely on cash +flow from operations, use of existing cash balances, borrowings from Cat Financial and access to our committed credit facilities.",positive +"Our Financial +Products’ operations would rely on cash flow from its existing portfolio, existing cash balances, access to our committed credit facilities and other +credit line facilities of Cat Financial, and potential borrowings from Caterpillar.",negative +"In addition, we maintain a support agreement with Cat Financial, +which requires Caterpillar to remain the sole owner of Cat Financial and may, under certain circumstances, require Caterpillar to make payments to +Cat Financial should Cat Financial fail to maintain certain financial ratios.",negative +We facilitate voluntary supply chain finance programs (the “Programs”) through participating financial institutions.,neutral +"The Programs are available to a +wide range of suppliers and allow them the option to manage their cash flow.",positive +"We are not a party to the agreements between the participating financial +institutions and the suppliers in connection with the Programs.",neutral +"The range of payment terms we negotiate with our suppliers is consistent, irrespective +of whether a supplier participates in the Programs.",positive +"The amounts payable to participating financial institutions for suppliers who voluntarily +participate in the Programs and included in accounts payable in the Consolidated Statement of Financial Position were $862 million and $822 million +at December 31, 2022 and December 31, 2021, respectively.",neutral +"The amounts settled through the Programs and paid to participating financial institutions +were $5.4 billion and $4.1 billion in 2022 and 2021, respectively.",neutral +"We account for payments made under the Programs, the same as our other accounts +payable, as a reduction to our cash flows from operations.",negative +"We do not believe that changes in the availability of supply chain financing will have a +significant impact on our liquidity.",positive +"Material cash requirements for contractual obligations +We believe our balances of cash and cash equivalents of $7.00 billion and available-for-sale debt securities of $1.48 billion as of December 31, 2022, +along with cash generated by ongoing operations and continued access to debt markets, will be sufficient to satisfy our cash requirements over the +next 12 months and beyond.",neutral +"We have committed cash outflows related to postretirement benefit obligations, long-term debt and operating lease agreements.",neutral +"See Notes 12, 14 and +20, respectively, of Part II, Item 8 “Financial Statements and Supplementary Data” for additional information.",neutral +"39Table of Contents +We have short-term obligations related to the purchase of goods and services made in the ordinary course of business.",negative +"These consist of invoices +received and recorded as liabilities as of December 31, 2022, but scheduled for payment in 2023 of $8.69 billion.",neutral +"In addition, we have contractual +obligations for material and services on order at December 31, 2022, but not yet invoiced or delivered, of $7.64 billion.",neutral +"We also have long-term contractual obligations primarily for logistics services agreements; systems support, software licenses and development +contracts; information technology consulting contracts and outsourcing contracts for benefit plan administration.",positive +"These obligations total $1.06 billion, +with $537 million due in the next 12 months.",negative +"Machinery, Energy & Transportation + +Net cash provided by operating activities was $6.36 billion in 2022, compared with $7.18 billion in 2021.",neutral +"The decrease was primarily due to +payments for short-term incentive compensation in the first quarter of 2022, higher payments for taxes which includes payments related to +settlements with the U.S. Internal Revenue Service and increased working capital requirements in 2022.",positive +"Within working capital, changes in accounts +payable unfavorably impacted cash flow but were partially offset by favorable changes in customer advances and accounts receivable.",negative +"Partially +offsetting these items were higher profit before taxes adjusted for non-cash items.",positive +"Net cash used for investing activities in 2022 was $1.81 billion, compared with net cash used of $1.23 billion in 2021.",neutral +"The change was primarily due +to decreased activity related to intercompany lending with Financial Products and was partially offset by decreases in net investment activity.",negative +"Net cash used for financing activities during 2022 was $6.80 billion, compared with net cash used of $6.30 billion in 2021.",neutral +"The change was primarily +due to higher share repurchases in 2022 and the absence of proceeds from debt issuance which occurred in 2021.",positive +"These items were partially offset by +lower repayments of maturing debt in 2022.",negative +"While our short-term priorities for the use of cash may vary from time to time as business needs and conditions dictate, our long-term cash +deployment strategy is focused on the following priorities.",neutral +Our top priority is to maintain a strong financial position in support of a mid-A rating.,positive +"Next, we intend to fund operational requirements and commitments.",neutral +"Then, we intend to fund priorities that profitably grow the company and return +capital to shareholders through dividend growth and share repurchases.",neutral +"Additional information on cash deployment is as follows: + +Strong financial position — Our top priority is to maintain a strong financial position in support of a mid-A rating.",positive +"We track a diverse group of +financial metrics that focus on liquidity, leverage, cash flow and margins which align with our cash deployment actions and the various +methodologies used by the major credit rating agencies.",positive +"Operational excellence and commitments — Capital expenditures were $1.30 billion during 2022, compared to $1.13 billion in 2021.",neutral +"We +expect ME&T’s capital expenditures in 2023 to be around $1.5 billion.",neutral +"We made $346 million of contributions to our pension and OPEB plans +during 2022.",neutral +"In comparison, we made $340 million of contributions to our pension and OPEB plans in 2021.",neutral +"We expect to make approximately +$372 million of contributions to our pension and OPEB plans in 2023.",negative +"Fund strategic growth initiatives and return capital to shareholders — We intend to utilize our liquidity and debt capacity to fund targeted +investments that drive long-term profitable growth focused in the areas of expanded offerings and services, including acquisitions.",neutral +"As part of our capital allocation strategy, ME&T free cash flow is a liquidity measure we use to determine the cash generated and available for +financing activities including debt repayments, dividends and share repurchases.",positive +"We define ME&T free cash flow as cash from ME&T +operations less capital expenditures, excluding discretionary pension and other postretirement benefit plan contributions and cash payments +related to settlements with the U.S. Internal Revenue Service.",positive +"A goal of our capital allocation strategy is to return substantially all ME&T free +cash flow to shareholders over time in the form of dividends and share repurchases, while maintaining our mid-A rating.",positive +"40Table of Contents +Our share repurchase plans are subject to the company’s cash deployment priorities and are evaluated on an ongoing basis considering the +financial condition of the company and the economic outlook, corporate cash flow, the company's liquidity needs and the health and stability of +global credit markets.",positive +The timing and amount of future repurchases may vary depending on market conditions and investing priorities.,neutral +"In July +2018, the Board of Directors approved an authorization to repurchase up to $10.0 billion of Caterpillar common stock (the 2018 Authorization) +effective January 1, 2019, with no expiration.",positive +"In May 2022, the Board approved a new share repurchase authorization (the 2022 Authorization) +of up to $15.0 billion of Caterpillar common stock effective August 1, 2022 with no expiration.",positive +"Utilization of the 2022 Authorization for all share +repurchases commenced on August 1, 2022, leaving $70 million unutilized under the 2018 Authorization.",neutral +"In 2022, we repurchased $4.23 billion +of Caterpillar common stock, with $12.8 billion remaining under the 2022 Authorization as of December 31, 2022.",negative +"Caterpillar's basic shares +outstanding as of December 31, 2022 were approximately 516 million.",positive +"Each quarter, our Board of Directors reviews the company's dividend for the applicable quarter.",neutral +"The Board evaluates the financial condition of +the company and considers the economic outlook, corporate cash flow, the company's liquidity needs, and the health and stability of global credit +markets to determine whether to maintain or change the quarterly dividend.",positive +"In December 2022, the Board of Directors approved maintaining our +quarterly dividend representing $1.20 per share and we continue to expect our strong financial position to support the dividend.",positive +"Dividends paid +totaled $2.44 billion in 2022.",neutral +"Financial Products + +Financial Products operating cash flow was $1.52 billion in 2022, compared with $1.42 billion in 2021.",neutral +"Net cash used for investing activities was +$356 million in 2022, compared with $1.40 billion used in 2021.",neutral +"The change was primarily due to portfolio related activity partially offset by lower +proceeds from disposal of equipment.",negative +"Net cash used for financing activities was $964 million in 2022, compared with net cash provided of $257 +million in 2021.",neutral +The change was primarily due to lower portfolio funding requirements.,negative +"Off-balance sheet arrangements +We are a party to certain off-balance sheet arrangements, primarily in the form of guarantees.",positive +"Information related to guarantees appears in Note 21 – +“Guarantees and product warranty” of Part II, Item 8 “Financial Statements and Supplementary Data.”",neutral +"RECENT ACCOUNTING PRONOUNCEMENTS +For a discussion of recent accounting pronouncements, see Note 1J — “New accounting guidance” of Part II, Item 8 “Financial Statements and +Supplementary Data.” +CRITICAL ACCOUNTING ESTIMATES + +The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and +assumptions that affect reported amounts.",positive +"The more significant estimates include: residual values for leased assets, fair values for goodwill +impairment tests, warranty liability, reserves for product liability and insurance losses, postretirement benefits, post-sale discounts, credit losses and +income taxes.",positive +"We have incorporated many years of data into the determination of each of these estimates and we have not historically experienced +significant adjustments.",positive +We review these assumptions at least annually with the Audit Committee of the Board of Directors.,negative +"Following are the +methods and assumptions used in determining our estimates and an indication of the risks inherent in each.",neutral +"Residual values for leased assets – We determine the residual value of Cat Financial’s leased equipment based on its estimated end-of-term market +value.",neutral +"We estimate the residual value of leased equipment at the inception of the lease based on a number of factors, including historical wholesale +market sales prices, past remarketing experience and any known significant market/product trends.",positive +"We also consider the following critical factors in +our residual value estimates: lease term, market size and demand, total expected hours of usage, machine configuration, application, location, model +changes, quantities, third-party residual guarantees and contractual customer purchase options.",negative +"Upon termination of the lease, the equipment is either purchased by the lessee or sold to a third-party, in which case we may record a gain or a loss +for the difference between the estimated residual value and the sale price. +41Table of Contents +During the term of our leases, we monitor residual values.",neutral +"For operating leases, we record adjustments to depreciation expense reflecting changes in +residual value estimates prospectively on a straight-line basis.",neutral +"For finance leases, we recognize residual value adjustments through a reduction of +finance revenue over the remaining lease term.",neutral +We evaluate the carrying value of equipment on operating leases for potential impairment when we determine a triggering event has occurred.,neutral +"When +a triggering event occurs, we perform a test for recoverability by comparing projected undiscounted future cash flows to the carrying value of the +equipment on operating leases.",neutral +"If the test for recoverability identifies a possible impairment, we measure the fair value of the equipment on operating +leases in accordance with the fair value measurement framework.",positive +"We recognize an impairment charge for the amount by which the carrying value of +the equipment on operating leases exceeds its estimated fair value.",positive +"At December 31, 2022, the aggregate residual value of equipment on operating leases was $1.71 billion.",neutral +"Without consideration of other factors such +as third-party residual guarantees or contractual customer purchase options, a 10 percent non-temporary decrease in the market value of our +equipment subject to operating leases would reduce residual value estimates and result in the recognition of approximately $80 million of additional +annual depreciation expense.",negative +"Fair values for goodwill impairment tests – We test goodwill for impairment annually, at the reporting unit level, and whenever events or +circumstances make it more likely than not that an impairment may have occurred, such as a significant adverse change in the business climate or a +decision to sell all or a portion of a reporting unit.",positive +"We perform our annual goodwill impairment test as of October 1 and monitor for interim triggering +events on an ongoing basis.",neutral +We review goodwill for impairment utilizing either a qualitative assessment or a quantitative goodwill impairment test.,neutral +"If we choose to perform a +qualitative assessment and determine the fair value more likely than not exceeds the carrying value, no further evaluation is necessary.",positive +"For reporting +units where we perform the quantitative goodwill impairment test, we compare the fair value of each reporting unit, which we primarily determine +using an income approach based on the present value of discounted cash flows, to the respective carrying value, which includes goodwill.",positive +"If the fair +value of the reporting unit exceeds its carrying value, we do not consider the goodwill impaired.",positive +"If the carrying value is higher than the fair value, we +recognize the difference as an impairment loss.",positive +"For reporting units where we perform a quantitative goodwill impairment test, the process requires valuation of the respective reporting unit, which +we primarily determine using an income approach based on a discounted five year forecasted cash flow with a year-five residual value.",positive +"We compute +the residual value using the constant growth method, which values the forecasted cash flows in perpetuity.",neutral +"The assumptions about future cash flows +and growth rates are based on each reporting unit's long-term forecast and are subject to review and approval by senior management.",negative +"A reporting +unit’s discount rate is a risk-adjusted weighted average cost of capital, which we believe approximates the rate from a market participant’s +perspective.",negative +"The estimated fair value could be impacted by changes in market conditions, interest rates, growth rates, tax rates, costs, pricing and +capital expenditures.",positive +"We categorize the fair value determination as Level 3 in the fair value hierarchy due to its use of internal projections and +unobservable measurement inputs.",positive +"Our annual impairment tests completed in the fourth quarter of 2022 indicated the fair value of each reporting unit was substantially above its +respective carrying value, including goodwill, with the exception of our Rail reporting unit.",positive +The Rail reporting unit is a part of our Energy & Transportation segment.,neutral +"Rail’s product portfolio includes diesel-electric locomotives and other rail- +related products and services.",negative +"The annual impairment test completed in the fourth quarter of 2022 indicated that the fair value of Rail was below its +carrying value.",positive +"Accordingly, we recognized a goodwill impairment charge of $925 million, resulting in a full impairment of Rail’s goodwill balance +as of October 1, 2022.",positive +There was a $36 million tax benefit associated with this impairment charge.,neutral +"The valuation of the Rail reporting unit was based +on estimates of future cash flows, which assumed a reduced demand forecast, lower margins due to continued inflationary cost pressures, and a +discount rate approximately 140 basis points higher than utilized in the prior year valuation.",negative +"The reduction in the demand forecast in the fourth +quarter of 2022 was primarily driven by fourth quarter commercial developments, resulting in a lower outlook for the Company’s locomotive +offerings.",positive +"42Table of Contents +An unfavorable change in our expectations for the financial performance of our reporting units, particularly long-term growth and profitability, would +reduce the fair value of our reporting units.",positive +"The demand for our equipment and related parts is highly cyclical and significantly impacted by +commodity prices, although the impact may vary by reporting unit.",positive +"The energy and mining industries are major users of our products, including the +mineral extraction, oil and natural gas industries.",positive +"Decisions to purchase our products are dependent upon the performance of those industries, which +in turn are dependent in part on commodity prices.",neutral +"Lower commodity prices or industry specific circumstances that have a negative impact to the +valuation assumptions may reduce the fair value of our reporting units.",positive +"Should such events occur and it becomes more likely than not that a reporting +unit’s fair value has fallen below its carrying value, we will perform an interim goodwill impairment test(s), in addition to the annual impairment test.",positive +"Future impairment tests may result in a goodwill impairment, depending on the outcome of the quantitative impairment test.",neutral +"We would report a +goodwill impairment as a non-cash charge to earnings.",neutral +"Warranty liability – At the time we recognize a sale, we record estimated future warranty costs.",neutral +"We determine the warranty liability by applying +historical claim rate experience to the current field population and dealer inventory.",neutral +"Generally, we base historical claim rates on actual warranty +experience for each product by machine model/engine size by customer or dealer location (inside or outside North America).",negative +"We develop specific +rates for each product shipment month and update them monthly based on actual warranty claim experience.",neutral +"Warranty costs may differ from those +estimated if actual claim rates are higher or lower than our historical rates.",positive +"Product liability and insurance loss reserve – We determine these reserves based upon reported claims in process of settlement and actuarial +estimates for losses incurred but not reported.",neutral +"Loss reserves, including incurred but not reported reserves, are based on estimates and ultimate +settlements may vary significantly from such estimates due to increased claims frequency or severity over historical levels.",positive +"The amount of these +reserves totaled $1.3 billion and $1.2 billion at December 31, 2022 and 2021, respectively.",neutral +"The majority of the balance in both 2022 and 2021 +consisted of unearned insurance premiums.",neutral +"Postretirement benefits – We sponsor defined benefit pension plans and/or other postretirement benefit plans (retirement healthcare and life +insurance) to employees in many of our locations throughout the world.",positive +"There are assumptions used in the accounting for these defined benefit plans +that include discount rate, expected return on plan assets, expected rate of compensation increase, the future health care trend rate, mortality and other +economic and demographic assumptions.",negative +"The actuarial assumptions we use may change or differ significantly from actual results, which may result +in a material impact to our consolidated financial statements.",positive +The effects of actual results differing from our assumptions and the effects of changing assumptions are considered actuarial gains or losses.,neutral +"We +utilize a mark-to-market approach in recognizing actuarial gains or losses immediately through earnings upon the annual remeasurement in the fourth +quarter, or on an interim basis as triggering events warrant remeasurement.",neutral +"Primary actuarial assumptions were determined as follows: +•We use the assumed discount rate to discount future benefit obligations back to today’s dollars.",positive +"The U.S. discount rate is based on a benefit +cash flow-matching approach and represents the rate at which our benefit obligations could effectively be settled as of our measurement +date, December 31.",positive +"The benefit cash flow-matching approach involves analyzing Caterpillar’s projected cash flows against a high quality +bond yield curve, calculated using a wide population of corporate Aa bonds available on the measurement date.",positive +"We use a similar approach to +determine the assumed discount rate for our most significant non-U.S. plans.",positive +"In estimating the service and interest cost components of net +periodic benefit cost, we utilize a full yield curve approach in determining a discount rate.",positive +"This approach applies the specific spot rates along +the yield curve used in the determination of the benefit obligation to the relevant projected cash flows.",positive +"Discount rates are sensitive to +changes in interest rates.",positive +A decrease in the discount rate would increase our obligation and expense.,neutral +"•The expected long-term rate of return on plan assets is based on our estimate of long-term passive returns for equities and fixed income +securities weighted by the allocation of our plan assets.",neutral +"Based on historical performance, we increase the passive returns due to our active +management of the plan assets.",negative +"This rate is impacted by changes in general market conditions, but because it represents a long-term rate, it is +not significantly impacted by short-term market swings.",negative +Changes in our allocation of plan assets would also impact this rate.,neutral +"For example, a +shift to more fixed income securities would lower the rate.",positive +A decrease in the rate would increase our expense.,neutral +"The expected return on plan +assets is based on the fair value of plan asset allocations as of our measurement date, December 31.",positive +•We use the expected rate of compensation increase to develop benefit obligations using projected pay at retirement.,negative +"It represents average +long-term salary increases.",negative +This rate is influenced by our long-term compensation policies.,neutral +"An increase in the rate would increase our +obligation and expense.",neutral +"43Table of Contents +•The assumed health care trend rate represents the rate at which health care costs are assumed to increase and is based on historical and +expected experience.",negative +"Changes in our projections of future health care costs due to general economic conditions and those specific to health +care (e.g., technology driven cost changes) will impact this trend rate.",positive +"An increase in the trend rate would increase our obligation and +expense.",neutral +•We use the mortality assumption to estimate the life expectancy of plan participants.,neutral +"An increase in the life expectancy of plan participants +will result in an increase in our obligation and expense. +44Table of Contents +Postretirement Benefit Plan Actuarial Assumptions Sensitivity + +The effects of a one percentage-point change in certain actuarial assumptions on 2022 pension and OPEB costs and obligations are as follows: + 2022 Benefit Cost Incr ease (Decr ease)Year-end Benefit Obligation Incr ease +(Decr ease) +(Millions of dollars)One per centage- +point incr easeOne per centage- +point decr easeOne per centage- +point incr easeOne per centage- +point decr ease +U.S. Pension Benefits: +Assumed discount rate $ 101 $ (131) $ (1,151) $ 1,363 +Expected long-term rate of return on plan assets (167) 167 — — +Non-U.S. Pension Benefits: +Assumed discount rate 17 (24) (311) 380 +Expected rate of compensation increase 5 (4) 28 (22) +Expected long-term rate of return on plan assets (41) 41 — — +Other Postretirement Benefits: +Assumed discount rate 9 (11) (218) 254 +Expected rate of compensation increase — — 1 (1) +Expected long-term rate of return on plan assets (2) 2 — — +Effective December 31, 2019, all U.S. pension benefits were frozen, and accordingly the expected rate of compensation increase assumption is no longer +applicable.",positive +"Actuarial Assumptions + U.S. Pension Benefits Non-U.S. Pension Benefits Other Postretirement Benefits + 2022 2021 2020 2022 2021 2020 2022 2021 2020 +Weighted-average assumptions used to +determine benefit obligation, end of year: +Discount rate 5.4 % 2.8 % 2.4 % 4.3 % 1.8 % 1.4 % 5.4 % 2.7 % 2.3 % +Rate of compensation increase — % — % — % 2.3 % 2.0 % 2.0 % 4.0 % 4.0 % 4.0 % +Weighted-average assumptions used to +determine net periodic benefit cost: +Discount rate used to measure service cost — % — % — % 1.7 % 1.4 % 1.5 % 2.8 % 2.5 % 3.2 % +Discount rate used to measure interest cost 2.3 % 1.8 % 2.8 % 1.7 % 1.2 % 1.7 % 2.2 % 1.6 % 2.8 % +Expected rate of return on plan assets 4.0 % 4.2 % 5.1 % 3.1 % 2.9 % 3.3 % 6.9 % 6.5 % 7.0 % +Rate of compensation increase — % — % — % 2.0 % 2.0 % 2.0 % 4.0 % 4.0 % 4.0 % +Health car e cost tr end rates at year -end: +Health care trend rate assumed for next year 6.5 % 5.6 % 5.8 % +Rate that the cost trend rate gradually declines to 4.7 % 5.0 % 5.0 % +Year that the cost trend rate reaches ultimate rate 2030 2025 2025 +Effective December 31, 2019, all U.S. pension benefits were frozen, and accordingly this assumption is no longer applicable.",positive +"See Note 12 - “Postemployment benefit plans” of Part II, Item 8 “Financial Statement and Supplemental Data” for further information regarding the +accounting for postretirement benefits.",neutral +"1 +1 +1 +1 +1 +1 +45Table of Contents +Post-sale discount reserve – We provide discounts to dealers through merchandising programs.",neutral +"We have numerous programs that are designed to +promote the sale of our products.",neutral +The most common dealer programs provide a discount when the dealer sells a product to a targeted end user.,positive +"The +amount of accrued post-sale discounts was $1.6 billion and $1.4 billion at December 31, 2022 and 2021, respectively.",neutral +"The reserve represents +discounts that we expect to pay on previously sold units and is reviewed at least quarterly.",negative +"We adjust the reserve if discounts paid differ from those +estimated.",neutral +"Historically, those adjustments have not been material.",neutral +"Allowance for credit losses - The allowance for credit losses is management’s estimate of expected losses over the life of our finance receivable +portfolio calculated using loss forecast models that take into consideration historical credit loss experience, current economic conditions and forecasts +and scenarios that capture country and industry-specific economic factors.",positive +"In addition, we consider qualitative factors not able to be fully captured in +our loss forecast models, including borrower-specific and company-specific factors.",negative +"These qualitative factors are subjective and require a degree of +management judgment.",neutral +"We measure the allowance for credit losses on a collective (pool) basis when similar risk characteristics exist and on an individual basis when we +determine that similar risk characteristics do not exist.",neutral +"We identify finance receivables for individual evaluation based on past due status and +information available about the customer, such as financial statements, news reports and published credit ratings, as well as general information +regarding industry trends and the economic environment in which our customers operate.",positive +"The allowance for credit losses attributable to finance +receivables that are individually evaluated is based on the present value of expected future cash flows discounted at the receivables' effective interest +rate, the fair value of the collateral for collateral-dependent receivables or the observable market price of the receivable.",positive +"In determining collateral +value, we estimate the current fair market value of the collateral less selling costs.",positive +"We also consider credit enhancements such as additional collateral +and contractual third-party guarantees.",neutral +"While management believes it has exercised prudent judgment and applied reasonable assumptions, there can be no assurance that in the future, +changes in economic conditions or other factors would not cause changes in the financial health of our customers.",positive +"If the financial health of our +customers deteriorates, the timing and level of payments received could be impacted and therefore, could result in a change to our estimated losses.",neutral +Income taxes – We are subject to the income tax laws of the many jurisdictions in which we operate.,positive +"These tax laws are complex, and the manner in +which they apply to our facts is sometimes open to interpretation.",negative +"In establishing the provision for income taxes, we must make judgments about the +application of these inherently complex tax laws.",negative +Our income tax positions and analysis are based on currently enacted tax law.,neutral +"Future changes in +tax law or related interpretations could significantly impact the provision for income taxes, the amount of taxes payable, and the deferred tax asset +and liability balances.",positive +Changes in tax law are reflected in the period of enactment with related interpretations considered in the period received.,neutral +"Despite our belief that our tax return positions are consistent with applicable tax laws, we believe that taxing authorities could challenge certain +positions.",positive +"Settlement of any challenge can result in no change, a complete disallowance, or some partial adjustment reached through negotiations or +litigation.",neutral +We record tax benefits for uncertain tax positions based upon management’s evaluation of the information available at the reporting date.,positive +"To be recognized in the financial statements, a tax benefit must be at least more likely than not of being sustained based on technical merits.",positive +"The +benefit for positions meeting the recognition threshold is measured as the largest benefit more likely than not of being realized upon ultimate +settlement with a taxing authority that has full knowledge of all relevant information.",positive +"Significant judgment is required in making these +determinations and adjustments to unrecognized tax benefits may be necessary to reflect actual taxes payable upon settlement.",positive +"Adjustments related to +positions impacting the effective tax rate affect the provision for income taxes.",positive +"Adjustments related to positions impacting the timing of deductions +impact deferred tax assets and liabilities.",neutral +Deferred tax assets generally represent tax benefits for tax deductions or credits available in future tax returns.,positive +"Certain estimates and assumptions are +required to determine whether it is more likely than not that all or some portion of the benefit of a deferred tax asset will not be realized.",positive +"In making +this assessment, management analyzes the trend of U.S. GAAP earnings and estimates the impact of future taxable income, reversing temporary +differences and available prudent and feasible tax planning strategies.",positive +"We give less weight in this analysis to mark-to-market adjustments to +remeasure our pension and OPEB plans as we do not consider these adjustments indicative of ongoing earnings trends.",negative +"Should a change in facts or +circumstances lead to a change in judgment about the ultimate realizability of a deferred tax asset, we record or adjust the related valuation allowance +in the period that the change in facts and circumstances occurs, along with a corresponding increase or decrease in the provision for income taxes.",neutral +"Additional information related to income taxes is included in Note 6 - “Income taxes” of Part II, Item 8 “Financial statements and Supplementary +Data.”",neutral +"46Table of Contents +OTHER MATTERS + +Information related to legal proceedings appears in Note 22—Environmental and Legal Matters of Part II, Item 8 “Financial Statements and +Supplementary Data.”",positive +"RETIREMENT BENEFITS +We recognize mark-to-market gains and losses immediately through earnings upon the remeasurement of our pension and OPEB plans.",neutral +"Mark-to- +market gains and losses represent the effects of actual results differing from our assumptions and the effects of changing assumptions.",neutral +"Changes in +discount rates and differences between the actual return on plan assets and the expected return on plan assets generally have the largest impact on +mark-to-market gains and losses.",negative +"The table below summarizes the amounts of net periodic benefit cost recognized for 2022, 2021 and 2020, respectively, and includes expected cost +for 2023.",negative +"(Millions of dollars) 2023 Expected 2022 2021 2020 +U.S. Pension Benefits $ (33) $ (268) $ (388) $ (309) +Non-U.S. Pension Benefits 1 (10) (19) 18 +Other Postretirement Benefits 188 161 118 147 +Mark-to-market loss (gain) — (606) (833)",negative +"383 +Total net periodic benefit cost (benefit) $ 156 $ (723) $ (1,122) $ 239 + Expected net periodic benefit cost (benefit) does not include an estimate for mark-to-market gains or losses.",negative +"•Expected increase in expense in 2023 compared to 2022 - Excluding the impact of mark-to-market gains and losses, our net periodic benefit +cost is expected to increase $273 million in 2023.",negative +"This expected increase is primarily due to higher interest cost in 2023 as a result of higher +discount rates at year-end 2022 (U.S. pension plans discount rate for 2023 interest cost is 5.2 percent compared to 2.3 percent for 2022) which is +partially offset by higher expected return on plan assets in 2023 (U.S. pension plans expected return on plans assets is 5.8 percent for 2023 +compared to 4.0 percent in 2022).",positive +•Increase in expense in 2022 compared to 2021 -,neutral +"Primarily due to lower mark-to-market gains in 2022 compared to 2021 and higher interest +cost in 2022 as a result of higher discount rates at year-end 2021.",positive +•Decrease in expense in 2021 compared to 2020,neutral +"- Primarily due to mark-to-market gains in 2021 compared to mark-to-market losses in 2020 +and lower interest cost in 2021 as a result of lower discount rates at year-end 2020.",negative +"The primary factors that resulted in mark-to-market losses (gains) for 2022, 2021 and 2020 are described below.",positive +"We include the net mark-to-market +losses (gains) in Other income (expense) in the Results of Operations.",negative +•2022 net mark-to-market gain of $606 million - Primarily due to higher discount rates at the end of 2022 compared to the end of 2021.,positive +"This +was partially offset by a lower actual return on plan assets compared to the expected return on plan assets (U.S. pension plans had an actual loss +rate of (22.6) percent compared to an expected rate of return of 4.0 percent).",negative +•2021 net mark-to-market gain of $833 million - Primarily due to higher discount rates at the end of 2021 compared to the end of 2020.,positive +"This +was partially offset by various assumption changes and a lower actual return on plan assets compared to the expected return on plan assets (U.S. +pension plans had an actual rate of return of 3.6 percent compared to an expected rate of return of 4.2 percent).",negative +•2020 net mark-to-market loss of $383 million - Primarily due to lower discount rates at the end of 2020 compared to the end of 2019.,negative +"This was +partially offset by a higher actual return on plan assets compared to the expected return on plan assets (U.S. pension plans had an actual rate of +return of 16.7 percent compared to an expected rate of return of 5.1 percent).1 +1 +47Table of Contents +SENSITIVITY + +Foreign Exchange Rate Sensitivity + +ME&T operations use foreign currency forward and option contracts to manage unmatched foreign currency cash inflow and outflow.",negative +"Our objective +is to minimize the risk of exchange rate movements that would reduce the U.S. dollar value of our foreign currency cash flow.",negative +"Our policy allows for +managing anticipated foreign currency cash flow for up to approximately five years.",negative +"Based on the anticipated and firmly committed cash inflow and +outflow for our ME&T operations for the next 12 months and the foreign currency derivative instruments in place at year-end, a hypothetical 10 +percent weakening of the U.S. dollar relative to all other currencies would adversely affect our expected 2023 cash flow for our ME&T operations by +approximately $98 million.",negative +Last year similar assumptions and calculations yielded a potential $89 million adverse impact on 2022 cash flow.,neutral +"We +determine our net exposures by calculating the difference in cash inflow and outflow by currency and adding or subtracting outstanding foreign +currency derivative instruments.",positive +We multiply these net amounts by 10 percent to determine the sensitivity.,neutral +"In managing foreign currency risk for our Financial Products operations, our objective is to minimize earnings volatility resulting from conversion +and the remeasurement of net foreign currency balance sheet positions and future transactions denominated in foreign currencies.",negative +"Since our policy +allows the use of foreign currency forward, option and cross currency contracts to offset the risk of currency mismatch between our assets and +liabilities and exchange rate risk associated with future transactions denominated in foreign currencies, a 10 percent change in the value of the U.S. +dollar relative to all other currencies would not have a material effect on our consolidated financial position, results of operations or cash flow.",negative +Neither our policy nor the effect of a 10 percent change in the value of the U.S. dollar has changed from that reported at the end of last year.,neutral +"The effect of the hypothetical change in exchange rates ignores the effect this movement may have on other variables, including competitive risk.",negative +"If it +were possible to quantify this competitive impact, the results would probably be different from the sensitivity effects shown above.",neutral +"In addition, it is +unlikely that all currencies would uniformly strengthen or weaken relative to the U.S. dollar.",negative +"In reality, some currencies may weaken while others +may strengthen.",neutral +"Our primary exposure (excluding competitive risk) is to exchange rate movements in the Australian dollar, Chinese yuan, Mexican +peso, Indian rupee and Euro.",positive +"Interest Rate Sensitivity + +For our ME&T operations, we have the option to use interest rate contracts to lower the cost of borrowed funds by attaching fixed-to-floating interest +rate contracts to fixed-rate debt, and by entering into forward rate agreements on future debt issuances.",neutral +"A hypothetical 100 basis point adverse move +in interest rates along the entire interest rate yield curve would have a minimal impact to the 2023 pre-tax earnings of ME&T.",negative +"Last year, similar +assumptions and calculations yielded a minimal impact to 2022 pre-tax earnings.",negative +"For our Financial Products operations, we use interest rate derivative instruments primarily to meet our match-funding objectives and strategies.",positive +"We +have a match-funding policy that addresses the interest rate risk by aligning the interest rate profile (fixed or floating rate and duration) of our debt +portfolio with the interest rate profile of our finance receivable portfolio within a predetermined range on an ongoing basis.",positive +"In connection with that +policy, we use interest rate derivative instruments to modify the debt structure to match assets within the finance receivable portfolio.",neutral +"Match funding +reduces the volatility of margins between interest-bearing assets and interest-bearing liabilities, regardless of which direction interest rates move.",neutral +"In order to properly manage sensitivity to changes in interest rates, Financial Products measures the potential impact of different interest rate +assumptions on pre-tax earnings.",neutral +"All on-balance sheet positions, including derivative financial instruments, are included in the analysis.",neutral +"The primary +assumptions included in the analysis are that there are no new fixed rate assets or liabilities, the proportion of fixed rate debt to fixed rate assets +remains unchanged and the level of floating rate assets and debt remain constant.",positive +"An analysis of the December 31, 2022 balance sheet, using these +assumptions, estimates the impact of a 100 basis point immediate and sustained adverse change in interest rates to have a minimal impact on 2023 +pre-tax earnings.",negative +"Last year, similar assumptions and calculations yielded a minimal impact to 2022 pre-tax earnings.",negative +"This analysis does not necessarily represent our current outlook of future market interest rate movement, nor does it consider any actions +management could undertake in response to changes in interest rates.",neutral +"Accordingly, no assurance can be given that actual results would be consistent +with the results of our estimate.",positive +"48Table of Contents +NON-GAAP FINANCIAL MEASURES",neutral +We provide the following definitions for the non-GAAP financial measures used in this report.,neutral +"These non-GAAP financial measures have no +standardized meaning prescribed by U.S. GAAP and therefore are unlikely to be comparable to the calculation of similar measures for other +companies.",negative +Management does not intend these items to be considered in isolation or as a substitute for the related GAAP measures.,neutral +We believe it is important to separately quantify the profit impact of three significant items in order for our results to be meaningful to our readers.,positive +"These items consist of (i) goodwill impairment, (ii) restructuring costs and (iii) pension and OPEB mark-to-market (gains) losses resulting from plan +remeasurements.",neutral +"We do not consider these items indicative of earnings from ongoing business activities and believe the non-GAAP measures will +provide investors with useful perspective on underlying business results and trends and aid with assessing our period-over-period results.",positive +"In addition, +we provide a calculation of ME&T free cash flow as we believe it is an important measure for investors to determine the cash generation available for +financing activities including debt repayments, dividends and share repurchases.",positive +"Reconciliations of adjusted results to the most directly comparable GAAP measures are as follows: +(Dollars in millions except per share data)",negative +"Operating Pr ofitOperating Pr ofit +Margin Profit Befor e TaxesProvision (Benefit) +for Income Taxes Effective Tax Rate Profit Profit per Shar e +Twelve Months Ended December 31, 2022 - U.S. GAAP $ 7,904 13.3 % $ 8,752 $ 2,067 23.6 % $ 6,705",positive +"$ 12.64 +Goodwill impairment 925 1.6 % 925 36 3.9 % 889 1.68 +Restructuring costs 299 0.5 % 299 72 24.0 % 227 0.43 +Pension/OPEB mark-to-market (gains) losses $ — — % (606) (124) 20.5 % (482) (0.91)",neutral +"Twelve Months Ended December 31, 2022 - Adjusted $ 9,128 15.4 % $ 9,370 $ 2,051 21.9 % $ 7,339 $ 13.84 +Twelve Months Ended December 31, 2021 - U.S. GAAP $ 6,878 13.5 % $ 8,204 $ 1,742 21.2 % $ 6,489 $ 11.83",neutral +"Restructuring costs 90 0.2 % 90 4 4.4 % 86 $ 0.15 +Pension/OPEB mark-to-market (gains) losses — — % (833) (190) 22.8 % (643) $ (1.17) +Twelve Months Ended December 31, 2021 - Adjusted $ 6,968 13.7 % $ 7,461 $ 1,556 20.9 %",neutral +"$ 5,932 $ 10.81 +Reconciliations of ME&T free cash flow to the most directly comparable GAAP measure, net cash provided by operating activities are as follows: +Millions of dollarsTwelve Months Ended +December 31, +2022 2021 +ME&T net cash provided by operating activities $ 6,358 $ 7,177 +ME&T discretionary pension contributions — — +ME&T capital expenditures (1,298) (1,129) +Cash payments related to settlements with the U.S. Internal Revenue Service 717 — +ME&T free cash flow $ 5,777 $ 6,048 +See reconciliation of ME&T net cash provided by operating activities to consolidated net cash provided by operating activities on page 53.1 +1 +49Table of Contents +Supplemental Consolidating Data + +We are providing supplemental consolidating data for the purpose of additional analysis.",positive +"We have grouped the data as follows: + +Consolidated – Caterpillar Inc. and its subsidiaries.",neutral +"Machinery, Energy & Transportation – We define ME&T as it is presented in the supplemental data as Caterpillar Inc. and its subsidiaries, +excluding Financial Products.",neutral +"ME&T's information relates to the design, manufacturing and marketing of our products.",neutral +"Financial Products – We define Financial Products as it is presented in the supplemental data as our finance and insurance subsidiaries, primarily +Caterpillar Financial Services Corporation (Cat Financial) and Cat Insurance Holdings Inc. (Insurance Services).",positive +"Financial Products’ information +relates to the financing to customers and dealers for the purchase and lease of Caterpillar and other equipment.",negative +Consolidating Adjustments – Eliminations of transactions between ME&T and Financial Products.,neutral +"The nature of the ME&T and Financial Products businesses is different, especially with regard to the financial position and cash flow items.",neutral +Caterpillar management utilizes this presentation internally to highlight these differences.,neutral +"We believe this presentation will assist readers in +understanding our business.",neutral +Pages 51 to 53 reconcile ME&T and Financial Products to Caterpillar Inc. consolidated financial information.,neutral +"Certain amounts for prior periods have +been reclassified to conform to current year presentation.",positive +"50Table of Contents +Supplemental Data for Results of Operations +For The Years Ended December 31 + Supplemental consolidating data + ConsolidatedMachinery, +Energy & TransportationFinancial +ProductsConsolidating +Adjustments +(Millions of dollars) 2022 2021 2020 2022 2021 2020 2022 2021 2020 2022 2021 + 2020 +Sales and revenues: + +Sales of Machinery, Energy & Transportation $56,574 $48,188 $39,022 $56,574 $48,188 $39,022 $ — $ — $ — $ — $ — $ — +Revenues of Financial Products 2,853 2,783 2,726 — — — 3,376 3,172 3,110 (523)1 (389)1 (384)1 +Total sales and revenues 59,427 50,971 41,748 56,574 48,188 39,022 3,376 3,172 3,110 (523) (389) (384) +Operating costs:",neutral +"Cost of goods sold 41,350 35,513 29,082 41,356 35,521 29,088 — — — (6)2 (8)2 (6)2 +Selling, general and administrative expenses 5,651 5,365 4,642 4,999 4,724 3,915 672 654 746 (20)2 (13)2 (19)2 +Research and development expenses 1,814 1,686 1,415 1,814 1,686 1,415 — — — — — — +Interest expense of Financial Products 565 455 589 — — — 565 455 591 — — (2)3 +Goodwill impairment charge 925 — — 925 — — — — — — — — +Other operating (income) expenses 1,218 1,074 1,467 47 (106) 283 1,249 1,247 1,236 (78)2 (67)2 (52)2 +Total operating costs 51,523 44,093 37,195 49,141 41,825 34,701 2,486 2,356 2,573 (104) (88) (79) +Operating profit 7,904 6,878 4,553 7,433 6,363 4,321 890 816 537 (419) (301) (305) +Interest expense excluding Financial Products 443 488 514 444 488 513 — — — (1)3 — 1 3 +Other income (expense) 1,291 1,814 (44) 1,374 2,276 (62) (26) 87 32 (57)4 (549)4 (14)4 +Consolidated profit before taxes 8,752 8,204 3,995 8,363 8,151 3,746 864 903 569 (475) (850) (320) +Provision (benefit) for income taxes 2,067 1,742 1,006 1,858 1,517 853 209 225 153 — — — +Profit of consolidated companies 6,685 6,462 2,989 6,505 6,634 2,893 655 678 416 (475) (850) (320) +Equity in profit (loss) of unconsolidated affiliated +companies 19 31 14 26 42 29 — — — (7)5(11)5(15)5 +Profit of consolidated and affiliated companies 6,704 6,493 3,003 6,531 6,676 2,922 655 678 416 (482) (861) (335)",negative +"Less: Profit (loss) attributable to noncontrolling interests (1) 4 5 (1) 3 5 7 12 15 (7)6 (11)6 (15)6 +Profit $6,705 $6,489 $2,998 $6,532 $6,673 $ 2,917 $648 $ 666 $401 $(475)$(850)$(320) + +Elimination of Financial Products' revenues earned from ME&T. +Elimination of net expenses recorded by ME&T paid to Financial Products.",negative +"Elimination of interest expense recorded between Financial Products and ME&T. +Elimination of discount recorded by ME&T on receivables sold to Financial Products and of interest earned between ME&T and Financial Products as well as dividends paid by Financial Products to ME&T. +Elimination of equity profit (loss) earned from Financial Products’ subsidiaries partially owned by ME&T subsidiaries.",negative +Elimination of noncontrolling interest profit (loss) recorded by Financial Products for subsidiaries partially owned by ME&T subsidiaries.,negative +"Profit attributable to common shareholders.7 +1 +2 +3 +4 +5 +6 +7 +51Table of Contents +Supplemental Data for Financial Position +At December 31 Supplemental consolidating data + ConsolidatedMachinery, +Energy & TransportationFinancial +ProductsConsolidating +Adjustments + +(Millions of dollars) 2022 2021 2022 2021 2022 2021 2022 2021 + +Assets + + +Current assets: + + +Cash and cash equivalents $ 7,004 $ 9,254 $ 6,042 $ 8,428 $ 962 $ 826 $ — $ — + +Receivables - trade and other 8,856 8,477 3,710 3,279 519 435 4,627 1,2 4,763 1,2 +Receivables - finance 9,013 8,898 — — 13,902 13,828 (4,889)2 (4,930)2 +Prepaid expenses and other current assets 2,642 2,788 2,488 2,567 290 358 (136)3 (137)3 +Inventories 16,270 14,038 16,270 14,038 — — — — +Total current assets 43,785 43,455 28,510 28,312 15,673 15,447 (398) (304) +Property, plant and equipment - net 12,028 12,090 8,186 8,172 3,842 3,918 — — +Long-term receivables - trade and other 1,265 1,204 418 375 339 204 508 1,2 625 1,2 +Long-term receivables - finance 12,013 12,707 — — 12,552 13,358 (539)2 (651)2 +Noncurrent deferred and refundable income taxes 2,213 1,840 2,755 2,396 115 105 (657)4 (661)4 +Intangible assets 758 1,042 758 1,042 — — — — +Goodwill 5,288 6,324 5,288 6,324 — — — — +Other assets 4,593 4,131 3,882 3,388 1,892 1,952 (1,181)5 (1,209)5 +Total assets $ 81,943 $ 82,793 $ 49,797 $ 50,009 $ 34,413 $ 34,984 $ (2,267) $ (2,200) +Liabilities + + +Current liabilities: + + +Short-term borrowings $ 5,957 $ 5,404 $ 3 $ 9 $ 5,954 $ 5,395 $ — $ — +Accounts payable 8,689 8,154 8,657 8,079 294 242 (262)6 (167)6 +Accrued expenses 4,080 3,757 3,687 3,385 393 372 — — +Accrued wages, salaries and employee benefits 2,313 2,242 2,264 2,186 49 56 — — +Customer advances 1,860 1,087 1,860 1,086 — 1 — — +Dividends payable 620 595 620 595 — — — — +Other current liabilities 2,690 2,256 2,215 1,773 635 642 (160)4,7 (159)4,7 +Long-term debt due within one year 5,322 6,352 120 45 5,202 6,307 — — +Total current liabilities 31,531 29,847 19,426 17,158 12,527 13,015 (422) (326) +Long-term debt due after one year 25,714 26,033 9,529 9,772 16,216 16,287 (31)8 (26)8 +Liability for postemployment benefits 4,203 5,592 4,203 5,592 — — — — +Other liabilities 4,604 4,805 3,677 4,106 1,638 1,425 (711)4 (726)4 +Total liabilities 66,052 66,277 36,835 36,628 30,381 30,727 (1,164) (1,078) +Commitments and contingencies + + +Shareholders’ equity + +Common stock 6,560 6,398 6,560 6,398 905 919 (905)9 (919)9 +Treasury stock (31,748) (27,643) (31,748) (27,643) — — — — +Profit employed in the business 43,514 39,282 39,435 35,390 4,068 3,881 11 9 11 9 +Accumulated other comprehensive income (loss) (2,457) (1,553) (1,310) (799) (1,147) (754) — — +Noncontrolling interests 22 32 25 35 206 211 (209)9 (214)9 +Total shareholders’ equity 15,891 16,516 12,962 13,381 4,032 4,257 (1,103) (1,122)",negative +"Total liabilities and shareholders’ equity $ 81,943 $ 82,793 $ 49,797 $ 50,009 $ 34,413 $ 34,984 $ (2,267) $ (2,200) +Elimination of receivables between ME&T and Financial Products.",neutral +Reclassification of ME&T’s trade receivables purchased by Financial Products and Financial Products’ wholesale inventory receivables.,neutral +Elimination of ME&T's insurance premiums that are prepaid to Financial Products.,neutral +Reclassification reflecting required netting of deferred tax assets/liabilities by taxing jurisdiction.,neutral +Elimination of other intercompany assets between ME&T and Financial Products.,negative +Elimination of payables between ME&T and Financial Products.,neutral +Elimination of prepaid insurance in Financial Products’ other liabilities.,negative +Elimination of debt between ME&T and Financial Products.,neutral +Eliminations associated with ME&T’s investments in Financial Products’ subsidiaries.,neutral +"1 +2 +3 +4 +5 +6 +7 +8 +9 +52Table of Contents +Supplemental Data for Statement of Cash Flow +For the Years Ended December 31 Supplemental consolidating data + + ConsolidatedMachinery, +Energy & +TransportationFinancial +ProductsConsolidating +Adjustments + +(Millions of dollars) 2022 2021 2022 2021 2022 2021 2022 + 2021 + +Cash flow from operating activities:",neutral +"Profit (loss) of consolidated and affiliated companies $ 6,704 $ 6,493 $6,531 $6,676 $ 655 $ 678 $ (482) $ (861) +Adjustments for non-cash items: + +Depreciation and amortization 2,219 2,352 1,439 1,550 780 802 — — +Actuarial (gain) loss on pension and postretirement benefits (606) (833) (606) (833) — — — — +Provision (benefit) for deferred income taxes (377) (383) (368) (329) (9) (54) — — +Goodwill impairment charge 925 — 925 — — — — — +Other 701 216 452 131 (205) (209) 454 294 +Changes in assets and liabilities, net of acquisitions and divestitures: +Receivables - trade and other (220) (1,259) (390) (463) 143 47 27 (843) +Inventories (2,589) (2,586) (2,572) (2,581) — — (17) (5) +Accounts payable 798 2,041 811 2,015 82 49 (95) (23) +Accrued expenses 317 196 274 288 43 (92) — — +Accrued wages, salaries and employee benefits 90 1,107 97 1,066 (7) 41 — — +Customer advances 768 34 769 33 (1) 1 — — +Other assets—net (210) (97) (183) (200) (35) 25 8 78 +Other liabilities—net (754) (83) (821) (176) 71 132 (4) (39) +Net cash provided by (used for) operating activities 7,766 7,198 6,358 7,177 1,517 1,420 (109) (1,399) +Cash flow from investing activities: + +Capital expenditures—excluding equipment leased to others (1,296) (1,093) (1,279) (1,088) (20) (16) 3 11 +Expenditures for equipment leased to others (1,303) (1,379) (19) (41) (1,310) (1,347) 26 9 +Proceeds from disposals of leased assets and property, plant and equipment 830 1,265 78 186 764 1,095 (12) (16) +Additions to finance receivables (13,239) (13,002) — — (14,223) (13,845) 984 843 +Collections of finance receivables 13,177 12,430 — — 14,052 13,337 (875) (907) +Net intercompany purchased receivables — — — — 492 (609) (492) 609 +Proceeds from sale of finance receivables 57 51 — — 57 51 — — +Net intercompany borrowings — — — 1,000 9 5 (9) (1,005) +Investments and acquisitions (net of cash acquired) (88) (490) (88) (490) — — — — +Proceeds from sale of businesses and investments (net of cash sold) 1 36 1 36 — — — — +Proceeds from sale of securities 2,383 785 1,948 274 435 511 — — +Investments in securities (3,077) (1,766) (2,549) (1,189) (528) (577) — — +Other—net 14 79 98 81 (84) (2) — — +Net cash provided by (used for) investing activities (2,541) (3,084) (1,810) (1,231) (356) (1,397) (375) (456) +Cash flow from financing activities: + +Dividends paid (2,440) (2,332) (2,440) (2,332) (475) (850) 475 850 +Common stock issued, including treasury shares reissued 51 135 51 135 — — — — +Common shares repurchased (4,230) (2,668) (4,230) (2,668) — — — — +Net intercompany borrowings — — (9) (5) — (1,000) 9 1,005 +Proceeds from debt issued (original maturities greater than three months) 6,674 6,989 — 494 6,674 6,495 — — +Payments on debt (original maturities greater than three months) (7,728) (9,796) (25) (1,919) (7,703) (7,877) — — +Short-term borrowings - net (original maturities three months or less) 402 3,488 (138) (1) 540 3,489 — — +Other—net (10) (4) (10) (4) — — — — +Net cash provided by (used for) financing activities (7,281) (4,188) (6,801) (6,300) (964) 257 484 1,855 +Effect of exchange rate changes on cash (194) (29) (131) (35) (63) 6 — — +Increase (decrease) in cash, cash equivalents and restricted cash (2,250) (103) (2,384) (389) 134 286 — — +Cash, cash equivalents and restricted cash at beginning of period 9,263 9,366 8,433 8,822 830 544 — — +Cash, cash equivalents and restricted cash at end of period $ 7,013 $ 9,263 $6,049 $8,433 $ 964 $ 830 $ — $ — +Elimination of equity profit earned from Financial Products’ subsidiaries partially owned by ME&T subsidiaries.",positive +Elimination of non-cash adjustments and changes in assets and liabilities related to consolidated reporting.,neutral +Reclassification of Financial Products’ cash flow activity from investing to operating for receivables that arose from the sale of inventory.,neutral +Elimination of net proceeds and payments to/from ME&T and Financial Products.,neutral +"Elimination of dividend activity between Financial Products and ME&T.1,5 1,5 + + +2 2 + +2,3 2,3 +2 2 +2 2 + +2 2 +2 2 + +2 2 +2 2 +2 2 +3 3 +3 3 +3 3 +4 4 + + + + +5 5 +4 4 + + + + + + + + +1 +2 +3 +4 +5 +53Table of Contents +Item 7A.Quantitative and Qualitative Disclosures About Market Risk.",neutral +"Information required by Item 7A appears in Note 1 — “Operations and summary of significant accounting policies,” Note 4 — “Derivative financial +instruments and risk management,” Note 18 — “Fair value disclosures” and Note 19 — “Concentration of credit risk” of Part II, Item 8 “Financial +Statements and Supplementary Data.”",positive +"Other information required by Item 7A is included in Part II, Item 7 “Management’s Discussion and Analysis +of Financial Condition and Results of Operations.”",negative +"54Table of Contents +Item 8.Financial Statements and Supplementary Data.",neutral +"MANAGEMENT’S REPORT ON +INTERNAL CONTROL OVER FINANCIAL REPORTING + +The management of Caterpillar Inc. (company) is responsible for establishing and maintaining adequate internal control over financial reporting as +such term is defined in Rule 13a-15(f) under the Exchange Act.",positive +"Our internal control over financial reporting is a process designed to provide +reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in +accordance with generally accepted accounting principles.",positive +"Our internal control over financial reporting includes those policies and procedures that +(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the +company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance +with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with +authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of +unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.",positive +"Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.",neutral +"Also, projections of any +evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the +degree of compliance with the policies or procedures may deteriorate.",negative +"Management assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2022.",neutral +"In making this +assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control— +Integrated Framework (2013).",neutral +"Based on our assessment we concluded that, as of December 31, 2022, the company’s internal control over financial +reporting was effective based on those criteria.",positive +"The effectiveness of the company’s internal control over financial reporting as of December 31, 2022 has been audited by PricewaterhouseCoopers +LLP, an independent registered public accounting firm.",negative +"Their report appears on pages 56-57. + + + /s/",neutral +"D. James Umpleby III + +D. James Umpleby III + Chief Executive Officer + + + + /s/",neutral +"Andrew R.J. Bonfield + +Andrew R.J. Bonfield + Chief Financial Officer + + + + February 15, 2023 +55Table of Contents +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM",negative +"To the Board of Directors and Shareholders of Caterpillar Inc. +Opinions on the Financial Statements and Internal Control over Financial Reporting +We have audited the accompanying consolidated statement of financial position of Caterpillar Inc. and its subsidiaries (the “Company”) as of +December 31, 2022 and 2021, and the related consolidated statements of results of operations, of comprehensive income (loss), of changes in +shareholders' equity and of cash flow for each of the three years in the period ended December 31, 2022, including the related notes (collectively +referred to as the “consolidated financial statements”).",neutral +"We also have audited the Company's internal control over financial reporting as of December +31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of +the Treadway Commission (COSO).",neutral +"In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as +of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 +in conformity with accounting principles generally accepted in the United States of America.",positive +"Also in our opinion, the Company maintained, in all +material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - +Integrated Framework (2013) issued by the COSO. +Basis for Opinions +The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial +reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report +on Internal Control Over Financial Reporting.",positive +"Our responsibility is to express opinions on the Company’s consolidated financial statements and on +the Company's internal control over financial reporting based on our audits.",neutral +"We are a public accounting firm registered with the Public Company +Accounting Oversight Board (United States) (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.",negative +We conducted our audits in accordance with the standards of the PCAOB.,neutral +"Those standards require that we plan and perform the audits to obtain +reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and +whether effective internal control over financial reporting was maintained in all material respects.",positive +"Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated +financial statements, whether due to error or fraud, and performing procedures that respond to those risks.",negative +"Such procedures included examining, on a +test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.",neutral +"Our audits also included evaluating the +accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial +statements.",positive +"Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, +assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the +assessed risk.",neutral +Our audits also included performing such other procedures as we considered necessary in the circumstances.,negative +"We believe that our audits +provide a reasonable basis for our opinions.",positive +"Definition and Limitations of Internal Control over Financial Reporting +A company’s internal control over financial reporting is a process designed 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.",positive +"A company’s +internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, +accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are +recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and +expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide +reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have +a material effect on the financial statements.",positive +"56Table of Contents +Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.",neutral +"Also, projections of any +evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the +degree of compliance with the policies or procedures may deteriorate.",negative +"Critical Audit Matters +The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was +communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the +consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.",positive +"The communication of critical audit +matters 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 accounts or disclosures to which it relates.",positive +Caterpillar SARL (“CSARL”),neutral +Internal Revenue Services (“IRS”),neutral +"Settlement +As described in Note 6 to the consolidated financial statements, on September 8, 2022, management reached a settlement with the IRS that resolved +all issues for tax years 2007 through 2016, without any penalties.",neutral +"The Company's settlement includes, among other issues, the resolution of disputed +tax treatment of profits earned by CSARL from certain parts transactions.",positive +"The IRS previously proposed increases to tax and imposition of accuracy +related penalties based on application of the “substance-over-form” or “assignment-of-income” judicial doctrines, but the settlement did not include +any increases to tax in the United States based on the judicial doctrines and does not include any penalties.",negative +"The final tax assessed by the IRS for all +issues under the settlement was $490 million for the ten-year period.",neutral +"This amount was primarily paid in 2022 along with associated interest of $250 +million.",positive +"As a result of the settlement, the Company recorded a discrete tax benefit of $41 million within the provision (benefit) for income taxes of +$2,067 million for the year ended December 31, 2022.",neutral +"The principal considerations for our determination that performing procedures relating to the CSARL IRS settlement is a critical audit matter are (i) +the significant judgment by management in evaluating the impact of the settlement on income taxes; (ii) a high degree of auditor judgment, +subjectivity and effort in performing procedures and evaluating audit evidence relating to the settlement; and (iii) the audit effort involved the use of +professionals with specialized skill and knowledge.",positive +"Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the +consolidated financial statements.",neutral +These procedures included testing the effectiveness of controls relating to income taxes.,neutral +"These procedures also +included, among others (i) reading the settlement documents; (ii) evaluating management’s process for determining the impact of the settlement to tax +years 2007-2016; and (iii) evaluating management’s assessment of other impacts of the settlement, including the amount of interest owed to the IRS.",negative +"Professionals with specialized skill and knowledge were used to assist in evaluating the applicable tax laws and judicial doctrines related to the +settlement, as well as changes in relevant tax regulations, rulings, and case law. +/s/",positive +"PricewaterhouseCoopers LLP +Chicago, Illinois +February 15, 2023",neutral +We have served as the Company’s auditor since 1925.,neutral +"57Table of Contents +STATEMENT 1 Caterpillar Inc. +Consolidated Results of Operations for the Years Ended December 31 +(Dollars in millions except per share data) + 2022 2021 2020 +Sales and revenues:",neutral +"Sales of Machinery, Energy & Transportation $ 56,574 $ 48,188 $ 39,022 +Revenues of Financial Products 2,853 2,783 2,726 +Total sales and revenues 59,427 50,971 41,748 +Operating costs: +Cost of goods sold 41,350 35,513 29,082 +Selling, general and administrative expenses 5,651 5,365 4,642 +Research and development expenses 1,814 1,686 1,415 +Interest expense of Financial Products 565 455 589 +Goodwill impairment charge 925 — — +Other operating (income) expenses 1,218 1,074 1,467 +Total operating costs 51,523 44,093 37,195 +Operating profit 7,904 6,878 4,553 +Interest expense excluding Financial Products 443 488 514 +Other income (expense) 1,291 1,814 (44) +Consolidated profit before taxes 8,752 8,204 3,995 +Provision (benefit) for income taxes 2,067 1,742 1,006 +Profit of consolidated companies 6,685 6,462 2,989 +Equity in profit (loss) of unconsolidated affiliated companies 19 31 14 +Profit of consolidated and affiliated companies 6,704 6,493 3,003 +Less: Profit (loss) attributable to noncontrolling interests (1) 4 5 +Profit $ 6,705 $ 6,489 $ 2,998 +Profit per common share $ 12.72 $ 11.93 $ 5.51 +Profit per common share — diluted $ 12.64 $ 11.83 $ 5.46 +Weighted-average common shares outstanding (millions) +- Basic 526.9 544.0 544.1 +- Diluted 530.4 548.5 548.6 + +Profit attributable to common shareholders.",negative +Diluted by assumed exercise of stock-based compensation awards using the treasury stock method.,neutral +"See accompanying notes to Consolidated Financial Statements.1 +2 +2 +1 +2 +58Table of Contents +STATEMENT 2 Caterpillar Inc. +Consolidated Comprehensive Income (Loss) for the Years Ended December 31 +(Millions of dollars) + 2022 2021 2020 +Profit (loss) of consolidated and affiliated companies $ 6,704 $ 6,493 $ 3,003 +Other comprehensive income (loss), net of tax (Note 17): +Foreign currency translation: (820) (598) 577 +Pension and other postretirement benefits: 23 (30) (29) +Derivative financial instruments: 31 (3) 97 +Available-for-sale securities: (138) (34) 34 +Total other comprehensive income (loss), net of tax (904) (665) 679 +Comprehensive income (loss) 5,800 5,828 3,682 +Less: comprehensive income attributable to the noncontrolling interests (1) 4 5 +Comprehensive income (loss) attributable to shareholders $ 5,801 $ 5,824 $ 3,677 +See accompanying notes to Consolidated Financial Statements.",negative +"59Table of Contents +STATEMENT 3 Caterpillar Inc. +Consolidated Financial Position at December 31 +(Dollars in millions) + 2022 2021 +Assets +Current assets: +Cash and cash equivalents $ 7,004 $ 9,254 +Receivables – trade and other 8,856 8,477 +Receivables – finance 9,013 8,898 +Prepaid expenses and other current assets 2,642 2,788 +Inventories 16,270 14,038 +Total current assets 43,785 43,455 +Property, plant and equipment – net 12,028 12,090 +Long-term receivables – trade and other 1,265 1,204 +Long-term receivables – finance 12,013 12,707 +Noncurrent deferred and refundable income taxes 2,213 1,840 +Intangible assets 758 1,042 +Goodwill 5,288 6,324 +Other assets 4,593 4,131 +Total assets $ 81,943 $ 82,793 +Liabilities +Current liabilities: +Short-term borrowings: +Machinery, Energy & Transportation $ 3 $ 9 +Financial Products 5,954 5,395 +Accounts payable 8,689 8,154 +Accrued expenses 4,080 3,757 +Accrued wages, salaries and employee benefits 2,313 2,242 +Customer advances 1,860 1,087 +Dividends payable 620 595 +Other current liabilities 2,690 2,256 +Long-term debt due within one year: +Machinery, Energy & Transportation 120 45 +Financial Products 5,202 6,307 +Total current liabilities 31,531 29,847 +Long-term debt due after one year: +Machinery, Energy & Transportation 9,498 9,746 +Financial Products 16,216 16,287 +Liability for postemployment benefits 4,203 5,592 +Other liabilities 4,604 4,805 +Total liabilities 66,052 66,277 +Commitments and contingencies (Notes 21 and 22) +Shareholders’ equity +Common stock of $1.00 par value: +Authorized shares: 2,000,000,000 +Issued shares: (2022 and 2021 – 814,894,624 shares) at paid-in amount 6,560 6,398 +Treasury stock: (2022 - 298,549,134 shares; and 2021 - 279,006,573 shares) at cost (31,748) (27,643) +Profit employed in the business 43,514 39,282 +Accumulated other comprehensive income (loss) (2,457) (1,553)",negative +"Noncontrolling interests 22 32 +Total shareholders’ equity 15,891 16,516 +Total liabilities and shareholders’ equity $ 81,943 $ 82,793 See accompanying notes to Consolidated Financial Statements.",neutral +"60Table of Contents +STATEMENT 4 Caterpillar Inc. +Changes in Consolidated Shareholders’ Equity for the Years Ended December 31 +(Dollars in millions) + Common +stockTreasury +stockProfit +employed +in the +businessAccumulated +other +comprehensive +income (loss)Noncontrolling +interests Total +Balance at December 31, 2019 $ 5,935 $ (24,217)$ 34,437 $ (1,567)$ 41 $ 14,629 +Adjustments to adopt new accounting guidance +Credit losses — — (25) — — (25) +Balance at January 1, 2020 $ 5,935 $ (24,217)$ 34,412 $ (1,567)$ 41 $ 14,604 +Profit (loss) of consolidated and affiliated companies — — 2,998 — 5 3,003 +Foreign currency translation, net of tax — — — 577 — 577 +Pension and other postretirement benefits, net of tax — — — (29) — (29) +Derivative financial instruments, net of tax — — — 97 — 97 +Available-for-sale securities, net of tax — — — 34 — 34 +Dividends declared — — (2,247) — — (2,247) +Distribution to noncontrolling interests — — — — — — +Common shares issued from treasury stock for stock-based +compensation: 5,317,243 (61) 290 — — — 229 +Stock-based compensation expense 202 — — — — 202 +Common shares repurchased: 10,096,006 — (1,250) — — — (1,250) +Other 154 (1) 4 — 1 158 +Balance at December 31, 2020 $ 6,230 $ (25,178)$ 35,167 $ (888)$ 47 $ 15,378 +Profit (loss) of consolidated and affiliated companies — — 6,489 — 4 6,493 +Foreign currency translation, net of tax — — — (598) — (598) +Pension and other postretirement benefits, net of tax — — — (30) — (30) +Derivative financial instruments, net of tax — — — (3) — (3) +Available-for-sale securities, net of tax — — — (34) — (34) +Change in ownership from noncontrolling interests — — — — (14) (14)",negative +"Dividends declared — — (2,374) — — (2,374) +Distribution to noncontrolling interests — — — — (4) (4) +Common shares issued from treasury stock for stock-based +compensation: 3,571,503 (68) 203 — — — 135 +Stock-based compensation expense 200 — — — — 200 +Common shares repurchased: 12,987,299 — (2,668) — — — (2,668)",negative +"Other 36 — — — (1) 35 +Balance at December 31, 2021 $ 6,398 $ (27,643)$ 39,282 $ (1,553)$ 32 $ 16,516 +(Continued) +61Table of Contents +STATEMENT 4 Caterpillar Inc. +Changes in Consolidated Shareholders’ Equity for the Years Ended December 31 +(Dollars in millions) + Common +stockTreasury +stockProfit +employed +in the +businessAccumulated +other +comprehensive +income (loss)Noncontrolling +interests Total +Balance at December 31, 2021 $ 6,398 $ (27,643)$ 39,282 $ (1,553)$ 32 $ 16,516 +Profit (loss) of consolidated and affiliated companies — — 6,705 — (1) 6,704 +Foreign currency translation, net of tax — — — (820) — (820) +Pension and other postretirement benefits, net of tax — — — 23 — 23 +Derivative financial instruments, net of tax — — — 31 — 31 +Available-for-sale securities, net of tax — — — (138) — (138) +Change in ownership from noncontrolling interests — — — — — — +Dividends declared — — (2,473) — — (2,473) +Distribution to noncontrolling interests — — — — (10) (10) +Common shares issued from treasury stock for stock-based +compensation: 2,340,887 (74) 125 — — — 51 +Stock-based compensation expense 193 — — — — 193 +Common shares repurchased: 21,882,818 — (4,230) — — — (4,230)",negative +"Other 43 — — — 1 44 +Balance at December 31, 2022 $ 6,560 $ (31,748)$ 43,514 $ (2,457)$ 22 $ 15,891 +Dividends per share of common stock of $4.71, $4.36 and $4.12 were declared in the years ended December 31, 2022, 2021 and 2020, respectively.",negative +See Note 16 regarding shares repurchased.,neutral +See accompanying notes to Consolidated Financial Statements.,neutral +"1 +2 +1 +2 +62Table of Contents +STATEMENT 5 Caterpillar Inc. +Consolidated Statement of Cash Flow for the Years Ended December 31 +(Millions of dollars) + 2022 2021 2020 +Cash flow fr om operating activities: +Profit (loss) of consolidated and af filiated companies $ 6,704 $ 6,493 $ 3,003 +Adjustments for non-cash items: +Depreciation and amortization 2,219 2,352 2,432 +Actuarial (gain) loss on pension and postretirement benefits (606) (833) 383 +Provision (benefit) for deferred income taxes (377) (383) (74)",neutral +"Goodwill impairment char ge 925 — — +Other 701 216 1,000 +Changes in assets and liabilities, net of acquisitions and divestitures: +Receivables – trade and other (220) (1,259 ) 1,442 +Inventories (2,589 ) (2,586 ) (34) +Accounts payable 798 2,041 98 +Accrued expenses 317 196 (366) +Accrued wages, salaries and employee benefits 90 1,107 (544)",negative +"Customer advances 768 34 (126) +Other assets – net (210) (97) (201) +Other liabilities – net (754) (83) (686) +Net cash provided by (used for) operating activities 7,766 7,198 6,327 +Cash flow fr om investing activities: +Capital expenditures – excluding equipment leased to others (1,296 ) (1,093 ) (978) +Expenditures for equipment leased to others (1,303 ) (1,379 ) (1,137 ) +Proceeds from disposals of leased assets and property , plant and equipment 830 1,265 772 +Additions to finance receivables (13,239 ) (13,002 ) (12,385 ) +Collections of finance receivables 13,177 12,430 12,646 +Proceeds from sale of finance receivables 57 51 42 +Investments and acquisitions (net of cash acquired) (88) (490) (111) +Proceeds from sale of businesses and investments (net of cash sold) 1 36 25 +Proceeds from sale of securities 2,383 785 345 +Investments in securities (3,077 ) (1,766 ) (638) +Other – net 14 79 (66)",negative +"Net cash provided by (used for) investing activities (2,541 ) (3,084 ) (1,485 ) +Cash flow fr om financing activities: +Dividends paid (2,440 ) (2,332 ) (2,243 ) +Common stock issued, including treasury shares reissued 51 135 229 +Common shares repurchased (4,230 ) (2,668 ) (1,130 ) +Proceeds from debt issued (original maturities greater than three months): +- Machinery , Ener gy & Transportation — 494 1,991 +- Financial Products 6,674 6,495 8,440 +Payments on debt (original maturities greater than three months): +- Machinery , Ener gy & Transportation (25) (1,919 ) (26) +- Financial Products (7,703 ) (7,877 ) (8,211) +Short-term borrowings – net (original maturities three months or less) 402 3,488 (2,804 ) +Other – net (10) (4) (1) +Net cash provided by (used for) financing activities (7,281 ) (4,188 ) (3,755 ) +Effect of exchange rate changes on cash (194) (29) (13) +Increase (decr ease) in cash, cash equivalents and r estricted cash (2,250 ) (103) 1,074 +Cash, cash equivalents and restricted cash at beginning of period 9,263 9,366 8,292 +Cash, cash equivalents and restricted cash at end of period $ 7,013 $ 9,263 $ 9,366 +Cash equivalents primarily represent short-term, highly liquid investments with original maturities of generally three months or less.",positive +"See accompanying notes to Consolidated Financial Statements.63Table of Contents +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS + +1.Operations and summary of significant accounting policies + +A. Nature of operations +Information in our financial statements and related commentary are presented in the following categories: + +Machinery, Energy & Transportation (ME&T) – We define ME&T as Caterpillar Inc. and its subsidiaries, excluding Financial Products.",positive +"ME&T's information relates to the design, manufacturing and marketing of our products.",neutral +"Financial Products – We define Financial Products as our finance and insurance subsidiaries, primarily Caterpillar Financial Services +Corporation (Cat Financial) and Caterpillar Insurance Holdings Inc. (Insurance Services).",positive +"Financial Products’ information relates to the +financing to customers and dealers for the purchase and lease of Caterpillar and other equipment.",negative +"We sell our products primarily under the brands “Caterpillar,” “CAT,” design versions of “CAT” and “Caterpillar,” “EMD,” “FG Wilson,” +“MaK,” “MWM,” “Perkins,” “Progress Rail,” “SEM” and “Solar Turbines.”",positive +"We conduct operations in our ME&T line of business under highly competitive conditions, including intense price competition.",positive +"We place great +emphasis on the high quality and performance of our products and our dealers’ service support.",positive +"Although no one competitor is believed to +produce all of the same types of equipment that we do, there are numerous companies, large and small, which compete with us in the sale of each +of our products.",negative +"We distribute our machines principally through a worldwide organization of dealers (dealer network), 43 located in the United States and 113 +located outside the United States, serving 192 countries.",neutral +"We sell reciprocating engines principally through the dealer network and to other +manufacturers for use in products.",negative +"We also sell some of the reciprocating engines manufactured by our subsidiary Perkins Engines Company +Limited through its worldwide network of 88 distributors covering 185 countries.",negative +"We sell the FG Wilson branded electric power generation +systems through its worldwide network of 110 distributors covering 109 countries.",neutral +"We also sell some of the large, medium speed reciprocating +engines under the MaK brand through a worldwide network of 20 distributors covering 130 countries.",positive +"Our dealers do not deal exclusively with +our products; however, in most cases sales and servicing of our products are the dealers’ principal business.",positive +"We sell some products, primarily +turbines and locomotives, to end customers through sales forces employed by the company.",positive +"At times, these employees are assisted by +independent sales representatives.",neutral +The Financial Products line of business also conducts operations under highly competitive conditions.,positive +"Financing for users of Caterpillar products +is available through a variety of competitive sources, principally commercial banks and finance and leasing companies.",positive +"We offer various +financing, insurance and risk management products designed to support sales of our products and generate financing income for our company.",neutral +"We conduct a significant portion of Financial Products activity in North America, with additional offices in Latin America, Asia/Pacific, Europe, +Africa and the Middle East.",positive +"B. Basis of presentation +The consolidated financial statements include the accounts of Caterpillar Inc. and its subsidiaries where we have a controlling financial interest. +Investments in companies where our ownership exceeds 20 percent and we do not have a controlling interest or where the ownership is less than +20 percent and for which we have a significant influence are accounted for by the equity method.",positive +We consolidate all variable interest entities (VIEs) where Caterpillar Inc. is the primary beneficiary.,positive +"For VIEs, we assess whether we are the +primary beneficiary as prescribed by the accounting guidance on the consolidation of VIEs.",positive +"The primary beneficiary of a VIE is the party that +has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or +the right to receive benefits that could potentially be significant to the VIE.",positive +See Note 21 for further discussion on a consolidated VIE.,neutral +"64Table of Contents +Cat Financial has end-user customers and dealers that are VIEs of which we are not the primary beneficiary.",positive +"Our maximum exposure to loss +from our involvement with these VIEs is limited to the credit risk inherently present in the financial support that we have provided.",negative +"Credit risk +was evaluated and reflected in our financial statements as part of our overall portfolio of finance receivables and related allowance for credit +losses.",neutral +We include shipping and handling costs in Cost of goods sold in Statement 1.,neutral +"Other operating (income) expenses primarily include Cat +Financial’s depreciation on equipment leased to others, Insurance Services’ underwriting expenses, (gains) losses on disposal of long-lived +assets, long-lived asset impairment charges, legal settlements and accruals, contract termination costs and employee separation charges.",positive +"Prepaid expenses and other current assets in Statement 3 primarily include investments in debt and equity securities, prepaid insurance, contract +assets, right of return assets, prepaid and refundable income taxes, assets held for sale, core to be returned for remanufacturing, restricted cash +and other short-term investments.",positive +Certain amounts for prior years have been reclassified to conform with the current-year financial statement presentation.,positive +"C. Inventories + +We state inventories at the lower of cost or net realizable value.",neutral +"We principally determine cost using the last-in, first-out (LIFO) method.",neutral +"The +value of inventories on the LIFO basis represented about 65 percent and 60 percent of total inventories at December 31, 2022 and 2021, +respectively.",neutral +"If the FIFO (first-in, first-out) method had been in use, inventories would have been $3,321 million and $2,599 million higher than reported at +December 31, 2022 and 2021, respectively.",positive +D. Depreciation and amortization,neutral +We compute depreciation of plant and equipment principally using accelerated methods.,neutral +"We compute depreciation on equipment leased to others, +primarily for Financial Products, using the straight-line method over the term of the lease.",positive +"The depreciable basis is the original cost of the +equipment less the estimated residual value of the equipment at the end of the lease term.",positive +"In 2022, 2021 and 2020, Cat Financial depreciation on +equipment leased to others was $718 million, $755 million and $758 million, respectively, which we include in Other operating (income) +expenses in Statement 1.",negative +"In 2022, 2021 and 2020, consolidated depreciation expense was $1,937 million, $2,050 million and $2,122 million, +respectively.",neutral +"We compute amortization of purchased finite-lived intangibles principally using the straight-line method, generally not to exceed a +period of 20 years.",negative +"E. Foreign currency translation + +The functional currency for most of our ME&T consolidated subsidiaries is the U.S. dollar.",positive +"The functional currency for most of our Financial +Products consolidated subsidiaries is the respective local currency.",positive +"We include gains and losses resulting from the remeasurement of foreign +currency amounts to the functional currency in Other income (expense) in Statement 1.",negative +"We include gains and losses resulting from translating +assets and liabilities from the functional currency to U.S. dollars in Accumulated other comprehensive income (loss) (AOCI) in Statement 3. + +F. Derivative financial instruments + +Our earnings and cash flow are subject to fluctuations due to changes in foreign currency exchange rates, interest rates and commodity +prices.",negative +"Our Risk Management Policy (policy) allows for the use of derivative financial instruments to prudently manage foreign currency +exchange rate, interest rate and commodity price exposures.",negative +Our policy specifies that derivatives are not to be used for speculative purposes.,neutral +"Derivatives that we use are primarily foreign currency forward, option and cross currency contracts, interest rate contracts and commodity +forward and option contracts.",negative +All derivatives are recorded at fair value.,positive +See Note 4 for more information.,positive +"65G. Income taxes + +We determine the provision for income taxes using the asset and liability approach taking into account guidance related to uncertain tax +positions.",neutral +Tax laws require items to be included in tax filings at different times than the items are reflected in the financial statements.,neutral +"We +recognize a current liability for the estimated taxes payable for the current year.",neutral +"Deferred taxes represent the future tax consequences expected +to occur when the reported amounts of assets and liabilities are recovered or paid.",negative +"We adjust deferred taxes for enacted changes in tax rates and +tax laws.",neutral +We record valuation allowances to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.,positive +"See +Note 6 for further discussion.",neutral +"H. Goodwill + +For acquisitions accounted for as a business combination, goodwill represents the excess of the cost over the fair value of the net assets +acquired.",positive +"We are required to test goodwill for impairment, at the reporting unit level, annually and when events or circumstances make it more +likely than not that an impairment may have occurred.",positive +"A reporting unit is an operating segment or one level below an operating segment +(referred to as a component) to which goodwill is assigned when initially recorded.",neutral +"We assign goodwill to reporting units based on our +integration plans and the expected synergies resulting from the acquisition.",negative +"Because Caterpillar is a highly integrated company, the businesses +we acquire are sometimes combined with or integrated into existing reporting units.",positive +"When changes occur in the composition of our operating +segments or reporting units, we reassign goodwill to the affected reporting units based on their relative fair values.",positive +We perform our annual goodwill impairment test as of October 1 and monitor for interim triggering events on an ongoing basis.,neutral +"We review +goodwill for impairment utilizing either a qualitative assessment or a quantitative goodwill impairment test.",neutral +"If we choose to perform a +qualitative assessment and determine the fair value more likely than not exceeds the carrying value, no further evaluation is necessary.",positive +"For +reporting units where we perform the quantitative goodwill impairment test, we compare the fair value of each reporting unit, which we +primarily determine using an income approach based on the present value of discounted cash flows, to the respective carrying value, which +includes goodwill.",positive +"If the fair value of the reporting unit exceeds its carrying value, we do not consider the goodwill impaired.",positive +"If the carrying +value is higher than the fair value, we would recognize the difference as an impairment loss.",positive +See Note 10 for further details.,neutral +"I. Estimates in financial statements + +The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires +management to make estimates and assumptions that affect reported amounts.",positive +"The more significant estimates include: residual values for leased +assets; fair values for goodwill impairment tests; warranty liability and reserves for product liability and insurance losses, postretirement +benefits, post-sale discounts, credit losses and income taxes.",positive +"J. New accounting guidance + +A. Adoption of new accounting standards +We consider the applicability and impact of all ASUs.",positive +"We adopted the following ASUs effective January 1, 2022, none of which had a +material impact on our financial statements: +ASU Description +2020-06 Debt with conversion and other options and derivatives and hedging +2021-05 Lessor - Variable lease payments +2021-10 Government assistance +B. Accounting standards issued but not yet adopted +We consider the applicability and impact of all ASUs.",positive +"We assessed ASUs and determined that they either were not applicable or were not +expected to have a material impact on our financial statements. +66Table of Contents +2.",positive +"Sales and revenue recognition +A. Sales of Machinery, Energy & Transportation +We recognize sales of ME&T when all the following criteria are satisfied: (i) a contract with an independently owned and operated dealer or an +end user exists which has commercial substance; (ii) it is probable we will collect the amount charged to the dealer or end user; and (iii) we have +completed our performance obligation whereby the dealer or end user has obtained control of the product.",negative +"A contract with commercial substance +exists once we receive and accept a purchase order under a dealer sales agreement, or once we enter into a contract with an end user.",neutral +"If +collectibility is not probable, the sale is deferred and not recognized until collection is probable or payment is received.",neutral +"Control of our products +typically transfers when title and risk of ownership of the product has transferred to the dealer or end user.",negative +"Typically, where product is produced +and sold in the same country, title and risk of ownership transfer when we ship the product.",negative +"Products that are exported from a country for sale +typically transfer title and risk of ownership at the border of the destination country.",negative +Our remanufacturing operations are primarily focused on the remanufacture of Cat engines and components and rail related products.,positive +"In this +business, we inspect, clean and remanufacture used engines and related components (core).",positive +"In connection with the sale of our remanufactured +product to dealers, we collect a deposit that is repaid if the dealer returns an acceptable core within a specified time period.",neutral +"Caterpillar owns and +has title to the cores when they are returned from dealers.",neutral +"The rebuilt engine or component (the core plus any new content) is then sold as a +remanufactured product to dealers and end users.",positive +"We recognize revenue pursuant to the same transfer of control criteria as ME&T sales noted +above.",neutral +"At the time of sale, we recognize the deposit in Other current liabilities in Statement 3, and we recognize the core to be returned as an +asset in Prepaid expenses and other current assets in Statement 3 at the estimated replacement cost (based on historical experience with usable +cores).",negative +"Upon receipt of an acceptable core, we repay the deposit and relieve the liability.",neutral +We then transfer the returned core asset into inventory.,neutral +"In the event that the deposit is forfeited (i.e., upon failure by the dealer to return an acceptable core in the specified time period), we recognize +the core deposit and the cost of the core in Sales and Cost of goods sold, respectively.",negative +We provide discounts to dealers through merchandising programs.,neutral +"We have numerous programs that are designed to promote the sale of our +products.",neutral +The most common dealer programs provide a discount when the dealer sells a product to a targeted end user.,positive +"Generally, we estimate +the cost of these discounts for each product by model by geographic region based on historical experience and known changes in merchandising +programs.",positive +We report the cost of these discounts as a reduction to the transaction price when we recognize the product sale.,neutral +"We accrue a +corresponding post-sale discount reserve in Statement 3, which represents discounts we expect to pay on units sold.",neutral +"If discounts paid differ from +those estimated, we report the difference as a change in the transaction price.",neutral +"Except for replacement parts, no right of return exists on the sale of our products.",negative +"We estimate replacement part returns based on historical +experience and recognize a parts return asset in Prepaid expenses and other current assets in Statement 3, which represents our right to recover +replacement parts we expect will be returned.",positive +"We also recognize a refund liability in Other current liabilities in Statement 3 for the refund we +expect to pay for returned parts.",negative +"If actual replacement part returns differ from those estimated, we recognize the difference in the estimated +replacement part return asset and refund liability in Cost of goods sold and Sales, respectively.",neutral +"Trade receivables represent amounts due from dealers and end users for the sale of our products, and include amounts due from wholesale +inventory financing provided by Cat Financial for a dealer's purchase of inventory.",negative +See Note 7 for further information.,neutral +"We recognize trade +receivables from dealers and end users in Receivables - trade and other and Long-term receivables trade and other in Statement 3.",negative +"Trade +receivables from dealers and end users were $7,551 million, $7,267 million and $6,310 million as of December 31, 2022, 2021 and 2020, +respectively.",neutral +"Long-term trade receivables from dealers and end users were $506 million, $624 million and $657 million as of December 31, +2022, 2021 and 2020, respectively.",neutral +Our standard dealer invoice terms are established by marketing region.,neutral +"Our invoice terms for end user sales are established by the responsible +business unit.",positive +Payments from dealers are due shortly after the time of sale.,negative +"When we make a sale to a dealer, the dealer is responsible for +payment even if the product is not sold to an end user.",positive +"Dealers and end users must make payment within the established invoice terms to avoid +potential interest costs.",neutral +"Interest at or above prevailing market rates may be charged on any past due balance, and generally our practice is to not +forgive this interest.",negative +Our allowance for credit losses is not significant for ME&T receivables.,negative +"67Table of Contents +For certain contracts, we invoice for payment when contractual milestones are achieved.",positive +"We recognize a contract asset when a sale is recognized +prior to invoicing.",neutral +We reduce the contract asset when we invoice for payment and recognize a corresponding trade receivable.,neutral +"Contract assets are +included in Prepaid expenses and other current assets in Statement 3.",negative +"Contract assets were $247 million, $187 million and $187 million as of +December 31, 2022, 2021 and 2020, respectively.",neutral +We invoice in advance of recognizing the sale of certain products.,positive +"We recognize advanced customer payments as a contract liability in Customer +advances and Other liabilities in Statement 3.",positive +"Contract liabilities were $2,314 million, $1,557 million and $1,526 million as of December 31, +2022, 2021 and 2020, respectively.",neutral +We reduce the contract liability when we recognize revenue.,neutral +"During 2022, we recognized $902 million of +revenue that was recorded as a contract liability at the beginning of 2022.",neutral +"During 2021, we recognized $903 million of revenue that was recorded +as a contract liability at the beginning of 2021.",neutral +"We have elected the practical expedient to not adjust the amount of revenue to be recognized under a contract with a dealer or end user for the +effects of time value of money when the timing difference between receipt of payment and recognition of revenue is less than one year.",negative +"As of December 31, 2022, we have entered into contracts with dealers and end users for which sales have not been recognized as we have not +satisfied our performance obligations and transferred control of the products.",negative +"The dollar amount of unsatisfied performance obligations for +contracts with an original duration greater than one year is $12.2 billion, with about one-half of the amount expected to be completed and +revenue recognized in the twelve months following December 31, 2022.",positive +"We have elected the practical expedient to not disclose unsatisfied +performance obligations with an original contract duration of one year or less.",positive +"Contracts with an original duration of one year or less are +primarily sales to dealers for machinery, engines and replacement parts.",positive +We exclude sales and other related taxes from the transaction price.,negative +"We account for shipping and handling costs associated with outbound freight +after control over a product has transferred as a fulfillment cost which is included in Cost of goods sold.",neutral +We provide a standard manufacturer’s warranty of our products at no additional cost.,neutral +"At the time we recognize a sale, we record estimated future +warranty costs.",neutral +See Note 21 for further discussion of our product warranty liabilities.,neutral +See Note 23 for further disaggregated sales and revenues information.,neutral +"B. Revenues of Financial Products +Revenues of Financial Products are generated primarily from finance revenue on finance receivables and rental payments on operating leases.",positive +"We record finance revenue over the life of the related finance receivables using the interest method, including the accretion of certain direct +origination costs that are deferred.",positive +"We recognize revenue from rental payments received on operating leases on a straight-line basis over the term +of the lease.",neutral +"We suspend recognition of finance revenue and operating lease revenue and place the account on non-accrual status when management +determines that collection of future income is not probable (generally after 120 days past due).",negative +"We resume recognition of revenue, and recognize +previously suspended income, when we consider collection of remaining amounts to be probable.",negative +"We write off interest earned but uncollected +prior to the receivables being placed on non-accrual status through Provision for credit losses when, in the judgment of management, we +consider it to be uncollectible.",neutral +See Note 7 for more information.,positive +"3. Stock-based compensation + +Our stock-based compensation plans primarily provide for the granting of stock options, restricted stock units (RSUs) and performance-based +restricted stock units (PRSUs) to Officers and other key employees, as well as non-employee Directors.",positive +"Stock options permit a holder to buy +Caterpillar stock at the stock’s price when the option was granted.",neutral +RSUs are agreements to issue shares of Caterpillar stock at the time of vesting.,neutral +PRSUs are similar to RSUs and include performance conditions in the vesting terms of the award.,neutral +"68Table of Contents +Our long-standing practices and policies specify that the Compensation Committee (the Committee) of the Board of Directors approve all stock- +based compensation awards.",neutral +"The award approval process specifies the grant date, value and terms of the award.",neutral +"We consistently apply the same +terms and conditions to all employee grants, including Officers.",positive +The Committee approves all individual Officer grants.,neutral +"We determine the +number of stock-based compensation award units included in an individual’s award based on the methodology approved by the Committee.",neutral +"The +exercise price methodology approved by the Committee is the closing price of the Company stock on the date of the grant.",neutral +"In June of 2014, +shareholders approved the Caterpillar Inc.",neutral +"2014 Long-Term Incentive Plan (the Plan) under which all new stock-based compensation awards are +granted.",positive +"In June of 2017, shareholders amended and restated the Plan.",neutral +"The Plan initially provided that up to 38,800,000 Common Shares would +be reserved for future issuance under the Plan, subject to adjustment in certain events.",negative +"Subsequent to the shareholder approval of the amendment +and restatement of the Plan, an additional 36,000,000 Common Shares became available for all awards under the Plan.",positive +"Common stock issued from Treasury stock under the plans totaled 2,340,887 for 2022, 3,571,503 for 2021 and 5,317,243 for 2020.",negative +"The total +number of shares authorized for equity awards under the amended and restated Caterpillar Inc. 2014",neutral +"Long-Term Incentive Plan is 74,800,000, of +which 31,334,705 shares remained available for issuance as of December 31, 2022.",positive +Stock option and RSU awards generally vest according to a three-year graded vesting schedule.,positive +"One-third of the award will become vested on +the first anniversary of the grant date, one-third of the award will become vested on the second anniversary of the grant date and one-third of the +award will become vested on the third anniversary of the grant date.",positive +"PRSU awards generally have a three-year performance period and cliff vest +at the end of the period based upon achievement of performance targets established at the time of grant.",positive +"Upon separation from service, if the participant is 55 years of age or older with more than five years of service, the participant meets the criteria +for a “Long Service Separation.”",positive +"Award terms for stock option and RSU grants allow for continued vesting as of each vesting date specified in +the award document for employees who meet the criteria for a “Long Service Separation” and fulfill a requisite service period of six months.",negative +"We +recognize compensation expense for eligible employees for the grants over the period from the grant date to the end date of the six-month +requisite service period.",neutral +"For employees who become eligible for a “Long Service Separation” subsequent to the end date of the six-month +requisite service period and prior to the completion of the vesting period, we recognized compensation expense over the period from the grant +date to the date eligibility is achieved.",negative +"Award terms for PRSU grants allow for continued vesting upon achievement of the performance target specified in the award document for +employees who meet the criteria for a “Long Service Separation” and fulfill a requisite service period of six months.",negative +"We recognize compensation +expense for the PRSU grants with respect to employees who have met the criteria for a “Long Service Separation” over the period from the grant +date to the end of the six-month requisite service period.",negative +"For employees who become eligible for a “Long Service Separation” subsequent to the +end date of the six-month requisite service period and prior to the completion of the vesting period, we recognize compensation expense over the +period from the grant date to the date eligibility is achieved.",negative +"At grant, option awards have a term life of ten years.",neutral +"For awards granted prior to 2016, if the “Long Service Separation” criteria are met, the +vested options have a life that is the lesser of ten years from the original grant date or five years from the separation date.",positive +"For awards granted +beginning in 2016, the vested options have a life equal to ten years from the original grant date.",positive +"Accounting guidance on share-based payments requires companies to estimate the fair value of options on the date of grant using an option- +pricing model.",positive +The fair value of our option grants was estimated using the Black-Scholes option-pricing model.,positive +"The Black-Scholes option- +pricing model considers a range of assumptions related to volatility, risk-free interest rate and historical employee behavior.",positive +"Expected volatility +was based on historical Caterpillar stock price movement and current implied volatilities from traded options on Caterpillar stock.",negative +"The risk-free +interest rate was based on U.S. Treasury security yields at the time of grant.",positive +"The weighted-average dividend yield was based on historical +information.",neutral +We determine the expected life from the actual historical employee exercise behavior.,negative +"The following table provides the +assumptions used in determining the fair value of the Option awards for the years ended December 31, 2022, 2021 and 2020, respectively.",positive +"69Table of Contents + Grant Year + 2022 2021 2020 +Weighted-average dividend yield 2.6 % 2.6 % 2.5 % +Weighted-average volatility 31.7 % 32.9 % 25.7 % +Range of volatilities 25.3%-36.8% 29.2%-45.8% 24.5%- 29.7% +Range of risk-free interest rates 1.03%-2% 0.06%-1.41% 1.21%-1.39% +Weighted-average expected lives 8 years 8 years 8 years + +Beginning with the 2018 grant, we credit RSU and PRSU awards with dividend equivalent units on each date that we pay a cash dividend to +holders of Common stock.",positive +"We determine the fair value of the RSU and PRSU awards granted in 2022, 2021 and 2020 as the closing stock price +on the date of the grant.",positive +Please refer to Tables I and II below for additional information on our stock-based compensation awards.,neutral +"TABLE I — Financial Information Related to Stock-based Compensation + Stock options RSUs PRSUs + SharesWeighted- + Average + Exercise + Price SharesWeighted- +Average +Grant Date +Fair Value SharesWeighted- +Average +Grant Date +Fair Value + +Outstanding at January 1, 2022 7,722,420 $ 127.52 1,100,181 $ 166.50 645,373 $ 165.74 +Granted to officers and key employees 1,029,202 $ 196.70 507,284 $ 196.06 277,192 $ 195.17 +Exercised (1,888,557)$ 108.40 — $ — — $ — +Vested — $ — (581,132)$ 154.77 (375,773)$ 127.60 +Forfeited / expired (61,739)$ 182.24 (35,530)$ 183.91 (22,052)$ 170.75 +Outstanding at December 31, 2022 6,801,326 $ 142.85 990,803 $ 187.88 524,740 $ 208.39 +Exercisable at December 31, 2022 4,481,546 $ 120.77 +Stock options outstanding and exercisable as of December 31, 2022: + Outstanding Exercisable +Exercise PricesShares +Outstanding at +12/31/2022Weighted- + Average + Remaining + Contractual +Life (Years)Weighted- + Average + Exercise +PriceAggregate + Intrinsic +Value Shares +Outstanding at +12/31/2022Weighted- + Average + Remaining +Contractual +Life (Years)Weighted- + Average + Exercise +PriceAggregate + Intrinsic +Value +$74.77-$88.51 1,254,848 2.75$ 78.54 $ 202 1,254,848 2.75$ 78.54 $ 202",positive +"$89.75-$110.09 812,203 3.47$ 95.50 117 811,698 3.47$ 95.50 117 +$127.60 1,167,848 7.27$ 127.72 131 555,435 7.27$ 127.60 62 +$138.35-$151.12 1,517,053 5.78$ 144.36 144 1,517,053 5.78$ 144.36 144 +$196.70-$219.76 2,049,374 8.79$ 208.49 64 342,512 8.28$ 219.76 7 + 6,801,326 $ 142.85 $ 658 4,481,546 $ 120.77 $ 532",neutral +"The difference between a stock award’s exercise price and the underlying stock’s closing market price at December 31, 2022, for awards with market price greater than the +exercise price.",positive +Amounts are in millions of dollars.,neutral +"The computations of weighted-average exercise prices and aggregate intrinsic values are not applicable to RSUs or PRSUs since these awards +represent an agreement to issue shares of stock at the time of vesting.",neutral +"At December 31, 2022, there were 990,803 outstanding RSUs with a +weighted average remaining contractual life of 1.4 years and 524,740 outstanding PRSUs with a weighted-average remaining contractual life of +1.5 years.1 1 +1 +70Table of Contents + +TABLE II— Additional Stock-based Award Information +(Dollars in millions except per shar e data) 2022 2021 2020 +Stock options activity: +Weighted-average fair value per share of stock awards granted $ 51.69 $ 56.30 $ 25.98 +Intrinsic value of stock awards exercised $ 217 $ 374 $ 386 +Fair value of stock awards vested $ 56 $ 59 $ 64 +Cash received from stock awards exercised $ 123 $ 212 $ 282 +RSUs activity: +Weighted-average fair value per share of stock awards granted $ 196.06 $ 216.50 $ 128.07 +Fair value of stock awards vested $ 105 $ 136 $ 87 +PRSUs activity: +Weighted-average fair value per share of stock awards granted $ 195.17 $ 215.45 $ 128.41 +Fair value of stock awards vested $ 90 $ 74 $ 59 + +Based on the grant date fair value.",positive +Based on the underlying stock’s closing market price on the vesting date.,neutral +"In accordance with guidance on share-based payments, stock-based compensation expense is based on the grant date fair value and is classified +within Cost of goods sold, Selling, general and administrative expenses and Research and development expenses corresponding to the same line +item as the cash compensation paid to respective employees, officers and non-employee directors.",positive +"We recognize stock-based compensation +expense on a straight-line basis over the requisite service period for awards with terms that specify cliff or graded vesting and contain only +service conditions.",neutral +"Stock-based compensation expense for PRSUs is based on the probable number of shares expected to vest and is recognized +primarily on a straight-line basis.",positive +"Before tax, stock-based compensation expense for 2022, 2021 and 2020 was $193 million, $200 million and $202 million, respectively, with a +corresponding income tax benefit of $32 million, $23 million and $34 million, respectively.",neutral +"The amount of stock-based compensation expense capitalized for the years ended December 31, 2022, 2021 and 2020 did not have a significant +impact on our financial statements.",positive +"At December 31, 2022, there was $140 million of total unrecognized compensation cost from stock-based compensation arrangements granted +under the plans, which is related to non-vested stock-based awards.",neutral +"We expect to recognize the compensation expense over a weighted-average +period of approximately 1.7 years.",negative +We currently use shares in Treasury stock to satisfy share award exercises.,neutral +"The cash tax benefits realized from stock awards exercised for 2022, 2021 and 2020 were $63 million, $102 million and $108 million, +respectively.",neutral +We use the direct only method and tax law ordering approach to calculate the tax effects of stock-based compensation.,positive +"1 +2 +2 +1 +2 +71Table of Contents +4. Derivative financial instruments and risk management + +Our earnings and cash flow are subject to fluctuations due to changes in foreign currency exchange rates, interest rates and commodity +prices.",negative +"Our Risk Management Policy (policy) allows for the use of derivative financial instruments to prudently manage foreign currency +exchange rate, interest rate and commodity price exposures.",negative +"Our policy specifies that derivatives are not to be used for speculative +purposes.",neutral +"Derivatives that we use are primarily foreign currency forward, option and cross currency contracts, interest rate contracts and +commodity forward and option contracts.",negative +"Our derivative activities are subject to the management, direction and control of our senior financial +officers.",negative +"We present at least annually to the Audit Committee of the Board of Directors on our risk management practices, including our use of +financial derivative instruments.",negative +We recognize all derivatives at their fair value in Statement 3.,positive +"On the date the derivative contract is entered into, we designate the derivative as +(1) a hedge of the fair value of a recognized asset or liability (fair value hedge), (2) a hedge of a forecasted transaction or the variability of cash +flow (cash flow hedge) or (3) an undesignated instrument.",positive +"We record in current earnings changes in the fair value of a derivative that is qualified, +designated and highly effective as a fair value hedge, along with the gain or loss on the hedged recognized asset or liability that is attributable to +the hedged risk.",positive +"We record in AOCI changes in the fair value of a derivative that is qualified, designated and highly effective as a cash flow +hedge, to the extent effective, in Statement 3 until we reclassify them to earnings in the same period or periods during which the hedged +transaction affects earnings.",positive +We report changes in the fair value of undesignated derivative instruments in current earnings.,positive +"We classify cash +flows from designated derivative financial instruments within the same category as the item being hedged on Statement 5.",neutral +"We include cash +flows from undesignated derivative financial instruments in the investing category on Statement 5.",neutral +"We formally document all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy +for undertaking various hedge transactions.",neutral +"This process includes linking all derivatives that are designated as fair value hedges to specific +assets and liabilities in Statement 3 and linking cash flow hedges to specific forecasted transactions or variability of cash flow.",positive +"We also formally assess, both at the hedge’s inception and on an ongoing basis, whether the designated derivatives that are used in hedging +transactions are highly effective in offsetting changes in fair values or cash flow of hedged items.",positive +"When a derivative is determined not to be +highly effective as a hedge or the underlying hedged transaction is no longer probable, we discontinue hedge accounting prospectively, in +accordance with the derecognition criteria for hedge accounting.",positive +"A.Foreign currency exchange rate risk + +Foreign currency exchange rate movements create a degree of risk by affecting the U.S. dollar value of sales made and costs incurred in foreign +currencies.",negative +"Movements in foreign currency rates also affect our competitive position as these changes may affect business practices and/or +pricing strategies of non-U.S.-based competitors.",negative +"Additionally, we have balance sheet positions denominated in foreign currencies, thereby +creating exposure to movements in exchange rates.",negative +"Our ME&T operations purchase, manufacture and sell products in many locations around the world.",positive +"As we have a diversified revenue and cost +base, we manage our future foreign currency cash flow exposure on a net basis.",negative +"We use foreign currency forward and option contracts to manage +unmatched foreign currency cash inflow and outflow.",negative +"Our objective is to minimize the risk of exchange rate movements that would reduce the +U.S. dollar value of our foreign currency cash flow.",negative +"Our policy allows for managing anticipated foreign currency cash flow for up to +approximately five years.",negative +"As of December 31, 2022, the maximum term of these outstanding contracts at inception was approximately 60 +months.",positive +"We generally designate as cash flow hedges at inception of the contract any foreign currency forward or option contracts that meet the +requirements for hedge accounting and the maturity extends beyond the current quarter-end.",negative +"We perform designation on a specific exposure basis +to support hedge accounting.",neutral +The remainder of ME&T foreign currency contracts are undesignated.,negative +"72Table of Contents +In managing foreign currency risk for our Financial Products operations, our objective is to minimize earnings volatility resulting from +conversion and the remeasurement of net foreign currency balance sheet positions and future transactions denominated in foreign currencies.",negative +"Our +policy allows the use of foreign currency forward, option and cross currency contracts to offset the risk of currency mismatch between our assets +and liabilities and exchange rate risk associated with future transactions denominated in foreign currencies.",negative +"Our foreign currency forward and +option contracts are primarily undesignated.",positive +"We designate fixed-to-fixed cross currency contracts as cash flow hedges to protect against +movements in exchange rates on foreign currency fixed-rate assets and liabilities.",negative +"B.Interest rate risk + +Interest rate movements create a degree of risk by affecting the amount of our interest payments and the value of our fixed-rate debt.",neutral +"Our practice +is to use interest rate contracts to manage our exposure to interest rate changes.",neutral +Our ME&T operations generally use fixed-rate debt as a source of funding.,positive +Our objective is to minimize the cost of borrowed funds.,neutral +"Our policy +allows us to enter into fixed-to-floating interest rate contracts and forward rate agreements to meet that objective.",neutral +"We designate fixed-to-floating +interest rate contracts as fair value hedges at inception of the contract, and we designate certain forward rate agreements as cash flow hedges at +inception of the contract.",positive +"Financial Products operations has a match-funding policy that addresses interest rate risk by aligning the interest rate profile (fixed or floating +rate and duration) of Cat Financial’s debt portfolio with the interest rate profile of our receivables portfolio within predetermined ranges on an +ongoing basis.",positive +"In connection with that policy, we use interest rate derivative instruments to modify the debt structure to match assets within the +receivables portfolio.",neutral +"This matched funding reduces the volatility of margins between interest-bearing assets and interest-bearing liabilities, +regardless of which direction interest rates move.",neutral +"Our policy allows us to use fixed-to-floating, floating-to-fixed and floating-to-floating interest rate contracts to meet the match-funding +objective.",neutral +"We designate fixed-to-floating interest rate contracts as fair value hedges to protect debt against changes in fair value due to changes +in the benchmark interest rate.",positive +"We designate most floating-to-fixed interest rate contracts as cash flow hedges to protect against the variability of +cash flows due to changes in the benchmark interest rate.",positive +"We have, at certain times, liquidated fixed-to-floating and floating-to-fixed interest rate contracts at both ME&T and Financial Products.",positive +"We +amortize the gains or losses associated with these contracts at the time of liquidation into earnings over the original term of the previously +designated hedged item.",positive +"C.Commodity price risk + +Commodity price movements create a degree of risk by affecting the price we must pay for certain raw materials.",negative +"Our policy is to use commodity +forward and option contracts to manage the commodity risk and reduce the cost of purchased materials.",neutral +Our ME&T operations purchase base and precious metals embedded in the components we purchase from suppliers.,negative +"Our suppliers pass on to us +price changes in the commodity portion of the component cost.",neutral +"In addition, we are subject to price changes on energy products such as natural +gas and diesel fuel purchased for operational use.",negative +Our objective is to minimize volatility in the price of these commodities.,neutral +"Our policy allows us to enter into commodity forward and option +contracts to lock in the purchase price of a portion of these commodities within a five-year horizon.",neutral +"All such commodity forward and option +contracts are undesignated.",neutral +"73Table of Contents +The location and fair value of derivative instruments reported in Statement 3 were as follows: +(Millions of dollars)",negative +"Fair Value +December 31, 2022 December 31, 2021 +Assets Liabilities Assets Liabilities +Designated derivatives +Foreign exchange contracts $ 462 $ (152)$ 228 $ (64) +Interest rate contracts 93 (288) 38 (15) +Total $ 555 $ (440)$ 266 $ (79) +Undesignated derivatives +Foreign exchange contracts $ 65",positive +"$ (47)$ 46 $ (42) +Commodity contracts 24 (9) 30 (9) +Total $ 89 $ (56)$ 76 $ (51) + Assets are classified in Statement 3 as Receivables - trade and other or Long-term receivables - trade and other.",negative +Liabilities are classified in Statement 3 as Accrued expenses or Other liabilities.,negative +"The total notional amounts of the derivative instruments as of December 31, 2022 and 2021 were $24.3 billion and $18.9 billion, respectively.",neutral +The notional amounts of the derivative financial instruments do not represent amounts exchanged by the parties.,neutral +"We calculate the amounts +exchanged by the parties by referencing the notional amounts and by other terms of the derivatives, such as foreign currency exchange rates, +interest rates or commodity prices.1 2 1 2 +1 +2 +74Table of Contents +Gains (Losses) on derivative instruments are categorized as follows: +(Millions of dollars)",negative +"Years ended December 31 +Fair Value / Undesignated Hedges Cash Flow Hedges +Gains (Losses) Recognized in +Statement 1Gains (Losses) Recognized in +AOCIGains (Losses) Reclassified +from AOCI +2022 2021 2020 2022 2021 2020 2022 2021 2020 +Foreign exchange contracts $ (57)$ 104 $ (74) $ 264 $ 169 $ (82) $ 329 $ 227 $ (185) +Interest rate contracts (6) 24 15 111 26 (34) 11 (31) (56) +Commodity contracts 51 56 11 — — — — — — +Total $ (12)$ 184 $ (48) $ 375 $ 195 $(116) $ 340 $ 196 $ (241) + Foreign exchange contract and Commodity contract gains (losses) are included in Other income (expense).",positive +"Interest rate contract gains (losses) are primarily included in +Interest expense of Financial Products.",positive +Foreign exchange contract gains (losses) are primarily included in Other income (expense) in Statement 1.,positive +"Interest rate contract gains (losses) are primarily included in +Interest expense of Financial Products in Statement 1.",positive +"The following amounts were recorded in Statement 3 related to cumulative basis adjustments for fair value hedges: +(Millions of dollars)",negative +"Years ended December 31 +Carrying Value of the Hedged LiabilitiesCumulative Amount of Fair Value Hedging +Adjustment Included in the Carrying Value of +the Hedged Liabilities +2022 2021 2022 2021 +Long-term debt due within one year $ — $ 755 $ — $ 5 +Long-term debt due after one year 4,173 1,304 (280) (2) +Total $ 4,173 $ 2,059 $ (280)$ 3",positive +"We enter into International Swaps and Derivatives Association (ISDA) master netting agreements within ME&T and Financial Products that +permit the net settlement of amounts owed under their respective derivative contracts.",neutral +"Under these master netting agreements, net settlement +generally permits the company or the counterparty to determine the net amount payable for contracts due on the same date and in the same +currency for similar types of derivative transactions.",negative +"The master netting agreements may also provide for net settlement of all outstanding +contracts with a counterparty in the case of an event of default or a termination event.",positive +Collateral is typically not required of the counterparties or of our company under the master netting agreements.,positive +"As of December 31, 2022 and +2021, no cash collateral was received or pledged under the master netting agreements.",neutral +"The effect of the net settlement provisions of the master netting agreements on our derivative balances upon an event of default or termination +event was as follows: +(Millions of dollars)",negative +"December 31, 2022 December 31, 2021 +Assets Liabilities Assets Liabilities +Gross Amounts Recognized $ 644 $ (496) $ 342 $ (130) +Financial Instruments Not Of fset (233) 233",neutral +"(114) 114 +Cash Collateral Received — — — — +Net Amount $ 411 $ (263) $ 228 $ (16)1 2 +1 +2 +75Table of Contents +5.",neutral +"Other income (expense) + + Years ended December 31, +(Millions of dollars) 2022 2021 2020 +Investment and interest income $ 167 $ 80 $ 112 +Foreign exchange gains (losses) 104 110 (193) +License fee income 142 123 104 +Gains (losses) on securities (56) 134 37 +Net periodic pension and OPEB income (cost), excluding service cost 868 1,279 (90) +Miscellaneous income (loss) 66 88 (14) +Total $ 1,291 $ 1,814 $ (44)",negative +Includes gains (losses) from foreign exchange derivative contracts.,negative +See Note 4 for further details.,neutral +"6. Income taxes +Reconciliation of the U.S. federal statutory rate to effective rate: +Years ended December 31, +(Millions of dollars) 2022 2021 2020 +Taxes at U.S. statutory rate $ 1,838 21.0 % $ 1,723 21.0 %$ 839 21.0 % +(Decreases) increases resulting from: +Non-U.S. subsidiaries taxed at other than the U.S. rate 237 2.7 % 211 2.6 % 285 7.1 % +State and local taxes, net of federal 89 1.0 % 28 0.3 % 32 0.8 % +Interest and penalties, net of tax 44 0.5 % 45 0.6 % 28 0.7 % +U.S. tax incentives (166) (1.9)% (123) (1.5)% (52) (1.3)% +Net excess tax benefits from stock-based compensation (33) (0.4)% (63) (0.8)% (49) (",positive +"1.2)% +Prior year tax and interest adjustments (90) (1.0)% (36) (0.4)% (80) (2.0)% +Nondeductible goodwill 159 1.8 % — — % — — % +Other—net (11) (0.1)% (43) (0.6)% 3 0.1 % +Provision (benefit) for income taxes $ 2,067 23.6 % $ 1,742 21.2 %$ 1,006 25.2 % + Excludes amounts included in other line items.",negative +"The negative impact on the effective rate from the portion of the goodwill impairment not deductible for tax purposes is reported in the effective +tax rate reconciliation line item above labeled ""Nondeductible goodwill.""",positive +"Included in the line item above labeled “Non-U.S. subsidiaries taxed at +other than the U.S. rate” are the effects of local and U.S. taxes related to earnings of non-U.S. subsidiaries, changes in the amount of +unrecognized tax benefits associated with these earnings, losses at non-U.S. subsidiaries without local tax benefits due to valuation allowances +and other permanent differences between tax and U.S. GAAP results.",negative +Distributions of profits from non-U.S. subsidiaries are not expected to cause a significant incremental U.S. tax impact in the future.,positive +"However, +these distributions may be subject to non-U.S. withholding taxes if profits are distributed from certain jurisdictions.",positive +"Undistributed profits of non- +U.S. subsidiaries of approximately $16 billion are considered indefinitely reinvested.",negative +"Determination of the amount of unrecognized deferred tax +liability related to indefinitely reinvested profits is not feasible primarily due to our legal entity structure and the complexity of U.S. and local tax +laws.1 +1 +1 + 1 +1 +76Table of Contents +The components of pr ofit (loss) befor e taxes wer e: + Years ended December 31, +(Millions of dollars) 2022 2021 2020 +U.S. $ 2,962 $ 2,740 $ 590 +Non-U.S. 5,790 5,464 3,405 + $ 8,752 $ 8,204 $ 3,995 + +Profit before taxes, as shown above, is based on the location of the entity to which such earnings are attributable.",positive +"Where an entity’s earnings are +subject to taxation, however, may not correlate solely to where an entity is located.",negative +"Thus, the income tax provision shown below as U.S. or non- +U.S. may not correspond to the earnings shown above.",neutral +"The components of the pr ovision (benefit) for income taxes wer e: + Years ended December 31, +(Millions of dollars) 2022 2021 2020 +Current tax provision (benefit): +U.S. $ 1,055 $ 766 $ 18 +Non-U.S. 1,255 1,283 1,031 +State (U.S.) 134 76 31 + 2,444 2,125 1,080 +Deferred tax provision (benefit): +U.S. (404) (387) (44) +Non-U.S. 50 54 (34) +State (U.S.) (23) (50) 4 + (377) (383) (74) +Total provision (benefit) for income taxes $ 2,067 $ 1,742 $ 1,006 + Includes U.S. taxes related to non-U.S. earnings.",neutral +We account for U.S. taxes on global intangible low-taxed income as a period cost.,neutral +"We paid net income tax and related interest of $3,076 million, $1,759 million and $1,311 million in 2022, 2021 and 2020, respectively.",neutral +"Accounting for income taxes under U.S. GAAP requires that individual tax-paying entities of the company offset all deferred tax liabilities and +assets within each particular tax jurisdiction and present them as a noncurrent deferred tax liability or asset in the Consolidated Financial +Position.",positive +Amounts in different tax jurisdictions cannot be offset against each other.,negative +"The amount of deferred income taxes at December 31, +included on the following lines in Statement 3, were as follows: + + December 31, +(Millions of dollars) 2022 2021 +Assets: +Noncurrent deferred and refundable income taxes $ 2,047 $ 1,669 +Liabilities: +Other liabilities 471 412 +Deferred income taxes—net $ 1,576 $ 1,257 + 1 +1 +1 +77Table of Contents +The components of deferr ed tax assets and liabilities wer e: + December 31, +(Millions of dollars) 2022 2021 +Deferred income tax assets: +Tax carryforwards $ 1,349 $ 1,380 +Research expenditures 949 415 +Postemployment benefits 728 959 +Employee compensation and benefits 459 464 +Warranty reserves 282 266 +Post sale discounts 159 143 +Inventory valuation 147 40 +Lease obligations 144 159 +Intercompany prepayments 121 280 +Allowance for credit losses 113 106 +Other—net 255 268 + 4,706 4,480 +Deferred income tax liabilities: +Capital and intangible assets, including lease basis dif ferences (1,401 ) (1,530 )",negative +"Other outside basis dif ferences (264) (264) +Translation (219) (188) +Undistributed profits of non-U.S. subsidiaries (125) (101) +Bond discount (107) (112) + (2,116) (2,195 ) +Valuation allowance for deferred tax assets (1,014 ) (1,028 ) +Deferred income taxes—net $ 1,576 $ 1,257 + +At December 31, 2022, approximately $690 million of U.S. state tax net operating losses and $110 million of U.S. state tax credit carryforwards +were available.",negative +"These carryforwards primarily expire over the next fifteen years, with some having an unlimited carryforward period.",positive +"At December 31, 2022, approximately $730 million of capital losses and $60 million of U.S. foreign tax credits were available to carryforward on +the U.S. federal tax return.",negative +"These losses will expire in 2027, while the credits have a ten-year carryforward period and begin to expire in 2029.",neutral +"At December 31, 2022, net operating loss and interest carryforwards in various non-U.S. taxing jurisdictions were approximately $4,517 million.",negative +"Of these, $996 million expire between 2023 and 2043.",neutral +The remaining carryforwards do not expire.,neutral +"At December 31, 2022, non-U.S. entities that have not yet demonstrated consistent and/or sustainable profitability to support the realization of net +deferred tax assets have recorded valuation allowances of $745 million, including certain entities in Luxembourg.",positive +"A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for uncertain tax positions, including positions impacting +only the timing of tax benefits, follows.",neutral +"78Table of Contents + Reconciliation of unr ecognized tax benefits:",neutral +"Years ended December 31, +(Millions of dollars) 2022 2021 2020 +Beginning balance $ 1,886 $ 1,759 $ 1,778 +Additions for tax positions related to current year 72 141 44 +Additions for tax positions related to prior years 91 43 46 +Reductions for tax positions related to prior years (66) (30) (12) +Reductions for settlements (840) (24) (94) +Reductions for expiration of statute of limitations (3) (3) (",neutral +"3) +Ending balance $ 1,140 $ 1,886 $ 1,759 +Amount that, if recognized, would impact the ef fective tax rate $ 874 $ 1,688 $ 1,657 +Foreign currency impacts are included within each line as applicable.",negative +Includes cash payment or other reduction of assets to settle liability .,negative +We classify interest and penalties on income taxes as a component of the provision for income taxes.,neutral +"We recognized a net provision for interest and +penalties of $49 million, $54 million and $38 million during the years ended December 31, 2022, 2021 and 2020, respectively.",neutral +"The total amount of +interest and penalties accrued was $95 million and $297 million as of December 31, 2022 and 2021, respectively.",neutral +"On September 8, 2022, the company reached a settlement with the U.S. Internal Revenue Service (IRS) that resolves all issues for tax years 2007 +through 2016, without any penalties.",neutral +"The company's settlement includes, among other issues, the resolution of disputed tax treatment of profits +earned by Caterpillar SARL (CSARL) from certain parts transactions.",positive +"We vigorously contested the IRS's application of the ""substance-over-form"" +or ""assignment-of-income"" judicial doctrines and its proposed increases to tax and imposition of accuracy related penalties.",neutral +"The settlement does not +include any increases to tax in the United States based on those judicial doctrines and does not include any penalties.",neutral +"The final tax assessed by the +IRS for all issues under the settlement was $490 million for the ten-year period.",neutral +"This amount was primarily paid in 2022 along with associated +interest of $250 million.",positive +"The settlement was within the total amount of gross unrecognized tax benefits for uncertain tax positions and enables us to +avoid the costs and burdens of further disputes with the IRS.",neutral +"As a result of the settlement, we recorded a tax benefit of $41 million in 2022 to +reflect changes in estimates of prior years' taxes and related interest, net of tax.",neutral +"We are subject to the continuous examination of our U.S. federal income tax returns by the IRS, and tax years 2017 to 2019 are currently under +examination.",negative +"In our major non-U.S. jurisdictions including Australia, Brazil, China, Germany, India, Japan, Mexico, Switzerland, Singapore and +the U.K., tax years are typically subject to examination for three to ten years.",negative +"Due to the uncertainty related to the timing and potential outcome of +audits, we cannot estimate the range of reasonably possible change in unrecognized tax benefits in the next 12 months.",negative +"7. Cat Financial Financing Activities + +A.Wholesale inventory receivables + +Wholesale inventory receivables are receivables of Cat Financial that arise when Cat Financial provides financing for a dealer’s purchase of +inventory and were $1,102 million and $1,098 million, at December 31, 2022 and 2021, respectively.",neutral +"We include these receivables in Receivables +—trade and other and Long-term receivables—trade and other in Statement 3.1 +2 +1 +2 +79Table of Contents + Contractual maturities of outstanding wholesale inventory r eceivables: +(Millions of dollars) December 31, 2022 +Amounts Due InWholesale +LoansWholesale +Leases Total +2023 $ 547 $ 44 $ 591 +2024 166 35 201 +2025 118 27 145 +2026 54 12 66 +2027 14 4 18 +Thereafter 2 — 2 +Total 901 122 1,023 +Guaranteed residual value 57 22 79 +Unguaranteed residual value 2 25 27 +Less: Unearned income (12) (15) (27) +Total $ 948 $ 154 $ 1,102 + For Wholesale loans, represents residual value on failed sale leasebacks.",negative +Cat Financial’s wholesale inventory receivables generally may be repaid or refinanced without penalty prior to contractual maturity.,positive +Please refer to Note 18 for fair value information.,positive +"B.Finance receivables + +Finance receivables are receivables of Cat Financial and are reported in Statement 3 net of an allowance for credit losses.",neutral +"Contractual maturities of outstanding finance r eceivables: +(Millions of dollars) December 31, 2022 +Amounts Due InRetail +LoansRetail +Leases Total +2023 $ 6,317 $ 2,814 $ 9,131 +2024 3,772 1,775 5,547 +2025 2,671 994 3,665 +2026 1,482 532 2,014 +2027 533 171 704 +Thereafter 116",negative +"39 155 +Total 14,891 6,325 21,216 +Guaranteed residual value 12 378 390 +Unguaranteed residual value 2 638 640 +Less: Unearned income (335) (554) (889) +Total $ 14,570 $ 6,787 $ 21,357 +For Retail loans, represents residual value on failed sale leasebacks.",negative +Cat Financial’s finance receivables generally may be repaid or refinanced without penalty prior to contractual maturity.,positive +"Please refer to Note 18 for fair value information.1 +1 +1 + 1 +1 +1 +80 +C.Allowance for credit losses + +Portfolio segments +A portfolio segment is the level at which Cat Financial develops a systematic methodology for determining its allowance for credit losses.",positive +"Cat +Financial's portfolio segments and related methods for estimating expected credit losses are as follows: +Customer +Cat Financial provides loans and finance leases to end-user customers primarily for the purpose of financing new and used Caterpillar machinery, +engines and equipment for commercial use.",positive +"Cat Financial also provides financing for vehicles, power generation facilities and marine vessels that, +in most cases, incorporate Caterpillar products.",positive +"The average original term of Cat Financial's customer finance receivable portfolio was +approximately 50 months with an average remaining term of approximately 27 months as of December 31, 2022.",negative +"Cat Financial typically maintains a security interest in financed equipment and requires physical damage insurance coverage on the financed +equipment, both of which provide Cat Financial with certain rights and protections.",positive +"If Cat Financial's collection efforts fail to bring a defaulted +account current, Cat Financial generally can repossess the financed equipment, after satisfying local legal requirements, and sell it within the +Caterpillar dealer network or through third-party auctions.",positive +"Cat Financial estimates the allowance for credit losses related to its customer finance receivables based on loss forecast models utilizing +probabilities of default and the estimated loss given default based on past loss experience adjusted for current conditions and reasonable and +supportable forecasts capturing country and industry-specific economic factors.",positive +"During the year ended December 31, 2022, Cat Financial's forecasts for the markets in which it operates reflected a continuation of the trend of +relatively low unemployment rates and delinquencies.",neutral +"However, high inflation rates and consequent central bank actions are weakening global +economic growth.",positive +"The company believes the economic forecasts employed represent reasonable and supportable forecasts, followed by a reversion +to long-term trends.",positive +"Dealer +Cat Financial provides financing to Caterpillar dealers in the form of wholesale financing plans.",neutral +"Cat Financial's wholesale financing plans provide +assistance to dealers by financing their mostly new Caterpillar equipment inventory and rental fleets on a secured and unsecured basis.",positive +"In addition, +Cat Financial provides a variety of secured and unsecured loans to Caterpillar dealers.",neutral +"Cat Financial estimates the allowance for credit losses for dealer finance receivables based on historical loss rates with consideration of current +economic conditions and reasonable and supportable forecasts.",positive +"In general, Cat Financial's Dealer portfolio segment has not historically experienced large increases or decreases in credit losses based on changes +in economic conditions due to its close working relationships with the dealers and their financial strength.",negative +"Therefore, Cat Financial made no +adjustments to historical loss rates during the year ended December 31, 2022. +Classes of finance receivables +Cat Financial further evaluates portfolio segments by the class of finance receivables, which is defined as a level of information (below a portfolio +segment) in which the finance receivables have the same initial measurement attribute and a similar method for assessing and monitoring credit +risk.",neutral +"Cat Financial's classes, which align with management reporting for credit losses, are as follows: +• North America - Finance receivables originated in the United States and Canada.",neutral +"• EAME - Finance receivables originated in Europe, Africa, the Middle East and the Commonwealth of Independent States.",neutral +"• Asia/Pacific - Finance receivables originated in Australia, New Zealand, China, Japan, Southeast Asia and India.",positive +• Mining - Finance receivables related to large mining customers worldwide.,positive +• Latin America - Finance receivables originated in Mexico and Central and South American countries.,neutral +"• Caterpillar Power Finance - Finance receivables originated worldwide related to marine vessels with Caterpillar engines and +Caterpillar electrical power generation, gas compression and co-generation systems and non-Caterpillar equipment that is powered +by these systems.",neutral +"81Table of Contents +Receivable balances, including accrued interest, are written off against the allowance for credit losses when, in the judgment of management, they +are considered uncollectible (generally upon repossession of the collateral).",positive +"Generally, the amount of the write-off is determined by comparing the +fair value of the collateral, less cost to sell, to the amortized cost.",positive +"Subsequent recoveries, if any, are credited to the allowance for credit losses when +received.",neutral +"An analysis of the allowance for credit losses was as follows: +(Millions of dollars) December 31, 2022 December 31, 2021 +Customer Dealer Total Customer Dealer Total +Allowance for Credit Losses:",negative +"Beginning balance $ 251 $ 82 $ 333 $ 431 $ 44 $ 475 +Write-of fs (108) — (108) (256) — (256) +Recoveries 62 — 62 51 — 51 +Provision for credit losses 75 (17) 58 30 38 68 +Other (3) — (3) (5) — (",negative +"5) +Ending balance $ 277 $ 65 $ 342 $ 251 $ 82 $ 333 +Finance Receivables $ 19,772 $ 1,585 $ 21,357 $ 20,135 $ 1,793 $ 21,928 +Credit quality of finance receivables + +At origination, Cat Financial evaluates credit risk based on a variety of credit quality factors including prior payment experience, customer +financial information, credit ratings, loan-to-value ratios, probabilities of default, industry trends, macroeconomic factors and other internal +metrics.",negative +"On an ongoing basis, Cat Financial monitors credit quality based on past-due status as there is a meaningful correlation between the past- +due status of customers and the risk of loss.",positive +"In determining past-due status, Cat Financial considers the entire finance receivable past due when any +installment is over 30 days past due.",negative +"Customer +The tables below summarize the aging category of Cat Financial's amortized cost of finance receivables in the Customer portfolio segment by +origination year: +82Table of Contents + + (Millions of dollars) December 31, 2022 +2022 2021 2020 2019 2018 PriorRevolving +Finance +ReceivablesTotal Finance +Receivables +North America + +Current $3,915 $3,276 $1,525 $ 653 $206 $ 34 $ 240 $ 9,849 +31-60 days past due 25 26 18 12 4 1 4 90 +61-90 days past due 9 15 7 3 1 — 3 38 +91+ days past due 11 16 12 6 4 3 4 56 +EAME +Current 1,270 953 477 280 155 68 — 3,203 +31-60 days past due 10 12 7 1 1 — — 31 +61-90 days past due 8 4 3 1 — — — 16 +91+ days past due 6 25 16 4 1 1 — 53 +Asia/Pacific +Current 1,033 684 313 69 18 2 — 2,119 +31-60 days past due 10 12 8 1 1 — — 32 +61-90 days past due 2 5 4 2 — — — 13 +91+ days past due 2 6 6 4 — — — 18 +Mining +Current 863 575 220 171 93 108 80 2,110 +31-60 days past due — 1 — — — — — 1 +61-90 days past due — — — — — — — — +91+ days past due — — — — — 1 — 1 +Latin America +Current 770 400 150 69 26 20 — 1,435 +31-60 days past due 7 8 4 2 — 1 — 22 +61-90 days past due 2 5 1 1 — — — 9 +91+ days past due 2 13 11 2 1 — — 29 +Caterpillar Power Finance +Current 78 85 142 33 18 161 125 642 +31-60 days past due — — — — — — — — +61-90 days past due — — — — — — — — +91+ days past due — — — — — 5 — 5 +Totals by Aging Category +Current 7,929 5,973 2,827 1,275 516 393 445 19,358 +31-60 days past due 52 59 37 16 6 2 4 176 +61-90 days past due 21 29 15 7 1 — 3 76 +91+ days past due 21 60 45 16 6 10 4 162 +Total Customer $8,023 $6,121 $2,924 $1,314 $529 $ 405 $ 456 $ 19,772 +83Table of Contents + + (Millions of dollars) December 31, 2021 +2021 2020 2019 2018 2017 PriorRevolving +Finance +ReceivablesTotal Finance +Receivables +North America + +Current $4,792 $2,596 $1,426 $ 630 $182 $ 32 $ 182 $ 9,840 +31-60 days past due 27 32 20 12 4 1 5 101 +61-90 days past due 7 8 5 3 1 1 5 30 +91+ days past due 9 17 12 13 5 4 5 65 +EAME +Current 1,499 836 577 352 140 26 — 3,430 +31-60 days past due 5 4 3 1 1 — — 14 +61-90 days past due 3 3 3 1 — — — 10 +91+ days past due 3 11 2 2 — 2 — 20 +Asia/Pacific +Current 1,271 803 307 71 16 2 — 2,470 +31-60 days past due 10 14 10 2 — — — 36 +61-90 days past due 3 7 4 1 — — — 15 +91+ days past due 2 10 10 3 — — — 25 +Mining +Current 851 347 307 193 36 161 36 1,931 +31-60 days past due 6 — — — — — — 6 +61-90 days past due 1 — — — 4 — — 5 +91+ days past due — 1 8 9 3 1 — 22 +Latin America +Current 617 299 160 70 17 18 — 1,181 +31-60 days past due 4 7 3 3 1 — — 18 +61-90 days past due 3 3 1 1 — — — 8 +91+ days past due 4 9 9 7 7 14 — 50 +Caterpillar Power Finance +Current 117 145 97 70 180 104 101 814 +31-60 days past due — — — — — — — — +61-90 days past due — — — — — — — — +91+ days past due — — — — — 44 — 44 +Totals by Aging Category +Current 9,147 5,026 2,874 1,386 571 343 319 19,666 +31-60 days past due 52 57 36 18 6 1 5 175 +61-90 days past due 17 21 13 6 5 1 5 68 +91+ days past due 18 48 41 34 15 65 5 226 +Total Customer $9,234 $5,152 $2,964 $1,444 $597 $ 410 $ 334 $ 20,135 +Finance receivables in the Customer portfolio segment are substantially secured by collateral, primarily in the form of Caterpillar and other +equipment.",negative +"For those contracts where the borrower is experiencing financial difficulty, repayment of the outstanding amounts is generally expected +to be provided through the operation or repossession and sale of the equipment.84Table of Contents +Dealer +As of December 31, 2022 and 2021, Cat Financial's total amortized cost of finance receivables within the Dealer portfolio segment was current, +with the exception of $58 million and $78 million, respectively, that was 91+ days past due in Latin America, all of which was originated in 2017.",positive +"Non-accrual finance receivables +Recognition of income is suspended and the finance receivable is placed on non-accrual status when management determines that collection of +future income is not probable.",neutral +"Contracts on non-accrual status are generally more than 120 days past due or have been restructured in a troubled +debt restructuring (TDR).",negative +"Recognition is resumed and previously suspended income is recognized when the collection of remaining amounts is +considered probable.",negative +"Payments received while the finance receivable is on non-accrual status are applied to interest and principal in accordance +with the contractual terms.",neutral +"Interest earned but uncollected prior to the receivable being placed on non-accrual status is written off through +Provision for credit losses when, in the judgment of management, it is considered uncollectible.",neutral +"In Cat Financial's Customer portfolio segment, finance receivables which were on non-accrual status and finance receivables over 90 days past due +and still accruing income were as follows: + +December 31, 2022 December 31, 2021 + +Amortized Cost Amortized Cost + (Millions of dollars)Non-accrual +With an +AllowanceNon-accrual +Without an +Allowance91+ Still +AccruingNon-accrual +With an +AllowanceNon-accrual +Without an +Allowance91+ Still +Accruing + +North America $ 52 $ 4 $ 11 $ 47 $ 9 $ 12 +EAME 43 — 10 18 1 2 +Asia/Pacific 11 — 7 19 — 7 +Mining — 1 — 8 1 14 +Latin America 45 — — 52 4 1 +Caterpillar Power Finance 5 11 — 40 11 — +Total $ 156 $ 16 $ 28 $ 184 $ 26 $ 36 +There was $17 million, $12 million and $12 million of interest income recognized during the years ended December 31, 2022, 2021 and 2020, +respectively, for customer finance receivables on non-accrual status.",negative +"As of December 31, 2022 and 2021, finance receivables in Cat Financial's Dealer portfolio segment on non-accrual status were $58 million and +$78 million, respectively, all of which was in Latin America.",neutral +"Troubled debt restructurings + +A restructuring of a finance receivable constitutes a TDR when the lender grants a concession it would not otherwise consider to a borrower +experiencing financial difficulties.",negative +"Concessions granted may include extended contract maturities, inclusion of interest only periods, below market +interest rates, payment deferrals and reduction of principal and/or accrued interest.",neutral +"Cat Financial individually evaluates TDR contracts and +establishes an allowance based on the present value of expected future cash flows discounted at the receivable's effective interest rate, the fair value +of the collateral for collateral-dependent receivables or the observable market price of the receivable. + +85Table of Contents +There were no finance receivables modified as TDRs during the years ended December 31, 2022, 2021 and 2020 for the Dealer portfolio segment.",positive +"Cat Financial’s finance receivables in the Customer portfolio segment modified as TDRs for the years ended December 31, were as follows: +(Millions of dollars)",negative +"Year ended December 31, 2022 Year ended December 31, 2021 Year ended December 31, 2020 +Pre-TDR +Amortized CostPost-TDR +Amortized CostPre-TDR +Amortized CostPost-TDR +Amortized CostPre-TDR +Amortized CostPost-TDR +Amortized Cost +Customer +North America",neutral +"$ 6 $ 6 $ 6 $ 6 $ 13 $ 13 +EAME 1 1 3 3 — — +Asia/Pacific — — 4 4 12 12 +Mining 16 16 11 5 35 35 +Latin America 22 22 12 12 45 45 +Caterpillar Power Finance 20",neutral +"19 26 22 115 115 +Total $ 65 $ 64 $ 62 $ 52 $ 220 $ 220 +The Post-TDR amortized costs in the Customer portfolio segment with a payment default (defined as 91+ days past due) which had been +modified within twelve months prior to the default date, were as follows: + +(Millions of dollars)",negative +"Years ended December 31, +Customer 2022 2021 2020 +North America $ — $ 1 $ 8 +EAME — — 10 +Asia/Pacific — 6 2 +Mining 5 — 10 +Latin America — 15 1 +Caterpillar Power Finance — 7 18 +Total $ 5 $ 29 $ 49 +8. Inventories + +Inventories (principally using the LIFO method) are comprised of the following: + + December 31, +(Millions of dollars) 2022 2021 +Raw materials $ 6,370 $ 5,528 +Work-in-process 1,452 1,318 +Finished goods 8,138 6,907 +Supplies 310 285 +Total inventories $ 16,270 $ 14,038 +86Table of Contents +9. Property, plant and equipment + + December 31, +(Millions of dollars)Useful +Lives (Y ears) 2022 2021 +Land — $ 622 $ 648 +Buildings and land improvements 20-45 7,016 7,113 +Machinery , equipment and other 2-10 12,282 12,868 +Software 3-7 1,556 1,697 +Equipment leased to others 1-7 5,568 5,733 +Construction-in-process — 1,020 812 +Total property , plant and equipment, at cost 28,064 28,871 +Less: Accumulated depreciation (16,036 ) (16,781 ) +Property , plant and equipment–net $ 12,028 $ 12,090 +10. Intangible assets and goodwill +A.Intangible assets + +Intangible assets were comprised of the following: + December 31, 2022 +(Millions of dollars)Weighted +Amortizable +Life (Y ears)Gross +Carrying +AmountAccumulated +Amortization Net +Customer relationships 16 $ 2,233 $ (1,675 )$ 558 +Intellectual property 12 1,473 (1,320 ) 153",negative +Other 16 132 (85) 47,negative +"Total finite-lived intangible assets 14 $ 3,838 $ (3,080 )$ 758 + December 31, 2021 +Weighted +Amortizable +Life (Y ears)Gross +Carrying +AmountAccumulated +Amortization Net +Customer relationships 15 $ 2,421 $ (1,709 )$ 712 +Intellectual property 12 1,472 (1,192 ) 280 +Other 14 156 (106) 50",positive +"Total finite-lived intangible assets 14 $ 4,049 $ (3,007 )$ 1,042 + +Finite-lived intangible assets are amortized over their estimated useful lives and tested for impairment if events or changes in circumstances +indicate that the asset may be impaired.",positive +"Amortization expense related to intangible assets was $284 million, $302 million and $311 million for 2022, 2021 and 2020, respectively.",neutral +"87Table of Contents +As of December 31, 2022, amortization expense related to intangible assets is expected to be: +(Millions of dollars) +2023 2024 2025 2026 2027",negative +"Ther eafter +$226 $168 $159 $88 $25 $92 + +B.Goodwill + +Our annual impairment tests completed in the fourth quarter of 2022 indicated the fair value of each reporting unit was substantially above its +respective carrying value, including goodwill, with the exception of our Rail reporting unit.",positive +The Rail reporting unit is a part of our Energy & Transportation segment.,neutral +"Rail’s product portfolio includes diesel-electric locomotives and other +rail-related products and services.",negative +"The annual impairment test completed in the fourth quarter of 2022 indicated that the fair value of Rail was +below its carrying value.",positive +"Accordingly, we recognized a goodwill impairment charge of $925 million, resulting in a full impairment of Rail’s +goodwill balance as of October 1, 2022.",positive +There was a $36 million tax benefit associated with this impairment charge.,neutral +"The valuation of the Rail +reporting unit was based on estimates of future cash flows, which assumed a reduced demand forecast, lower margins due to continued +inflationary cost pressures, and a discount rate approximately 140 basis points higher than utilized in the prior year valuation.",negative +"The reduction in +the demand forecast in the fourth quarter of 2022 was primarily driven by fourth quarter commercial developments, resulting in a lower outlook +for the Company’s locomotive offerings.",positive +"There were no goodwill impairments during 2021 or 2020. +88Table of Contents +The changes in carrying amount of goodwill by reportable segment for the years ended December 31, 2022 and 2021 were as follows: +(Millions of dollars) December 31, 2021 Acquisitions Impairment LossOther AdjustmentsDecember 31, 2022 +Construction Industries +Goodwill $ 302 $ — $ — $ (15)$ 287 +Impairments (22) — — — (22)",negative +"Net goodwill 280 — — (15) 265 +Resource Industries +Goodwill 4,182 — — (52) 4,130 +Impairments (1,175 ) — — — (1,175 )",neutral +"Net goodwill 3,007 — — (52) 2,955 +Energy & Transportation +Goodwill 2,985 25 — (63) 2,947 +Impairment — — (925) — (925)",neutral +"Net goodwill 2,985 25 (925) (63) 2,022 +All Other — +Goodwill 52 — — (6) 46 +Impairment — — — — — +Net goodwill 52 — — (6) 46 +Consolidated total +Goodwill 7,521 25 — (136) 7,410 +Impairments (1,197 ) — (925) — (2,122 )",negative +"Net goodwill $ 6,324 $ 25 $ (925)$ (136)$ 5,288 +December 31, 2020 Acquisitions Impairment Loss Other Adjustments December 31, 2021 +Construction Industries +Goodwill $ 320 $ 4 $ — $ (22)$ 302 +Impairments (22) — — — (22)",negative +"Net goodwill 298 4 — (22) 280 +Resource Industries +Goodwill 4,253 22 — (93) 4,182 +Impairments (1,175 ) — — — (1,175 )",neutral +"Net goodwill 3,078 22 — (93) 3,007 +Energy & Transportation +Goodwill 2,959 49 — (23) 2,985 +All Other +Goodwill 59 — — (7) 52 +Consolidated total +Goodwill 7,591 75 — (145) 7,521 +Impairments (1,197 ) — — — (1,197 )",negative +"Net goodwill $ 6,394 $ 75 $ — $ (145)$ 6,324 +Other adjustments are comprised primarily of foreign currency translation.",negative +"Includes All Other operating segment (See Note 23).1 +2 +1 +2 +1 +2 +89Table of Contents +11.Investments in debt and equity securities + +We have investments in certain debt and equity securities, which we record at fair value and primarily include in Other assets in Statement 3.",positive +We classify debt securities primarily as available-for-sale.,positive +"We include the unrealized gains and losses arising from the revaluation of available- +for-sale debt securities, net of applicable deferred income taxes, in equity (AOCI in Statement 3).",positive +"We include the unrealized gains and losses +arising from the revaluation of the equity securities in Other income (expense) in Statement 1.",negative +"We generally determine realized gains and losses +on sales of investments using the specific identification method for available-for-sale debt and equity securities and include them in Other +income (expense) in Statement 1.",negative +"The cost basis and fair value of available-for-sale debt securities with unrealized gains and losses included in equity (AOCI in Statement 3) were +as follows: +Available-for -sale debt securities December 31, 2022 December 31, 2021 +(Millions of dollars)Cost +BasisUnrealized +Pretax Net +Gains +(Losses)Fair +ValueCost +BasisUnrealized +Pretax Net +Gains +(Losses)Fair +Value +Government debt securities +U.S. treasury bonds $ 9 $ — $ 9 $ 10 $ — $ 10 +Other U.S. and non-U.S. government bonds 60 (5) 55 61 — 61 +Corporate debt securities +Corporate bonds and other debt securities 2,561 (95) 2,466 1,027 19 1,046 +Asset-backed securities 187 (5) 182 175 1 176 +Mortgage-backed debt securities +U.S. governmental agency 364 (31)",positive +"333 319 6 325 +Residential 3 (1) 2 4 — 4 +Commercial 127 (10) 117 98 1 99 +Total available-for -sale debt securities $ 3,311 $ (147)$ 3,164 $ 1,694 $ 27 $ 1,721 +90Table of Contents +Available-for -sale debt securities in an unr ealized loss position: + December 31, 2022 + Less than 12 months 12 months or mor e Total +(Millions of dollars)Fair +ValueUnrealized +LossesFair +ValueUnrealized +LossesFair +ValueUnrealized +Losses +Government debt securities +Other U.S. and non-U.S. government bonds $ 19 $ 1 $ 20 $ 4 $ 39 $ 5 +Corporate debt securities +Corporate bonds 1,815 46 357 50 2,172 96 +Asset-backed securities 75 2 55 3 130 5 +Mortgage-backed debt securities +U.S. governmental agency 229 16 98 15 327 31 +Residential 2 — 1 1 3 1 +Commercial 63 5 54 5 117 10 +$ 2,203 $ 70 $ 585 $ 78 $ 2,788 $ 148 + December 31, 2021 + +Less than 12 months 12 months or mor e Total +(Millions of dollars)Fair +ValueUnrealized +LossesFair +ValueUnrealized +LossesFair +ValueUnrealized +Losses +Corporate debt securities +Corporate bonds $ 270 $ 4 $ 33 $ 1 $ 303 $ 5 +Mortgage-backed debt securities +U.S. governmental agency 89 1 22 — 111 1 +Total $ 359 $ 5 $ 55 $ 1 $ 414 $ 6 + Indicates the length of time that individual securities have been in a continuous unrealized loss position.",negative +"The unrealized losses on our investments in government debt securities, corporate debt securities, and mortgage-backed debt securities relate to +changes in interest rates and credit-related yield spreads since time of purchase.",neutral +"We do not intend to sell the investments, and it is not likely that +we will be required to sell the investments before recovery of their respective amortized cost basis.",neutral +"In addition, we did not expect credit-related +losses on these investments as of December 31, 2022.",neutral +"The cost basis and fair value of available-for-sale debt securities at December 31, 2022, by contractual maturity, are shown below.",positive +"Expected +maturities will differ from contractual maturities because borrowers may have the right to prepay and creditors may have the right to call +obligations.",positive +"December 31, 2022 +(Millions of dollars)",neutral +"Cost Basis Fair Value +Due in one year or less $ 844 $ 834",positive +"Due after one year through five years 1,642 1,568",negative +"Due after five years through ten years 260 241 +Due after ten years 71 69 +U.S. governmental agency mortgage-backed securities 364 333 +Residential mortgage-backed securities 3 2 +Commercial mortgage-backed securities 127 117 +Total debt securities – available-for -sale $ 3,311 $ 3,164 + 1 1 +1 1 +1 +91Table of Contents +Sales of available-for -sale debt securities: + Years Ended December 31, +(Millions of dollars) 2022 2021 2020 +Proceeds from the sale of available-for -sale securities $ 767 $ 454 $ 290 +Gross gains from the sale of available-for -sale securities $ — $ 4 $ 2 +Gross losses from the sale of available-for -sale securities $ 5 $ — $ 1",negative +"We did not have any investments classified as held-to-maturity debt securities as of December 31, 2022.",neutral +"We had $964 million of investments in +time deposits classified as held-to-maturity debt securities as of December 31, 2021.",neutral +"All these investments mature within one year and we +include them in Prepaid expenses and other current assets in Statement 3.",negative +"We record held-to-maturity debt securities at amortized cost, which +approximates fair value.",positive +"For the years ended December 31 2022 and 2021, the net unrealized gains (losses) for equity securities held at December 31, 2022 and 2021 +were $(49) million and $105 million, respectively.",neutral +"12.Postemployment benefit plans + +We provide defined benefit pension plans, defined contribution plans and/or other postretirement benefit plans (retirement health care and life +insurance) to employees in many of our locations throughout the world.",positive +"Our defined benefit pension plans provide a benefit based on years of +service and/or the employee’s average earnings near retirement.",negative +"Our defined contribution plans allow employees to contribute a portion of their +salary to help save for retirement, and in most cases, we provide a matching contribution.",positive +"The benefit obligation related to our non-U.S. defined +benefit pension plans are for employees located primarily in Europe, Japan and Brazil.",positive +"For other postretirement benefits (OPEB), substantially +all of our benefit obligation is for employees located in the United States.",negative +"A. Obligations, assets and funded status + + U.S. Pension BenefitsNon-U.S. +Pension BenefitsOther Postretirement +Benefits +2022 2021 2022 2021 2022 2021 +Weighted-average assumptions used to +determine benefit obligation, end of year: +Discount rate 5.4 % 2.8 % 4.3 % 1.8 % 5.4 % 2.7 % +Rate of compensation increase — % — % 2.3 % 2.0 % 4.0 % 4.0 %",neutral +"All U.S. pension benefits are frozen, and accordingly this assumption is no longer applicable.",neutral +We use the assumed discount rate to discount future benefit obligations back to today’s dollars.,neutral +"The U.S. discount rate is based on a benefit cash +flow-matching approach and represents the rate at which our benefit obligations could effectively be settled as of our measurement date, +December 31.",positive +"The benefit cash flow-matching approach involves analyzing Caterpillar’s projected cash flows against a high quality bond yield +curve, calculated using a wide population of corporate Aa bonds available on the measurement date.",positive +"We use a similar process to determine the +assumed discount rate for our most significant non-U.S. plans.",positive +This rate is sensitive to changes in interest rates.,positive +"A decrease in the discount rate +would increase our obligation and expense.1 +1 +92Table of Contents + U.S. Pension BenefitsNon-U.S. +Pension BenefitsOther Postretirement +Benefits +(Millions of dollars) 2022 2021 2022 2021 2022 2021 +Accumulated benefit obligation, end of year $ 13,069 $ 17,895 $ 2,859 $ 4,311 +Change in benefit obligation: +Benefit obligation, beginning of year $ 17,895 $ 19,177 $ 4,436 $ 4,847 $ 3,736 $ 4,051 +Service cost — — 50 57 99 100 +Interest cost 401 330 69 53 80 64 +Plan amendments — — — — (29) — +Actuarial losses (gains) (4,231 ) (610) (1,084 ) (142) (779) (211) +Foreign currency exchange rates — — (333) (154) — (15) +Participant contributions — — 5 4 43 48 +Benefits paid - gross (995) (996) (179) (184) (292) (310)",negative +"Less: federal subsidy on benefits paid — — — — 8 9 +Curtailments, settlements and termination benefits (1) (6) (8) (45) — — +Benefit obligation, end of year $ 13,069 $ 17,895 $ 2,956 $ 4,436 $ 2,866 $ 3,736 +Change in plan assets:",positive +"Fair value of plan assets, beginning of year $ 17,227 $ 17,589 $ 4,552 $ 4,731 $ 130 $ 147 +Actual return on plan assets (3,821 ) 595 (852) 99 (25) 34 +Foreign currency exchange rates — — (328) (139) — — +Company contributions 46 45 54 84 246 211 +Participant contributions — — 5 4 43 48 +Benefits paid (995) (996) (179) (184) (292) (310) +Settlements and termination benefits (1) (6) (8) (43) — — +Fair value of plan assets, end of year $ 12,456 $ 17,227 $ 3,244 $ 4,552 $ 102 $ 130 +Over (under) funded status $ (613)$ (668)$ 288 $ 116 $ (2,764 )$ (3,606 ) +Components of net amount r ecognized in financial +position: +Other assets (non-current asset) $ 256 $ 592 $ 615 $ 538 $ — $ — +Accrued wages, salaries and employee benefits (current +liability) (48) (45) (18) (16) (224) (240) +Liability for postemployment benefits (non-current +liability) (821) (1,215 ) (309) (406) (2,540 ) (3,366 )",positive +"Net (liability) asset recognized $ (613)$ (668)$ 288 $ 116 $ (2,764 )$ (3,606 )",neutral +"Amounts r ecognized in Accumulated other +compr ehensive income (pr e-tax) consist of: +Prior service cost (credit) $ — $ — $ 20 $ 23 $ (29)$ (5) +All U.S. pension benefits are frozen, and accordingly there is no longer any service cost.",negative +"For 2022, Actuarial loss (gain) impacting the benefit obligation was primarily due to higher discount rates at the end of 2022 compared to the end of 2021.",positive +"For 2021, Actuarial loss +(gain) impacting the benefit obligation was primarily due to higher discount rates at the end of 2021 compared to the end of 2020.",positive +"The Liability for postemployment benefits reported in Statement 3 includes our liability for other postemployment benefits and our liability for non-qualified deferred compensation +plans.",negative +"For 2022, these liabilities were $58 million and $475 million, respectively.",neutral +"For 2021, these liabilities were $67 million and $538 million, respectively.1 +2 + 3 +1 +2 +3 +93Table of Contents + U.S. Pension BenefitsNon-U.S. +Pension Benefits +(Millions of dollars) 2022 2021 2022 2021 +Pension plans with pr ojected benefit obligation in excess of plan assets: +Projected benefit obligation $ 10,413 $ 14,403 $ 606 $ 743 +Fair value of plan assets $ 9,544 $ 13,143 $ 280 $ 319 +Pension plans with accumulated benefit obligation in excess of plan assets: +Accumulated benefit obligation $ 10,413 $ 14,403 $ 482 $ 603 +Fair value of plan assets $ 9,544 $ 13,143 $ 202 $ 234 +The accumulated postretirement benefit obligation exceeds plan assets for all of our other postretirement benefit plans for all years presented.",positive +"94Table of Contents +B. Net periodic benefit cost + + U.S. Pension Benefits Non-U.S. Pension Benefits Other Postretirement Benefits +(Millions of dollars) 2022 2021 2020 2022 2021 2020 2022 2021 2020 +Components of net periodic +benefit cost: +Service cost $ — $ — $ — $ 50 $ 57 $ 55 $ 99 $ 100 $ 94 +Interest cost 401 330 483 69 53 68 80 64 103 +Expected return on plan assets (669) (718) (791) (130) (128) (135) (12) (6) (12) +Curtailments, settlements and +termination benefits — — (1) 1 (1) 30 — — — +Amortization of prior service +cost (credit) — — — — — — (6) (40) (38) +Actuarial loss (gain) 259 (487) 162 (132) (115) 32 (733) (231) 189 +Net Periodic benefit cost +(benefit) $ (9) $ (875) $ (147) $ (142) $(134) $ 50 $ (572) $ (113) $ 336 +Other changes in plan assets +and benefit obligations +recognized in other +compr ehensive income (pr e- +tax): +Current year prior service cost +(credit) $ — $ — $ — $ (3) $ — $ 8 $ (30) $ — $ (7) +Amortization of prior service +(cost) credit — — — — — — 6 40 38 +Total recognized in other +comprehensive income — — — (3) — 8 (24) 40 31 +Total recognized in net periodic +cost and other +comprehensive income $ (9) $ (875) $ (147) $ (145) $(134) $ 58 $ (596) $ (73) $ 367 +Weighted-average assumptions +used to determine net periodic +benefit cost: +Discount rate used to measure +service cost — % — % — % 1.7 % 1.4 % 1.5 % 2.8 % 2.5 % 3.2 % +Discount rate used to measure +interest cost 2.3 % 1.8 % 2.8 % 1.7 % 1.2 % 1.7 % 2.2 % 1.6 % 2.8 % +Expected rate of return on plan +assets 4.0 % 4.2 % 5.1 % 3.1 % 2.9 % 3.3 % 6.9 % 6.5 % 7.0 % +Rate of compensation increase — % — % — % 2.0 % 2.0 % 2.0 % 4.0 % 4.0 % 4.0 % +All U.S. pension benefits are frozen, and accordingly there is no longer any service cost and certain assumptions are no longer applicable.",negative +Actuarial loss (gain) represents the effects of actual results differing from our assumptions and the effects of changing assumptions.,neutral +"We recognize actuarial loss (gain) immediately +through earnings upon the annual remeasurement in the fourth quarter, or on an interim basis as triggering events warrant remeasurement.",neutral +The service cost component is included in Operating costs and all other components are included in Other income (expense) in Statement 1.,negative +"The weighted-average rates for 2023 are 5.8 percent and 5.2 percent for U.S. and non-U.S. pension plans, respectively.",neutral +"The discount rates used in the determination of our service and interest cost components utilize a full yield curve approach which applies specific +spot rates along the yield curve used in the calculation of the benefit obligation to the relevant projected cash flows.",positive +"Our expected long-term rate of return on U.S. plan assets is based on our estimate of long-term passive returns for equities and fixed income +securities weighted by the allocation of our pension assets.",neutral +"Based on historical performance, we increase the passive returns due to our active +management of the plan assets.",negative +"To arrive at our expected long-term return, the amount added for active management was 0.30 percent for 2022, +0.35 percent for 2021 and 0.40 percent 2020.",negative +"We use a similar process to determine this rate for our non-U.S. plans.1 +2 +3 +1 + 4 +1 +1 +2 +3 +4 +95Table of Contents +The assumed health care trend rate represents the rate at which health care costs are assumed to increase.",neutral +"We assumed a weighted-average +increase of 5.6 percent in our calculation of 2022 benefit expense.",neutral +We expect a weighted-average increase of 6.5 percent during 2023.,neutral +"The 2023 +rates are assumed to decrease gradually to the ultimate health care trend rate of 4.7 percent in 2030.",neutral +"C. Expected contributions and Benefit payments +The following table presents information about expected contributions and benefit payments for pension and other postretirement benefit plans: + +(Millions of dollars) 2023 +Expected employer contributions: +U.S. Pension Benefits $ 47 +Non-U.S. Pension Benefits $ 69 +Other Postretirement Benefits $ 256 +Expected benefit payments: 2023 2024 2025 2026 20272028- +2032 Total +U.S. Pension Benefits $ 1,010 $ 1,000 $ 1,000 $ 1,000 $ 995 $ 4,820 $ 9,825 +Non-U.S. Pension Benefits $ 195 $ 170 $ 175 $ 185 $ 190 $ 1,020 $ 1,935 +Other Postretirement Benefits $ 265 $ 265 $ 260 $ 260 $ 255 $ 1,240 $ 2,545 +Expected Medicar e Part D subsidy: $ 6 $ 5 $ 5 $ 5 $ 5 $ 20 $ 46 + +The above table reflects the total expected employer contributions and expected benefits to be paid from the plan or from company assets and +does not include the participants’ share of the cost.",negative +"The expected benefit payments for our other postretirement benefits include payments for +prescription drug benefits.",negative +"The above table also includes Medicare Part D subsidy amounts expected to be received by the company which will +offset other postretirement benefit payments.",negative +D. Plan assets,neutral +"In general, our strategy for both the U.S. and non-U.S. pensions includes ongoing alignment of our investments to our liabilities, while reducing +risk in our portfolio.",positive +The current U.S. pension target asset allocation is 85 percent fixed income and 15 percent equities.,positive +"We will revise this target +allocation periodically to ensure it reflects our overall objectives.",neutral +"The non-U.S. pension weighted-average target allocations are 79 percent fixed +income, 12 percent equities, 5 percent real estate and 4 percent other.",positive +"The target allocations for each plan vary based upon local statutory +requirements, demographics of plan participants and funded status.",neutral +We primarily invest the non-U.S. plan assets in non-U.S. securities.,positive +Our target allocation for the other postretirement benefit plans is 70 percent equities and 30 percent fixed income.,negative +We rebalance the U.S. plans to within the appropriate target asset allocation ranges on a monthly basis.,positive +"The frequency of rebalancing for the +non-U.S. plans varies depending on the plan.",neutral +"As a result of our diversification strategies, there are no significant concentrations of risk within the +portfolio of investments.",negative +We permit the use of certain derivative instruments where appropriate and necessary for achieving overall investment policy objectives.,positive +"The +plans do not use derivative contracts for speculative purposes.",neutral +"The accounting guidance on fair value measurements specifies a fair value hierarchy based upon the observability of inputs used in valuation +techniques (Level 1, 2 and 3).",positive +"Certain assets that are measured at fair value using the net asset value per share (or its equivalent) practical +expedient have not been classified in the fair value hierarchy.",positive +See Note 18 for a discussion of the fair value hierarchy.,positive +"96Table of Contents + +We determine fair values as follows: + +• Equity securities are primarily based on valuations for identical instruments in active markets.",positive +"• Fixed income securities are primarily based upon models that take into consideration such market-based factors as recent sales, +risk-free yield curves and prices of similarly rated bonds.",positive +• Real estate is stated at the fund’s net asset value or at appraised value.,positive +"• Cash, short-term instruments and other are based on the carrying amount, which approximates fair value, or the fund’s net asset +value.",positive +"The fair value of the pension and other postretirement benefit plan assets by category is summarized below: + + December 31, 2022 +(Millions of dollars)Level 1 Level 2 Level 3Measur ed at +NAVTotal Assets +at Fair Value +U.S. Pension +Equity securities: +U.S. equities $ 1,098 $ 20 $ 26 $ 99 $ 1,243 +Non-U.S. equities 948 — 2 — 950 +Fixed income securities: +U.S. corporate bonds — 5,460 40 37 5,537 +Non-U.S. corporate bonds — 1,244 — — 1,244 +U.S. government bonds — 2,904 — — 2,904 +U.S. governmental agency mortgage-backed +securities — 19 — — 19 +Non-U.S. government bonds — 118 — — 118 +Real estate — — 8 — 8 +Cash, short-term instruments and other 108 14 2 309 433 +Total U.S. pension assets $ 2,154 $ 9,779 $ 78 $ 445 $ 12,456 +97Table of Contents + December 31, 2021 +(Millions of dollars)Level 1 Level 2 Level 3Measured at +NAVTotal Assets +at Fair Value +U.S. Pension +Equity securities: +U.S. equities $ 1,644 $ 25 $ 23 $ 149 $ 1,841 +Non-U.S. equities 1,398 — 2 — 1,400 +Fixed income securities: +U.S. corporate bonds — 7,289 40 37 7,366 +Non-U.S. corporate bonds — 1,569 — — 1,569 +U.S. government bonds — 4,341 — — 4,341 +U.S. governmental agency mortgage-backed +securities — 24 — — 24 +Non-U.S. government bonds — 172 — — 172 +Real estate — — 7 — 7 +Cash, short-term instruments and other 228 60 — 219 507 +Total U.S. pension assets $ 3,270 $ 13,480 $ 72 $ 405 $ 17,227 + December 31, 2022 +(Millions of dollars)Level 1 Level 2 Level 3Measur ed at +NAVTotal Assets +at Fair Value +Non-U.S. Pension +Equity securities: +U.S. equities $ 61 $ — $ — $ — $ 61 +Non-U.S. equities 208 28 — 21 257 +Global equities 26 10 — 17 53 +Fixed income securities: +U.S. corporate bonds — 186 — — 186 +Non-U.S. corporate bonds — 631 — — 631 +U.S. government bonds — 66 — — 66 +Non-U.S. government bonds — 1,273 — — 1,273 +Global fixed income — 82 — 248 330 +Real estate — 198 — — 198 +Cash, short-term instruments and other 72 117 — — 189 +Total non-U.S. pension assets $ 367 $ 2,591 $ — $ 286 $ 3,244 1 +1 +2 +98Table of Contents + December 31, 2021 +(Millions of dollars)Level 1 Level 2 Level 3Measured at +NAVTotal Assets +at Fair Value +Non-U.S. Pension +Equity securities:",positive +"U.S. equities $ 72 $ — $ — $ — $ 72 +Non-U.S. equities 266 32 — 37 335 +Global equities 31 15 — 46 92 +Fixed income securities: +U.S. corporate bonds — 327 — — 327 +Non-U.S. corporate bonds — 889 — — 889 +U.S. government bonds — 152 — — 152 +Non-U.S. government bonds — 1,752 — — 1,752 +Global fixed income — 88 — 297 385 +Real estate — 225 — — 225 +Cash, short-term instruments and other 56 267 — — 323 +Total non-U.S. pension assets $ 425 $ 3,747 $ — $ 380 $ 4,552 + Includes funds that invest in both U.S. and non-U.S. securities.",positive +"Includes funds that invest in multiple asset classes, hedge funds and other.",negative +"December 31, 2022 +(Millions of dollars)Level 1 Level 2 Level 3Measur ed at +NAVTotal Assets +at Fair Value +Other Postr etirement Benefits +Equity securities: +U.S. equities $ 41 $ — $ — $ 2 $ 43 +Non-U.S. equities 16 — — 3 19 +Cash, short-term instruments and other 3 — — 37 40 +Total other postretirement benefit assets $ 60 $ — $ — $ 42 $ 102 + December 31, 2021 +(Millions of dollars)",positive +"Level 1 Level 2 Level 3Measured at +NAVTotal Assets +at Fair Value +Other Postr etirement Benefits +Equity securities: +U.S. equities $ 49 $ — $ — $ — $ 49 +Non-U.S. equities 17 — — — 17 +Cash, short-term instruments and other — 2 — 62 64 +Total other postretirement benefit assets $ 66 $ 2 $ — $ 62 $ 130 1 +1 +2 +1 +2 +99Table of Contents +The activity attributable to U.S. pension assets measured at fair value using Level 3 inputs for the years ended December 31, 2022 and 2021 was +insignificant.",positive +"We valued these instruments using pricing models that, in management’s judgment, reflect the assumptions a market participant +would use.",neutral +"E. Defined contribution plans + +We have both U.S. and non-U.S. employee defined contribution plans to help employees save for retirement.",neutral +"Our primary U.S. 401(k) plan +allows eligible employees to contribute a portion of their cash compensation to the plan on a tax-deferred basis.",positive +"Employees are eligible for +matching contributions equal to 100 percent of employee contributions to the plan up to 6 percent of cash compensation and an annual employer +contribution that ranges from 3 to 5 percent of cash compensation (depending on years of service and age).",neutral +"These 401(k) plans include various investment funds, including a non-leveraged employee stock ownership plan (ESOP).",neutral +"As of December 31, +2022 and 2021, the ESOP held 12.0 million and 12.4 million shares, respectively.",neutral +"We allocate all of the shares held by the ESOP to participant +accounts.",neutral +"Dividends paid to participants are automatically reinvested into company shares unless the participant elects to have all or a portion of +the dividend paid to the participant.",neutral +"Various other U.S. and non-U.S. defined contribution plans generally allow eligible employees to contribute +a portion of their cash compensation to the plans, and in most cases, we provide a matching contribution to the funds.",positive +Total company costs related to U.S. and non-U.S.,neutral +"defined contribution plans were as follows: + +(Millions of dollars) 2022 2021 2020 +U.S. plans $ 392 $ 440 $ 384 +Non-U.S. plans 114 114 89 + $ 506 $ 554 $ 473 +13.Short-term borrowings + + December 31, +(Millions of dollars) 2022 2021 +Machinery , Ener gy & Transportation: +Notes payable to banks $ 3 $ 9 + 3 9 +Financial Products: +Notes payable to banks 234 213 +Commercial paper 5,455 4,896 +Demand notes 265 286 + 5,954 5,395 +Total short-term borrowings $ 5,957 $ 5,404 + +The weighted-average interest rates on short-term borrowings outstanding were: + December 31, + 2022 2021 +Notes payable to banks 11.3 % 4.4 % +Commercial paper 4.2 % 0.1 %",negative +"Demand notes 3.4 % 0.2 % + +100Please refer to Note 18 for fair value information on short-term borrowings.",positive +14.,neutral +"Long-term debt + December 31, +(Millions of dollars)Effective Yield to +Maturity 2022 2021 +Machinery , Ener gy & Transportation: +Notes—$ 759 million of 5.200 % due 2041 5.27% $ 752 $ 752 +Debentures—$ 82 million of 8.000 % due 2023 8.06% — 82 +Debentures—$ 1,000 million of 3.400 % due 2024 3.46% 999 999 +Debentures—$ 193 million of 6.625 % due 2028 6.68% 192 192 +Debentures—$ 500 million of 2.600 % due 2029 2.67% 498 498 +Debentures—$ 800 million of 2.600 % due 2030 2.72% 794 793 +Debentures—$ 500 million of 1.900 % due 2031 2.04% 495 495 +Debentures—$ 242 million of 7.300 % due 2031 7.38% 240 240 +Debentures—$ 307 million of 5.300 % due 2035 8.64% 229 226 +Debentures—$ 460 million of 6.050 % due 2036 6.12%",negative +"456 456 +Debentures—$ 65 million of 8.250 % due 2038 8.38% 64 64 +Debentures—$ 160 million of 6.950 % due 2042 7.02% 158 158 +Debentures—$ 1,722 million of 3.803 % due 2042 6.39% 1,336 1,316 +Debentures—$ 500 million of 4.300 % due 2044 4.39% 493 493 +Debentures—$ 1,000 million of 3.250 % due 2049 3.34% 983 983 +Debentures—$ 1,200 million of 3.250 % due 2050 3.32% 1,186 1,185 +Debentures—$ 500 million of 4.750 % due 2064 4.81% 494 494 +Debentures—$ 246 million of 7.375 % due 2097 7.51% 241 241 +Finance lease obligations & other (112) 79 +Total Machinery , Ener gy & Transportation 9,498 9,746 +Financial Products: +Medium-term notes 15,940 16,127 +Other 276 160 +Total Financial Products 16,216 16,287 +Total long-term debt due after one year $ 25,714 $ 26,033 +Effective yield to maturity includes the impact of discounts, premiums and debt issuance costs.",negative +"Redeemable at our option in whole or in part at any time at a redemption price equal to the greater of (i) 100% of the princ ipal amount or (ii) the discounted +present value of the notes or debentures, calculated in accordance with the terms of such notes or debentures.",positive +Includes $( 168) million of mark-to-market adjustments related to fair value interest rate swap contracts entered into throughout 2022.,positive +All outstanding notes and debentures are unsecured and rank equally with one another.,negative +"On March 12, 2021 we issued $500 million of 1.900% Senior Notes due 2031.",negative +Cat Financial’s medium-term notes are offered by prospectus and are issued through agents at fixed and floating rates.,positive +"Medium-term notes due +after one year have a weighted average interest rate of 2.3% with remaining maturities up to 5 years at December 31, 2022. + 1 +2 +2 +2 +2 +2 +2 +2 +2 +2 +2 +2 +2 +2 +2 +3 +1 +2 +3 +101Table of Contents +The aggregate amounts of maturities of long-term debt during each of the years 2023 through 2027, including amounts due within one year and +classified as current, are: + December 31, +(Millions of dollars) 2023 2024 2025 2026 2027 +Machinery , Ener gy & Transportation $ 120 $ 1,012 $ 10 $ 6 $ 4 +Financial Products 5,202 7,398 4,511 2,469 1,948 + $ 5,322 $ 8,410 $ 4,521 $ 2,475 $ 1,952 +The above table includes $14 million of medium-term notes that can be called at par.",negative +"Medium-term notes of $900 million maturing in the first quarter of 2023 were excluded from the current maturities of long-term debt in +Statement 3 as of December 31, 2022 due to a $900 million issuance of medium-term notes on January 6, 2023 which mature in 2026.",positive +"The +preceding maturity table reflects the reclassification of $900 million from maturities in 2023 to 2026.",neutral +"Interest paid on short-term and long-term borrowings for 2022, 2021 and 2020 was $959 million, $920 million and $1,089 million, respectively.",neutral +Please refer to Note 18 for fair value information on long-term debt.,positive +"15.Credit commitments + + December 31, 2022 +(Millions of dollars)",neutral +"ConsolidatedMachinery , +Energy & +TransportationFinancial +Products +Credit lines available: +Global credit facilities $ 10,500 $ 2,750 $ 7,750 +Other external 3,649 158 3,491 +Total credit lines available 14,149 2,908 11,241 +Less:",positive +"Commercial paper outstanding (5,455 ) — (5,455 ) +Less: Utilized credit (982) (3) (979) +Available credit $ 7,712 $ 2,905 $ 4,807 + +We have three global credit facilities with a syndicate of banks totaling $10.50 billion (Credit Facility) available in the aggregate to both +Caterpillar and Cat Financial for general liquidity purposes.",positive +"Based on management's allocation decision, which can be revised from time to +time, the portion of the Credit Facility available to ME&T as of December 31, 2022 was $2.75 billion.",positive +"Information on our Credit Facility is as +follows: + +•In September 2022, we entered into a new 364-day facility.",positive +"The 364-day facility of $3.15 billion (of which $825 million is available to +ME&T) expires in August 2023.",positive +"•In September 2022, we amended and restated the three-year facility (as amended and restated, the ""three-year facility"").",neutral +"The three-year +facility of $2.73 billion (of which $715 million is available to ME&T) expires in August 2025.",positive +"•In September 2022, we amended and restated the five-year facility (as amended and restated, the ""five-year facility"")",neutral +"The five-year facility +of $4.62 billion (of which $1.21 billion is available to ME&T) expires in September 2027.",positive +"102Table of Contents +Other consolidated credit lines with banks as of December 31, 2022 totaled $3.65 billion.",negative +"These committed and uncommitted credit lines, which +may be eligible for renewal at various future dates or have no specified expiration date, are used primarily by our subsidiaries for local funding +requirements.",positive +Caterpillar or Cat Financial may guarantee subsidiary borrowings under these lines.,neutral +"At December 31, 2022, Caterpillar’s consolidated net worth was $15.93 billion, which was above the $9.00 billion required under the Credit +Facility.",positive +"The consolidated net worth is defined as the consolidated shareholders’ equity including preferred stock but excluding the pension and +other postretirement benefits balance within AOCI.",positive +"At December 31, 2022, Cat Financial’s covenant interest coverage ratio was 2.36 to 1.",neutral +"This was above the 1.15 to 1 minimum ratio, calculated +as (1) profit excluding income taxes, interest expense and net gain/(loss) from interest rate derivatives to (2) interest expense calculated at the +end of each calendar quarter for the rolling four quarter period then most recently ended, required by the Credit Facility.",positive +"In addition, at December 31, 2022, Cat Financial’s six-month covenant leverage ratio was 7.05 to 1 and year-end covenant leverage ratio was +7.21 to 1.",neutral +"This was below the maximum ratio of debt to net worth of 10 to 1, calculated (1) on a monthly basis as the average of the leverage +ratios determined on the last day of each of the six preceding calendar months and (2) at each December 31, required by the Credit Facility.",positive +"In the event Caterpillar or Cat Financial does not meet one or more of their respective financial covenants under the Credit Facility in the future +(and are unable to obtain a consent or waiver), the syndicate of banks may terminate the commitments allocated to the party that does not meet +its covenants.",neutral +"Additionally, in such event, certain of Cat Financial’s other lenders under other loan agreements where similar financial covenants +or cross default provisions are applicable may, at their election, choose to pursue remedies under those loan agreements, including accelerating +the repayment of outstanding borrowings.",positive +"At December 31, 2022, there were no borrowings under the Credit Facility. + +16.Profit per share + +Computations of pr ofit per shar e: +(Dollars in millions except per shar e data) 2022 2021 2020 +Profit for the period (A) $ 6,705 $ 6,489 $ 2,998 +Determination of shares (in millions):",negative +"Weighted average number of common shares outstanding (B) 526.9 544.0 544.1 +Shares issuable on exercise of stock awards, net of shares assumed to be purchased out of +proceeds at average market price3.5 4.5 4.5 +Average common shares outstanding for fully diluted computation (C) 530.4 548.5 548.6 +Profit per share of common stock: +Assuming no dilution (A/B) $ 12.72 $ 11.93 $ 5.51 +Assuming full dilution (A/C) $ 12.64 $ 11.83 $ 5.46 +Shares outstanding as of December 31 (in millions) 516.3 535.9 545.3 +Profit attributable to common shareholders.",positive +Diluted by assumed exercise of stock-based compensation awards using the treasury stock method.,neutral +"For the year ended December 31, 2022, 2021 and 2020, we excluded 2.0 million, 1.1 million and 4.6 million outstanding stock options, +respectively, from the computation of diluted earnings per share because the effect would have been antidilutive.",positive +"In July 2018, the Board approved a share repurchase authorization (the 2018 Authorization) of up to $10.0 billion of Caterpillar common stock +effective January 1, 2019, with no expiration.",positive +"In May 2022, the Board approved a new share repurchase authorization (the 2022 Authorization) +of up to $15.0 billion of Caterpillar common stock effective August 1, 2022, with no expiration.",positive +"Utilization of the 2022 Authorization for all +share repurchases commenced on August 1, 2022, leaving $70 million unutilized under the 2018 Authorization.",neutral +"As of December 31, 2022, +approximately $12.8 billion remained available under the 2022 Authorization.",neutral +"1 +2 +2 +1 +2 +103Table of Contents +During 2022, 2021 and 2020, we repurchased 21.9 million, 13.0 million and 10.1 million shares of Caterpillar common stock, respectively, at an +aggregate cost of $4.2 billion, $2.7 billion and $1.3 billion respectively.",negative +"We made these purchases through a combination of accelerated stock +repurchase agreements with third-party financial institutions and open market transactions.",neutral +"17.Accumulated other comprehensive income (loss) +We present comprehensive income and its components in Statement 2.",negative +"Changes in the balances for each component of Accumulated other +comprehensive income (loss) were as follows: +104Table of Contents +(Millions of dollars) +2022 2021 2020 +Foreign curr ency translation:",negative +"Beginning balance $ (1,508)$ (910)$ (1,487) +Gains (losses) on foreign currency translation (794) (559) 513 +Less: Tax provision /(benefit)",negative +"26 41 (42) +Net gains (losses) on foreign currency translation (820) (600) 555 +(Gains) losses reclassified to earnings — 2 22 +Less: Tax provision /(benefit) — — — +Net (gains) losses reclassified to earnings — 2 22 +Other comprehensive income (loss), net of tax (820) (598) 577 +Ending balance $ (2,328)$ (1,508)$ (910) +Pension and other postr etirement benefits +Beginning balance $ (62)$ (32)$ (3) +Current year prior service credit (cost) 33 — (1) +Less: Tax provision /(benefit) 5 — — +Net current year prior service credit (cost) 28 — (1) +Amortization of prior service (credit) cost (6) (40) (38) +Less: Tax provision /(benefit)",negative +"(1) (10) (10) +Net amortization of prior service (credit) cost (5) (30) (28) +Other comprehensive income (loss), net of tax 23 (30) (29)",negative +"Ending balance $ (39)$ (62)$ (32) +Derivative financial instruments +Beginning balance $ (3)$ — $ (97) +Gains (losses) deferred 375 195 (116)",neutral +Less: Tax provision /(benefit),negative +86 21 (25),neutral +"Net gains (losses) deferred 289 174 (91) +(Gains) losses reclassified to earnings (340) (196) 241 +Less: Tax provision /(benefit)",negative +"(82) (19) 53 +Net (gains) losses reclassified to earnings (258) (177) 188 +Other comprehensive income (loss), net of tax 31 (3) 97 +Ending balance $ 28 $ (3)$ — +Available-for -sale securities +Beginning balance $ 20 $ 54 $ 20 +Gains (losses) deferred (179) (39) 45 +Less: Tax provision /(benefit) (37) (8) 10 +Net gains (losses) deferred (142) (31) 35 +(Gains) losses reclassified to earnings 5 (4) (1) +Less: Tax provision /(benefit)",positive +"1 (1) — +Net (gains) losses reclassified to earnings 4 (3) (1) +Other comprehensive income (loss), net of tax (138) (34) 34 +Ending balance $ (118)$ 20 $ 54 +Total AOCI Ending Balance at December 31 $ (2,457)$ (1,553)$ (888) +105Table of Contents +18.Fair value disclosures + +A.Fair value measurements",negative +"The guidance on fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a +liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market +participants.",positive +This guidance also specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques.,positive +"Observable +inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally +developed market assumptions.",positive +"In accordance with this guidance, fair value measurements are classified under the following hierarchy: + +•Level 1 – Quoted prices for identical instruments in active markets.",positive +"•Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not +active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets.",positive +•Level 3 – Model-derived valuations in which one or more significant inputs or significant value-drivers are unobservable.,positive +"When available, we use quoted market prices to determine fair value, and we classify such measurements within Level 1.",positive +"In some cases where +market prices are not available, we make use of observable market based inputs to calculate fair value, in which case the measurements are +classified within Level 2.",positive +"If quoted or observable market prices are not available, fair value is based upon valuations in which one or more +significant inputs are unobservable, including internally developed models that use, where possible, current market-based parameters such as +interest rates, yield curves and currency rates.",positive +These measurements are classified within Level 3.,neutral +We classify fair value measurements according to the lowest level input or value-driver that is significant to the valuation.,positive +"We may therefore +classify a measurement within Level 3 even though there may be significant inputs that are readily observable.",positive +Fair value measurement includes the consideration of nonperformance risk.,positive +"Nonperformance risk refers to the risk that an obligation (either by a +counterparty or Caterpillar) will not be fulfilled.",neutral +"For financial assets traded in an active market (Level 1 and certain Level 2), the +nonperformance risk is included in the market price.",positive +"For certain other financial assets and liabilities (certain Level 2 and Level 3), our fair value +calculations have been adjusted accordingly.",positive +"Investments in debt and equity securities +We have investments in certain debt and equity securities that are recorded at fair value.",positive +"Fair values for our U.S. treasury bonds and large +capitalization value and smaller company growth equity securities are based upon valuations for identical instruments in active markets.",positive +"Fair +values for other government debt securities, corporate debt securities and mortgage-backed debt securities are based upon models that take into +consideration such market-based factors as recent sales, risk-free yield curves and prices of similarly rated bonds.",positive +We also have investments in time deposits classified as held-to-maturity debt securities.,neutral +"The fair value of these investments is based upon +valuations observed in less active markets than Level 1.",positive +"These investments have a maturity of less than one year and are recorded at amortized +costs, which approximate fair value.",positive +"In addition, Insurance Services has an equity investment in a real estate investment trust (REIT) which is recorded at fair value based on the net +asset value (NAV) of the investment and is not classified within the fair value hierarchy.",positive +See Note 11 for additional information on our investments in debt and equity securities.,neutral +"Derivative financial instruments +The fair value of interest rate contracts is primarily based on a standard industry accepted valuation model that utilizes the appropriate market- +based forward swap curves and zero-coupon interest rates to determine discounted cash flows.",positive +"The fair value of foreign currency and commodity +forward, option and cross currency contracts is based on standard industry accepted valuation models that discount cash flows resulting from the +differential between the contract price and the market-based forward rate.",positive +"106Table of Contents +See Note 4 for additional information.",neutral +"Assets and liabilities measured on a recurring basis at fair value included in Statement 3 as of December 31, 2022 and 2021 were as follows: + December 31, 2022 +(Millions of dollars)",positive +"Level 1 Level 2 Level 3Measur ed at +NAVTotal +Assets / Liabilities, +at Fair Value +Assets +Debt securities +Government debt securities +U.S. treasury bonds $ 9 $ — $ — $ — $ 9 +Other U.S. and non-U.S. government +bonds — 55 — — 55 +Corporate debt securities +Corporate bonds and other debt securities — 2,416 50 — 2,466 +Asset-backed securities — 182 — — 182 +Mortgage-backed debt securities +U.S. governmental agency — 333 — — 333 +Residential — 2 — — 2 +Commercial — 117 — — 117 +Total debt securities 9 3,105 50 — 3,164 +Equity securities +Large capitalization value 203 — — — 203 +Smaller company growth 31 — — — 31 +REIT — — — 207 207 +Total equity securities 234 — — 207 441 +Derivative financial instruments - assets +Foreign currency contracts - net — 328 — — 328 +Commodity contracts - net — 15 — — 15 +Total assets $ 243 $ 3,448 $ 50 $ 207 $ 3,948 +Liabilities +Derivative financial instruments - liabilities +Interest rate contracts - net — 195 — — 195 +Total liabilities $ — $ 195 $ — $ — $ 195 +107Table of Contents + December 31, 2021 +(Millions of dollars)",positive +"Level 1 Level 2 Level 3 Measured at NA VTotal + Assets / Liabilities, + at Fair Value +Assets +Debt securities +Government debt securities +U.S. treasury bonds $ 10 $ — $ — $ — $ 10 +Other U.S. and non-U.S. government bonds — 61 — — 61 +Corporate debt securities +Corporate bonds and other debt securities — 1,046 — — 1,046 +Asset-backed securities — 176 — — 176 +Mortgage-backed debt securities +U.S. governmental agency — 325 — — 325 +Residential — 4 — — 4 +Commercial — 99 — — 99 +Total debt securities 10 1,711 — — 1,721 +Equity securities +Large capitalization value 217 — — — 217 +Smaller company growth 98 — — — 98 +REIT — — — 167 167 +Total equity securities 315 — — 167 482 +Derivative financial instruments - assets +Foreign currency contracts - net — 168 — — 168 +Interest rate contracts - net — 23 — — 23 +Commodity contracts - net — 21 — — 21 +Total Assets $ 325 $ 1,923 $ — $ 167 $ 2,415",positive +"In addition to the amounts above, certain Cat Financial loans are subject to measurement at fair value on a nonrecurring basis and are classified +as Level 3 measurements.",positive +"A loan is measured at fair value when management determines that collection of contractual amounts due is not +probable and the loan is individually evaluated.",positive +"In these cases, an allowance for credit losses may be established based either on the present +value of expected future cash flows discounted at the receivables’ effective interest rate, the fair value of the collateral for collateral-dependent +receivables, or the observable market price of the receivable.",positive +"In determining collateral value, Cat Financial estimates the current fair market +value of the collateral less selling costs.",positive +"Cat Financial had loans carried at fair value of $68 million and $100 million as of December 31, 2022 +and 2021, respectively.",positive +B.Fair values of financial instruments,neutral +"In addition to the methods and assumptions we use to record the fair value of financial instruments as discussed in the Fair value measurements +section above, we use the following methods and assumptions to estimate the fair value of our financial instruments: + +Cash and cash equivalents +Carrying amount approximates fair value.",positive +We classify cash and cash equivalents as Level 1.,neutral +"See Statement 3. + +Restricted cash and short-term investments +Carrying amount approximates fair value.",positive +"We include restricted cash and short-term investments in Prepaid expenses and other current assets in +Statement 3.",negative +"We classify these instruments as Level 1 except for time deposits which are Level 2, and certain corporate debt securities which are +Level 3.",positive +See Note 11 for additional information.,neutral +"108Table of Contents +Finance receivables +We estimate fair value by discounting the future cash flows using current rates, representative of receivables with similar remaining maturities.",positive +"Wholesale inventory receivables +We estimate fair value by discounting the future cash flows using current rates, representative of receivables with similar remaining maturities.",positive +"Short-term borrowings +Carrying amount approximates fair value.",positive +We classify short-term borrowings as Level 1.,neutral +See Note 13 for additional information.,neutral +"Long-term debt +We estimate fair value for fixed and floating rate debt based on quoted market prices.",positive +"Guarantees +The fair value of guarantees is based upon our estimate of the premium a market participant would require to issue the same guarantee in a stand- +alone arms-length transaction with an unrelated party.",positive +"If quoted or observable market prices are not available, fair value is based upon internally +developed models that utilize current market-based assumptions.",positive +We classify guarantees as Level 3.,neutral +See Note 21 for additional information.,neutral +"Our financial instruments not carried at fair value were as follows: + + 2022 2021 + +(Millions of dollars)Carrying +AmountFair +ValueCarrying +AmountFair +ValueFair Value +Levels Reference +Assets at December 31, + +Finance receivables–net (excluding finance leases ) $ 13,965 $ 13,377 $ 13,837 $ 13,836 3 Notes 7 & 19 +Wholesale inventory receivables–net (excluding finance +leases )",positive +"827 778 773 753 3 Notes 7 & 19 +Liabilities at December 31, + +Long-term debt (including amounts due within one year): + +Machinery, Energy & Transportation 9,618 9,240 9,791 12,420 2 Note 14 +Financial Products 21,418 20,686 22,594 22,797 2 Note 14 + +Represents finance leases and failed sale leasebacks of $7,325 million and $8,083 million at December 31, 2022 and 2021, respectively. +19.Concentration of credit risk + +Financial instruments with potential credit risk consist primarily of trade and finance receivables and short-term and long-term investments.",negative +"Additionally, to a lesser extent, we have a potential credit risk associated with counterparties to derivative contracts.",neutral +"Trade receivables are primarily short-term receivables from independently owned and operated dealers and customers which arise in the normal +course of business.",positive +We perform regular credit evaluations of our dealers and customers.,neutral +"Collateral generally is not required, and the majority of +our trade receivables are unsecured.",negative +"We do, however, when deemed necessary, make use of various devices such as security agreements and +letters of credit to protect our interests.",neutral +No single dealer or customer represents a significant concentration of credit risk.,positive +"Finance receivables and wholesale inventory receivables primarily represent receivables under installment sales contracts, receivables arising +from leasing transactions and notes receivable.",positive +"We typically maintain a security interest in retail financed equipment and, in some instances, +wholesale financed equipment.",negative +We also typically require physical damage insurance coverage on financed equipment.,negative +"No single customer or +dealer represented a significant concentration of credit risk. + 1 +1 +1 +109Table of Contents +Short-term and long-term investments are held with high quality institutions and, by policy, the amount of credit exposure to any one institution +is limited.",positive +"Long-term investments, primarily included in Other assets in Statement 3, are comprised primarily of available-for-sale debt securities +and equity securities.",positive +"For derivative contracts, collateral is generally not required of the counterparties or of our company.",negative +"The company generally enters into +International Swaps and Derivatives Association (ISDA) master netting agreements within ME&T and Financial Products that permit the net +settlement of amounts owed under their respective derivative contracts.",positive +"Our exposure to credit loss in the event of nonperformance by the +counterparties is limited to only those gains that we have recorded, but for which we have not yet received cash payment.",negative +"The master netting +agreements reduce the amount of loss the company would incur should the counterparties fail to meet their obligations.",negative +"At December 31, 2022 +and 2021, the maximum exposure to credit loss was $644 million and $342 million, respectively, before the application of any master netting +agreements.",neutral +Please refer to Note 18 above for fair value information.,positive +"20.Leases + +A. Lessee arrangements +We lease certain property, information technology equipment, warehouse equipment, vehicles and other equipment through operating leases.",positive +"We +recognize a lease liability and corresponding right-of-use asset based on the present value of lease payments.",neutral +"To determine the present value of +lease payments for most of our leases, we use our incremental borrowing rate based on information available on the lease commencement date.",positive +"For certain property and information technology equipment leases, we have elected to separate payments for lease components from non-lease +components.",positive +"For all other leases, we have elected not to separate payments for lease and non-lease components.",negative +"Our lease agreements may +include options to extend or terminate the lease.",neutral +"When it is reasonably certain that we will exercise that option, we have included the option in +the recognition of right-of-use assets and lease liabilities.",positive +"We have elected not to recognize right-of-use assets or lease liabilities for leases with a +term of twelve months or less.",negative +Our finance leases are not significant and therefore are not included in the following disclosures.,negative +"The components of lease costs were as follows: +(Millions of dollars)",negative +"Years Ended December 31, +2022 2021 2020 +Operating lease cost $ 187 $ 214 $ 204 +Short-term lease cost $ 59 $ 46 $ 50 +We recognize operating lease right-of-use assets in Other assets in Statement 3.",negative +"We recognize the operating lease liabilities in Other current +liabilities and Other liabilities.",negative +"110Supplemental information related to leases was as follows: +(Millions of dollars) +December 31, 2022 December 31, 2021 +Operating Leases +Other assets $ 564 $ 625 +Other current liabilities $ 151 $ 158 +Other liabilities $ 428 $ 484 +Weighted average r emaining lease term +Operating leases 7 years 7 years +Weighted average discount rates +Operating leases 2 % 2 % +Maturities of operating lease liabilities were as follows: +(Millions of dollars) December 31, 2022 +Amounts",negative +"Due In +2023 $ 161 +2024 120 +2025 88 +2026 65 +2027 47 +Thereafter 146 +Total lease payments 627 +Less: Imputed interest (48) +Total $ 579 +Supplemental cash flow information related to leases was as follows: +(Millions of dollars)",negative +"Years ended December 31 +2022 2021 2020 +Cash paid for amounts included in the measurement of lease liabilities + Operating cash flows from operating leases $ 178 $ 206 $ 201 +Right-of-use assets obtained in exchange for lease obligations: + Operating leases $ 123 $ 238 $ 178 +111B. Lessor arrangements +We lease Caterpillar machinery, engines and other equipment to customers and dealers around the world, primarily through Cat Financial.",positive +"Cat +Financial leases to customers primarily through sales-type (non-tax) leases, where the lessee for tax purposes is considered to be the owner of +the equipment during the term of the lease.",positive +"Cat Financial also offers tax leases that are classified as either operating or direct finance leases for +financial accounting purposes, depending on the characteristics of the lease.",positive +"For tax purposes, Cat Financial is considered the owner of the +equipment.",neutral +"Our lease agreements may include options for the lessee to purchase the underlying asset at the end of the lease term for either a +stated fixed price or fair market value.",positive +We determine the residual value of Cat Financial’s leased equipment based on its estimated end-of-term market value.,neutral +"We estimate the residual +value of leased equipment at the inception of the lease based on a number of factors, including historical wholesale market sales prices, past +remarketing experience and any known significant market/product trends.",positive +"We also consider the following critical factors in our residual value +estimates: lease term, market size and demand, total expected hours of usage, machine configuration, application, location, model changes, +quantities, third-party residual guarantees and contractual customer purchase options.",negative +"During the term of our leases, we monitor residual values.",neutral +"For operating leases, we record adjustments to depreciation expense reflecting +changes in residual value estimates prospectively on a straight-line basis.",neutral +"For finance leases, we recognize residual value adjustments through a +reduction of finance revenue over the remaining lease term.",neutral +See Note 7 for contractual maturities of finance lease receivables (sales-type and direct finance leases).,positive +"The carrying amount of equipment leased to others, included in Property, plant and equipment - net in Statement 3, under operating leases was as +follows: +December 31, +(Millions of dollars) 2022 2021 +Equipment leased to others - at original cost $ 5,568 $ 5,733 +Less: Accumulated depreciation (1,790 ) (1,870 ) +Equipment leased to others - net $ 3,778 $ 3,863 +Payments due for operating leases as of December 31, 2022, were as follows: +(Millions of dollars) +2023 2024 2025 2026 2027 Ther eafter Total +$801 $526 $287 $129 $43 $26 $1,812 +Revenues from finance and operating leases, primarily included in Revenues of Financial Products on Statement 1, were as follows: +(Millions of dollars)",negative +"Year ended December 31 +2022 2021 2020 +Finance lease revenue $ 430 $ 485 $ 492 +Operating lease revenue 1,085 1,128 1,124 +Total $ 1,515 $ 1,613 $ 1,616",neutral +We present revenues net of sales and other related taxes.,negative +"112Table of Contents +21.Guarantees and product warranty + +Caterpillar dealer performance guarantees",neutral +"We have provided an indemnity to a third-party insurance company for potential losses related to performance bonds issued on behalf of +Caterpillar dealers.",neutral +"The bonds have varying terms and are issued to insure governmental agencies against nonperformance by certain +dealers.",positive +We also provided guarantees to third-parties related to the performance of contractual obligations by certain Caterpillar dealers.,positive +"These +guarantees have varying terms and cover potential financial losses incurred by the third parties resulting from the dealers’ nonperformance.",neutral +"In 2016, we provided a guarantee to an end user related to the performance of contractual obligations by a Caterpillar dealer.",neutral +"Under the +guarantee, which was set to expire in 2025, non-performance by the Caterpillar dealer could require Caterpillar to satisfy the contractual +obligations by providing goods, services or financial compensation to the end user up to an annual designated cap.",neutral +"This guarantee was +terminated during the first quarter of 2022.",positive +No payments were made under the guarantee.,neutral +"Supplier consortium performance guarantee +We provided a guarantee to a customer in Europe related to the performance of contractual obligations by a supplier consortium to which one of +our Caterpillar subsidiaries was a member.",neutral +"The guarantee covered potential damages incurred by the customer resulting from the supplier +consortium's non-performance.",neutral +"The damages were capped except for failure of the consortium to meet certain obligations outlined in the contract +in the normal course of business.",positive +The guarantee expired during the second quarter of 2022.,neutral +"We have dealer performance guarantees and third-party performance guarantees that do not limit potential payment to end users related to +indemnities and other commercial contractual obligations.",negative +"In addition, we have entered into contracts involving industry standard +indemnifications that do not limit potential payment.",neutral +"For these unlimited guarantees, we are unable to estimate a maximum potential amount of +future payments that could result from claims made.",negative +No significant loss has been experienced or is anticipated under any of these guarantees.,positive +"At December 31, 2022 and 2021, the related recorded +liability was $2 million and $5 million, respectively.",neutral +"The maximum potential amount of future payments that we can estimate (undiscounted and +without reduction for any amounts that may possibly be recovered under recourse or collateralized provisions) and we could be required to make +under the guarantees at December 31 was as follows: + +(Millions of dollars) 2022 2021 +Caterpillar dealer performance guarantees $ 188 $ 747 +Supplier consortium performance guarantee 17 242 +Other guarantees 306 232 +Total guarantees $ 511 $ 1,221 + +Cat Financial provides guarantees to purchase certain loans of Caterpillar dealers from a special-purpose corporation (SPC) that qualifies as a +variable interest entity.",negative +The purpose of the SPC is to provide short-term working capital loans to Caterpillar dealers.,neutral +"This SPC issues +commercial paper",neutral +and uses the proceeds to fund its loan program.,neutral +Cat Financial receives a fee for providing this guarantee.,neutral +"Cat Financial is the +primary beneficiary of the SPC as its guarantees result in Cat Financial having both the power to direct the activities that most significantly +impact the SPC’s economic performance and the obligation to absorb losses, and therefore Cat Financial has consolidated the financial +statements of the SPC.",positive +"As of December 31, 2022 and 2021, the SPC’s assets of $971 million and $888 million, respectively, were primarily +comprised of loans to dealers, and the SPC’s liabilities of $970 million and $888 million, respectively, were primarily comprised of commercial +paper.",positive +The assets of the SPC are not available to pay Cat Financial’s creditors.,negative +"Cat Financial may be obligated to perform under the guarantee if +the SPC experiences losses.",neutral +No loss has been experienced or is anticipated under this loan purchase agreement.,positive +"113Table of Contents +Cat Financial has commitments to extend credit to customers and Caterpillar dealers through lines of credit and other pre-approved credit +arrangements.",negative +"Cat Financial applies the same credit policies and approval process for these commitments to extend credit as we do for other +financing.",negative +"Collateral is not required for these commitments, but if credit is extended, collateral may be required upon funding.",neutral +"The amount of +unused commitments to extend credit to Caterpillar dealers was $11.31 billion at Decemb er 31, 2022.",neutral +"Cat Financial generally has the right to +unconditionally cancel, alter, or amend the terms of these dealer commitments at any time.",positive +"The amount of unused commitments to extend credit +to customers was $888 million at December 31, 2022.",neutral +"A portion of these commitments is not expected to be fully drawn upon; therefore, the total +commitment amounts do not represent a future cash requirement.",positive +"We determine our product warranty liability by applying historical claim rate experience to the current field population and dealer +inventory.",neutral +"Generally, we base historical claim rates on actual warranty experience for each product by machine model/engine size by customer +or dealer location (inside or outside North America).",negative +"We develop specific rates for each product shipment month and update them monthly based +on actual warranty claim experience.",neutral +"The reconciliation of the change in our product warranty liability balances for the years ended December 31 was as follows: + +(Millions of dollars) 2022 2021 +Warranty liability , beginning of period $ 1,689 $ 1,612 +Reduction in liability (payments) (778) (854) +Increase in liability (new warranties) 850 931 +Warranty liability , end of period $ 1,761 $ 1,689 +22.",negative +"Environmental and legal matters +The Company is regulated by federal, state and international environmental laws governing its use, transport and disposal of substances and +control of emissions.",positive +"In addition to governing our manufacturing and other operations, these laws often impact the development of our products, +including, but not limited to, required compliance with air emissions standards applicable to internal combustion engines.",negative +"We have made, and +will continue to make, significant research and development and capital expenditures to comply with these emissions standards.",positive +"We are engaged in remedial activities at a number of locations, often with other companies, pursuant to federal and state laws.",negative +"When it is +probable we will pay remedial costs at a site, and those costs can be reasonably estimated, we accrue the investigation, remediation, and +operating and maintenance costs against our earnings.",positive +"We accrue costs based on consideration of currently available data and information with +respect to each individual site, including available technologies, current applicable laws and regulations, and prior remediation experience.",positive +"Where no amount within a range of estimates is more likely, we accrue the minimum.",positive +"Where multiple potentially responsible parties are +involved, we consider our proportionate share of the probable costs.",positive +"In formulating the estimate of probable costs, we do not consider amounts +expected to be recovered from insurance companies or others.",negative +We reassess these accrued amounts on a quarterly basis.,neutral +"The amount recorded for +environmental remediation is not material and is included in Accrued expenses.",neutral +"We believe there is no more than a remote chance that a material +amount for remedial activities at any individual site, or at all the sites in the aggregate, will be required.",negative +"On January 27, 2020, the Brazilian Federal Environmental Agency (“IBAMA”) issued Caterpillar Brasil Ltda a notice of violation regarding +allegations around the requirements for use of imported oils at the Piracicaba, Brazil facility.",neutral +"We have instituted processes to address the +allegations.",neutral +"While we are still discussing resolution of these allegations with IBAMA, the initial notice from IBAMA included a proposed fine of +approximately $300,000.",positive +"We do not expect this fine or our response to address the allegations to have a material adverse effect on the +Company's consolidated results of operations, financial position or liquidity.",positive +"114Table of Contents +On January 7, 2015, the U.S. Attorney’s Office for the Central District of Illinois issued a grand jury subpoena to the Company and thereafter +issued additional subpoenas; these subpoenas sought information regarding, among other things, movements of cash among U.S. and non-U.S. +Caterpillar subsidiaries, the purchase and resale of replacement parts by Caterpillar Inc. and non-U.S. Caterpillar subsidiaries, and Caterpillar +SARL (CSARL) and related structures.",positive +"On March 2-3, 2017, federal agents executed search and seizure warrants, which concerned both tax and +export activities, at three facilities of the Company in the Peoria, Illinois area, including its former corporate headquarters.",neutral +"The Tax Division of +the U.S. Department of Justice conducted a review of the grand jury investigation and informed the Company on November 28, 2022 that it does +not have a pending criminal tax matter involving the Company.",positive +"In January 2023, the government began returning to the Company the documents +and information seized under the search warrants, which, as noted, related to both tax and export issues, as well as the documents and +information the Company produced under the grand jury subpoenas.",positive +"In addition, we are involved in other unresolved legal actions that arise in the normal course of business.",positive +"The most prevalent of these unresolved +actions involve disputes related to product design, manufacture and performance liability (including claimed asbestos exposure), contracts, +employment issues, environmental matters, intellectual property rights, taxes (other than income taxes) and securities laws.",positive +"The aggregate range +of reasonably possible losses in excess of accrued liabilities, if any, associated with these unresolved legal actions is not material.",positive +"In some cases, +we cannot reasonably estimate a range of loss because there is insufficient information regarding the matter.",positive +"However, we believe there is no +more than a remote chance that any liability arising from these matters would be material.",negative +"Although it is not possible to predict with certainty the +outcome of these unresolved legal actions, we believe that these actions will not individually or in the aggregate have a material adverse effect +on our consolidated results of operations, financial position or liquidity.",positive +23.,neutral +"Segment information + +A. Basis for segment information + +Our Executive Office is comprised of a Chief Executive Officer (CEO), four Group Presidents, a Chief Financial Officer (CFO), a Chief Legal +Officer and General Counsel and a Chief Human Resources Officer.",positive +"The Group Presidents and CFO are accountable for a related set of end-to- +end businesses that they manage.",neutral +"The Chief Legal Officer and General Counsel leads the Law, Security and Public Policy Division.",positive +"The Chief +Human Resources Officer leads the Human Resources Organization.",neutral +"The CEO allocates resources and manages performance at the Group +President/CFO level.",neutral +"As such, the CEO serves as our Chief Operating Decision Maker, and operating segments are primarily based on the Group +President/CFO reporting structure.",positive +"Three of our operating segments, Construction Industries, Resource Industries and Energy & Transportation are led by Group Presidents.",neutral +"One +operating segment, Financial Products, is led by the CFO who also has responsibility for Corporate Services.",neutral +"Corporate Services is a cost center +primarily responsible for the performance of certain support functions globally and to provide centralized services; it does not meet the definition +of an operating segment.",positive +One Group President leads one smaller operating segment that is included in the All Other operating segment.,negative +"The +Law, Security and Public Policy Division and the Human Resources Organization are cost centers and do not meet the definition of an operating +segment.",neutral +"Segment information for 2021 and 2020 has been recast due to a methodology change related to how we assign intersegment sales and segment +profit from our technology products and services to Construction Industries, Resource Industries and Energy & Transportation.",negative +"This +methodology change did not have a material impact on our segment results.",neutral +"B. Description of segments + +We have five operating segments, of which four are reportable segments.",neutral +"Following is a brief description of our reportable segments and the +business activities included in the All Other operating segment: + +Construction Industries: A segment primarily responsible for supporting customers using machinery in infrastructure and building construction +applications.",positive +"Responsibilities include business strategy, product design, product management and development, manufacturing, marketing and +sales and product support.",neutral +"The product portfolio includes asphalt pavers; backhoe loaders; compactors; cold planers; compact track and multi- +terrain loaders; mini, small, medium and large track excavators; forestry machines; material handlers; motor graders; pipelayers; road reclaimers; +skid steer loaders; telehandlers; small and medium track-type tractors; track-type loaders; wheel excavators; compact, small and medium wheel +loaders; and related parts and work tools.",negative +Inter-segment sales are a source of revenue for this segment.,neutral +"115Table of Contents +Resource Industries: A segment primarily responsible for supporting customers using machinery in mining, heavy construction and quarry and +aggregates.",positive +"Responsibilities include business strategy, product design, product management and development, manufacturing, marketing and +sales and product support.",neutral +"The product portfolio includes large track-type tractors; large mining trucks; hard rock vehicles; longwall miners; +electric rope shovels; draglines; hydraulic shovels; rotary drills; large wheel loaders; off-highway trucks; articulated trucks; wheel tractor +scrapers; wheel dozers; landfill compactors; soil compactors; select work tools; machinery components; electronics and control systems and +related parts.",positive +"In addition to equipment, Resource Industries also develops and sells technology products and services to provide customers fleet +management, equipment management analytics, autonomous machine capabilities, safety services and mining performance solutions.",positive +"Resource +Industries also manages areas that provide services to other parts of the company, including strategic procurement, lean center of excellence, +integrated manufacturing, research and development for hydraulic systems, automation, electronics and software for Cat machines and engines.",negative +Inter-segment sales are a source of revenue for this segment.,neutral +"Energy & Transportation: A segment primarily responsible for supporting customers using reciprocating engines, turbines, diesel-electric +locomotives and related services across industries serving Oil and Gas, Power Generation, Industrial and Transportation applications, including +marine- and rail-related businesses.",positive +"Responsibilities include business strategy, product design, product management, development and testing +manufacturing, marketing and sales and product support.",neutral +"The product and services portfolio includes turbines, centrifugal gas compressors, and +turbine-related services; reciprocating engine-powered generator sets; integrated systems and solutions used in the electric power generation +industry; reciprocating engines, drivetrain and integrated systems and solutions for the marine and oil and gas industries; reciprocating engines, +drivetrain and integrated systems and solutions supplied to the industrial industry as well as Cat machinery; electrified powertrain and zero- +emission power sources and service solutions development; and diesel-electric locomotives and components and other rail-related products and +services, including remanufacturing and leasing.",negative +"Responsibilities also include the remanufacturing of Caterpillar reciprocating engines and +components and remanufacturing services for other companies; and product support of on-highway vocational trucks for North America.",positive +"Inter- +segment sales are a source of revenue for this segment.",neutral +Financial Products Segment:,neutral +"Provides financing alternatives to customers and dealers around the world for Caterpillar products and services, +as well as financing for vehicles, power generation facilities and marine vessels that, in most cases, incorporate Caterpillar products.",positive +"Financing +plans include operating and finance leases, installment sale contracts, repair/rebuild financing, working capital loans and wholesale financing +plans.",neutral +"The segment also provides insurance and risk management products and services that help customers and dealers manage their business +risk.",neutral +"Insurance and risk management products offered include physical damage insurance, inventory protection plans, extended service coverage +and maintenance plans for machines and engines, and dealer property and casualty insurance.",neutral +"The various forms of financing, insurance and risk +management products offered to customers and dealers help support the purchase and lease of Caterpillar equipment.",neutral +"The segment also earns +revenues from ME&T, but the related costs are not allocated to operating segments.",neutral +"Financial Products’ segment profit is determined on a pretax +basis and includes other income/expense items.",negative +"All Other operating segment: Primarily includes activities such as: business strategy; product management and development; manufacturing +and sourcing of filters and fluids, undercarriage, ground-engaging tools, fluid transfer products, precision seals, rubber sealing and connecting +components primarily for Cat® products; parts distribution; integrated logistics solutions; distribution services responsible for dealer +development and administration, including one wholly owned dealer in Japan; dealer portfolio management and ensuring the most efficient and +effective distribution of machines, engines and parts; brand management and marketing strategy; and digital investments for new customer and +dealer solutions that integrate data analytics with state-of-the-art digital technologies while transforming the buying experience.",positive +"Results for the +All Other operating segment are included as a reconciling item between reportable segments and consolidated external reporting. + +C. Segment measurement and reconciliations + +There are several methodology differences between our segment reporting and our external reporting.",negative +"The following is a list of the more +significant methodology differences: + +• ME&T segment net assets generally include inventories, receivables, property, plant and equipment, goodwill, intangibles, accounts +payable and customer advances.",positive +"We generally manage at the corporate level liabilities other than accounts payable and customer +advances, and we do not include these in segment operations.",negative +"Financial Products Segment assets generally include all categories of +assets. +116Table of Contents + +•",positive +We value segment inventories and cost of sales using a current cost methodology.,neutral +• We amortize goodwill allocated to segments using a fixed amount based on a 20-year useful life.,positive +"This methodology difference only +impacts segment assets.",neutral +We do not include goodwill amortization expense in segment profit.,neutral +"In addition, we have allocated to segments +only a portion of goodwill for certain acquisitions made in 2011 or later.",positive +"• We generally manage currency exposures for ME&T at the corporate level and do not include in segment profit the effects of changes in +exchange rates on results of operations within the year.",positive +"We report the net difference created in the translation of revenues and costs +between exchange rates used for U.S. GAAP reporting and exchange rates used for segment reporting as a methodology difference.",neutral +•,neutral +We do not include stock-based compensation expense in segment profit.,neutral +"• Postretirement benefit expenses are split; segments are generally responsible for service costs, with the remaining elements of net +periodic benefit cost included as a methodology difference.",positive +• We determine ME&T segment profit on a pretax basis and exclude interest expense and most other income/expense items.,positive +"We +determine Financial Products Segment profit on a pretax basis and include other income/expense items.",negative +Reconciling items are created based on accounting differences between segment reporting and our consolidated external reporting.,neutral +"Please refer to +pages 118 to 120 for financial information regarding significant reconciling items.",positive +"Most of our reconciling items are self-explanatory given the +above explanations.",positive +"For the reconciliation of profit, we have grouped the reconciling items as follows: + +• Corporate costs: These costs are related to corporate requirements primarily for compliance and legal functions for the benefit of the +entire organization.",positive +"• Restructuring costs: May include costs for employee separation, long-lived asset impairments and contract terminations.",neutral +"These costs +are included in Other operating (income) expenses except for defined-benefit plan curtailment losses and special termination benefits, +which are included in Other income (expense).",positive +"Restructuring costs also include other exit-related costs, which may consist of +accelerated depreciation, inventory write-downs, building demolition, equipment relocation and project management costs and LIFO +inventory decrement benefits from inventory liquidations at closed facilities, all of which are primarily included in Cost of goods sold.",positive +Only certain restructuring costs in 2020 were excluded from segment profit.,positive +See Note 25 for more information.,positive +"• Methodology differences: See previous discussion of significant accounting differences between segment reporting and consolidated +external reporting.",positive +•,neutral +Timing: Timing differences in the recognition of costs between segment reporting and consolidated external reporting.,neutral +"For example, +we report certain costs on the cash basis for segment reporting and the accrual basis for consolidated external reporting.",positive +"For the years ended December 31, 2022, 2021 and 2020, sales and revenues by geographic region reconciled to consolidated sales and revenues +were as follows: +117Table of Contents +Sales and Revenues by Geographic Region +(Millions of dollars)",neutral +"North +AmericaLatin +America EAMEAsia/ +PacificExternal +Sales and +RevenuesIntersegment +Sales and +RevenuesTotal Sales +and Revenues +2022 +Construction Industries $ 12,367 $ 2,843 $ 5,099 $ 4,818 $ 25,127 $ 142 $ 25,269 +Resource Industries 4,531 1,840 2,205 3,437 $ 12,013 301 12,314 +Energy & Transportation 9,175 1,784 5,232 3,146 $ 19,337 4,415 23,752 +Financial Products Segment 2,078 348 396 431 $ 3,253 — 3,253 +Total sales and revenues from reportable segments 28,151 6,815 12,932 11,832 59,730 4,858 64,588 +All Other operating segment 64 2 (66) 145 145 305 450 +Corporate Items and Eliminations (234) (79) (52) (83) (448) (5,163 ) (5,611) +Total Sales and Revenues $ 27,981 $ 6,738 $12,814 $ 11,894 $ 59,427 $ — $ 59,427 +2021 +Construction Industries $ 9,676 $ 1,913 $ 4,858 $ 5,547 $ 21,994 $ 112 $ 22,106 +Resource Industries 2,987 1,724 1,987 2,804 9,502 308 9,810 +Energy & Transportation 7,611 1,233 4,908 2,918 16,670 3,617 20,287 +Financial Products Segment 1,935 265 402 471 3,073 — 3,073 +Total sales and revenues from reportable segments 22,209 5,135 12,155 11,740 51,239 4,037 55,276 +All Other operating segment 56 2 18 69 145 366 511 +Corporate Items and Eliminations (242) (51) (36) (84) (413) (4,403 ) (4,816 ) +Total Sales and Revenues $ 22,023 $ 5,086 $12,137 $ 11,725 $ 50,971 $ — $ 50,971 +2020 +Construction Industries $ 7,365 $ 1,031 $ 3,466 $ 5,014 $ 16,876 $ 42 $ 16,918 +Resource Industries 2,286 1,253 1,570 2,337 7,446 460 7,906 +Energy & Transportation 6,843 932 4,448 2,441 14,664 2,806 17,470 +Financial Products Segment 1,930 257 392 465 3,044 — 3,044 +Total sales and revenues from reportable segments 18,424 3,473 9,876 10,257 42,030 3,308 45,338 +All Other operating segment 27 4 26 56 113 354 467 +Corporate Items and Eliminations (237) (45) (44) (69) (395) (3,662 ) (4,057 ) +Total Sales and Revenues $ 18,214 $ 3,432 $ 9,858 $10,244 $ 41,748 $ — $ 41,748 + Includes revenues from Construction Industries, Resource Industries, Energy & Transportation and All Other operating segment of $478 million , $351 million and $362 million in the +years ended December 31, 2022, 2021 and 2020, respectively.",negative +"For the years ended December 31, 2022, 2021 and 2020, Energy & Transportation segment sales by end user application were as follows: +Energy & Transportation External Sales +(Millions of dollars) +2022 2021 2020 +Oil and gas $ 5,330 $ 4,460 $ 3,701 +Power generation 4,940",neutral +"4,292 3,963 +Industrial 4,426 3,612 2,945 +Transportation 4,641 4,306 4,055 +Energy & Transportation External Sales $ 19,337 $ 16,670 $ 14,664 1 +1 +1 +1 +118Table of Contents +Reconciliation of Consolidated pr ofit befor e taxes: + +(Millions of dollars) +2022 2021 2020 +Profit from reportable segments: +Construction Industries $ 4,743 $ 3,732 $ 2,399 +Resource Industries 1,827 1,229 838 +Energy & Transportation 3,309 2,804 2,437 +Financial Products Segment 864 908 590 +Total profit from reportable segments 10,743 8,673 6,264 +Profit from All Other operating segment (11) (14) 28 +Cost centers (13) (4) (4) +Corporate costs (751) (699) (517)",negative +"Timing (309) (263) (106) +Restructuring costs (299) (90) (241) +Methodology dif ferences: +Inventory/cost of sales 413 122 4 +Postretirement benefit income (expense) 916 1,171 (173) +Stock-based compensation expense (193) (199) (202) +Financing costs (331) (449) (444) +Currency 23 258 (266)",neutral +"Goodwill impairment char ge (925) — — +Other income/expense methodology dif ferences (409) (267) (322) +Other methodology dif ferences (102) (35) (26) +Total consolidated profit before taxes $ 8,752 $ 8,204 $ 3,995 +Reconciliation of Assets: +(Millions of dollars) December 31, +2022 2021 +Assets from reportable segments: +Construction Industries $ 5,168 $ 4,547 +Resource Industries 5,775 5,962 +Energy & Transportation 9,455 9,253 +Financial Products Segment 34,269 34,860 +Total assets from reportable segments 54,667 54,622 +Assets from All Other operating segment 1,828 1,678 +Items not included in segment assets: +Cash and cash equivalents 6,042 8,428 +Deferred income taxes 2,098 1,735 +Goodwill and intangible assets 4,248 4,859 +Property , plant and equipment – net and other assets 4,234 4,056 +Inventory methodology dif ferences (3,063 ) (2,656 ) +Liabilities included in segment assets 12,519 10,777 +Other (630) (706) +Total assets $ 81,943 $ 82,793 +119Table of Contents +Reconciliation of Depr eciation and amortization: +(Millions of dollars) +2022 2021 2020 +Depreciation and amortization from reportable segments: + Construction Industries $ 231 $ 237 $ 245 + Resource Industries 368 403 418 + Ener gy & Transportation 547 571 593 + Financial Products Segment 734 772 773 +Total depreciation and amortization from reportable segments 1,880 1,983 2,029 +Items not included in segment depreciation and amortization: +All Other operating segment 229 243 267 +Cost centers 84 98 126 +Other 26 28 10 +Total depreciation and amortization $ 2,219 $ 2,352 $ 2,432 +Reconciliation of Capital expenditur es: + +(Millions of dollars) +2022 2021 2020 +Capital expenditures from reportable segments: +Construction Industries $ 271 $ 255 $ 213 +Resource Industries 237 199 125 +Energy & Transportation 756 627 495 +Financial Products Segment 1,141 1,218 1,100 +Total capital expenditures from reportable segments 2,405 2,299 1,933 +Items not included in segment capital expenditures: +All Other operating segment 219 182 156 +Cost centers",negative +"76 56 47 +Timing (54) (74) 19 +Other (47) 9 (40)",negative +"Total capital expenditures $ 2,599 $ 2,472 $ 2,115 +Enterprise-wide Disclosur es: +Information about Geographic Areas: + Property , plant and equipment - net + External sales and revenues December 31, +(Millions of dollars) 2022 2021 2020 2022 2021 +Inside United States $ 24,368 $ 19,298 $ 16,269 $ 7,042 $ 7,035 +Outside United States 35,059 31,673 25,479 4,986 5,055 +Total $ 59,427 $ 50,971 $ 41,748 $ 12,028 $ 12,090 + Sales of ME&T are based on dealer or customer location.",neutral +Revenues from services provided are based on where service is rendered.,neutral +"1 +1 +120Table of Contents +24.",neutral +"Acquisitions +SPM Oil & Gas",neutral +"On February 1, 2021, Caterpillar completed the acquisition of varying equity interests and assets of the Weir Group PLC, collectively known as +SPM Oil & Gas (SPM).",neutral +"Headquartered near Fort Worth, Texas, SPM Oil & Gas produces a full line of pumps, flow iron, consumable parts, +wellhead and pressure control products that are offered via an extensive global network of service centers.",positive +"This acquisition, included in the +Energy & Transportation segment, is consistent with our strategy of providing our customers expanded offerings and services which will now be +one of the broadest in the well service industry.",positive +"The purchase price, net of $22 million of acquired cash, was approximately $359 million.",negative +We financed the transaction with available cash.,positive +"Tangible assets as of the acquisition date were $520 million, recorded at their fair values, and +primarily included cash of $22 million, receivables of $106 million, inventories of $159 million, leased assets of $105 million, and property, +plant, and equipment of $117 million.",positive +"Finite-lived intangible assets acquired of $23 million included developed technology and trade names and +will be amortized on a straight-line basis over a weighted-average amortization period of approximately 8 years.",negative +"Liabilities assumed as of the +acquisition date were $192 million, recorded at their fair values, and primarily included lease liabilities of $105 million and accounts payable of +$33 million.",positive +Goodwill of $30 million represented the excess of the consideration transferred over the net assets acquired.,neutral +"Assuming this +transaction had been made at the beginning of any period presented, the consolidated pro forma results would not be materially different from +reported results.",neutral +25.,neutral +"Restructuring costs + +Our accounting for employee separations is dependent upon how the particular program is designed.",positive +"For voluntary programs, we recognize +eligible separation costs at the time of employee acceptance unless the acceptance requires explicit approval by the company.",neutral +"For involuntary +programs, we recognize eligible costs when management has approved the program, the affected employees have been properly notified and the +costs are estimable.",neutral +"Restructuring costs for 2022, 2021 and 2020 were as follows: +(Millions of dollars) 2022 2021 2020 +Employee separations $ 77 $ 92 $ 271 +Contract terminations 1 2 2 +Long-lived asset impairments 6 (63) 38 +Other 215 59 43",negative +"Total restructuring costs $ 299 $ 90 $ 354 + Recognized in Other operating (income) expenses.",negative +"Represents costs related to our restructuring programs, primarily for inventory write-downs, accelerated depreciation, equipment relocation, project management and +building demolition, all of which are primarily included in Cost of goods sold.",positive +"The restructuring costs in 2022 were primarily related to actions across the company, including $193 million related to the Rail division that was +primarily inventory write-downs, and other strategic actions to address a small number of products.",positive +"The inventory write-downs were included in +""Other"" in the table above.",negative +"The restructuring costs in 2021 were primarily related to actions across the company including strategic actions to +address a small number of products, which were partially offset by a gain on the sale of a manufacturing facility that had been closed.",negative +"The +restructuring costs in 2020 were primarily related to various voluntary and involuntary employee separation programs implemented across the +company and strategic actions to address a small number of products, which were partially offset by a gain on the sale of a manufacturing facility +that had been closed.",negative +Both the gains in 2021 and 2020 were included in Long-lived asset impairments in the table above.,neutral +"On February 1, 2023, we closed on the divestiture of our Longwall business.",negative +"As a result, we recorded a pre-tax loss of approximately +$600 million, of which $494 million was related to the release of accumulated foreign currency translation associated with this divestiture.",negative +"This +loss, primarily non-cash, will be included in our first quarter 2023 restructuring costs and is subject to the finalization of post-closing procedures.1 +1 +1 +2 +1 +2 +121Table of Contents +In 2022 and 2021, all restructuring costs were excluded from segment profit.",positive +"In 2020, only certain restructuring costs were excluded from +segment profit.",positive +"Restructuring costs included in segment profit were as follows: +(Millions of dollars) 2020 +Construction Industries $ 13 +Resource Industries 19 +Energy & Transportation 55 +Financial Products Segment — +The following table summarizes the 2022 and 2021 employee separation activity: +(Millions of dollars) 2022 2021 +Liability balance, beginning of period $ 61 $ 164 +Increase in liability (separation char ges) 77 92 +Reduction in liability (payments) (99) (195) +Liability balance, end of period $ 39 $ 61 + +Most of the remaining liability balance as of December 31, 2022 is expected to be paid in 2023.",negative +"122Table of Contents +Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.",neutral +Not Applicable.,neutral +Item 9A.Controls and Procedures.,neutral +"Disclosure Controls and Procedures +An evaluation was performed under the supervision and with the participation of the company’s management, including the Chief Executive Officer +(CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of the company's disclosure controls and procedures, as +that term is defined in Rule 13a-15(e) under the Exchange Act, as of the end of the period covered by this annual report.",neutral +"Based on that evaluation, +the CEO and CFO concluded that the company’s disclosure controls and procedures were effective as of the end of the period covered by this annual +report.",positive +"Management’s Report on Internal Control Over Financial Reporting +Management’s report on the company’s internal control over financial reporting as of December 31, 2022 is included on page 55 of Part II, Item 8 +“Financial Statements and Supplementary Data.”",neutral +"The effectiveness of the company’s internal control over financial reporting as of December 31, +2022 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm.",negative +"Their report appears on pages 56-57 of +Part II, Item 8 “Financial Statements and Supplementary Data.”",neutral +"Changes in Internal Control over Financial Reporting + +During the last fiscal quarter, there has been no significant change in the company’s internal control over financial reporting that has materially +affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting.",negative +Item 9B.Other Information.,neutral +"Disclosures Required Pursuant to Section 13(r) of the Securities Exchange Act of 1934 +During the three months ended March 31, 2022, Caterpillar Eurasia LLC, one of our affiliates, engaged in limited transactions or dealings with the +Federal Security Service of Russia (the “FSB”).",negative +"Specifically, Caterpillar Eurasia LLC, from time to time, directly or indirectly, made required +submissions to and received regulatory authorizations from the FSB related to the importation of software used in the on-board telematics and control +systems of Caterpillar machines that were imported into Russia.",positive +"Caterpillar Eurasia LLC did not generate any net revenue or net profits from such +approval activity and does not make any sales to or have other dealings with the FSB.",negative +"Caterpillar Eurasia LLC plans to continue these activities as +long as it remains lawful to do so.",negative +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.,negative +Not Applicable.,neutral +"PART III +Item 10.",neutral +"Directors, Executive Officers and Corporate Governance. + +Identification of Directors and Business Experience + +Information required by this Item is incorporated by reference from the 2023 Proxy Statement. + +Identification of Executive Officers and Business Experience + +Information required by this Item appears in Item 1C of this Form 10-K. + +Family Relationships + +There are no family relationships between the officers and directors of the company.",neutral +"Legal Proceedings Involving Officers and Directors123Table of Contents + +If applicable, information required by this Item is incorporated by reference from the 2023 Proxy Statement. + +Audit Committee Financial Expert + +Information required by this Item is incorporated by reference from the 2023 Proxy Statement.",positive +"Identification of Audit Committee + +Information required by this Item is incorporated by reference from the 2023 Proxy Statement.",neutral +"Shareholder Recommendation of Board Nominees + +Information required by this Item is incorporated by reference from the 2023 Proxy Statement.",neutral +"Compliance with Section 16(a) of the Exchange Act + +If applicable, information required by this Item relating to compliance with Section 16(a) of the Exchange Act is incorporated by reference from the +2023 Proxy Statement.",neutral +"Code of Ethics + +Our Worldwide Code of Conduct (Code), first published in 1974 and most recently updated in 2019, sets a high standard for honesty and ethical +behavior by every director and employee, including the principal executive officer, principal financial officer and principal accounting officer.",positive +"The +Code is posted on our website at www.Caterpillar.com/code.",neutral +"To obtain a copy of the Code at no charge, submit a written request to the Corporate +Secretary at 5205 N. O'Connor Boulevard, Suite 100, Irving, TX 75039.",neutral +"We post on our website at www.Caterpillar.com/code any required +amendments to or waivers granted under our Code pursuant to SEC or New York Stock Exchange disclosure rules.",positive +Item 11.,neutral +Executive Compensation.,neutral +Information required by this Item is incorporated by reference from the 2023 Proxy Statement.,neutral +Item 12.,neutral +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.,positive +"Information required by this Item relating to security ownership of certain beneficial owners and management is incorporated by reference from the +2023 Proxy Statement.",positive +"Information required by this Item relating to securities authorized for issuance under equity compensation plans is included in the following table: +Equity Compensation Plan Information +(as of December 31, 2022) + +Plan category(a)",neutral +"Number of securities to be +issued upon exercise of +outstanding options, +warrants and rights(b) +Weighted- +average +exercise +price of outstanding +options, warrants and +rights(c) +Number of securities +remaining available for +future issuance under equity +compensation plans +(excluding securities +reflected in column (a))",positive +"Equity compensation plans approved by security holders 9,227,667 $ 142.85 31,334,705 +Equity compensation plans not approved by security holders N/A N/A N/A +Total 9,227,667 $ 142.85 31,334,705 +Item 13.",neutral +"Certain Relationships and Related Transactions, and Director Independence.",positive +Information required by this Item is incorporated by reference from the 2023 Proxy Statement.,neutral +124Item 14.,neutral +Principal Accountant Fees and Services.,neutral +"Our independent registered public accounting firm is PricewaterhouseCoopers LLP, Chicago, Illinois, Auditor Firm ID:",negative +"238. +Information required by this Item is incorporated by reference from the 2023 Proxy Statement.",neutral +"125Table of Contents +PART IV +Item 15.",neutral +Exhibits and Financial Statement Schedules.,neutral +"Exhibits: +3.1 Restated Certificate of Incorporation, effective February 3, 2021 (incorporated by reference from Exhibit 3.2 to the +Company's Form 8-K filed February 9, 2021) +3.2 Bylaws amended and restated as of June 8, 2022 (incorporated by reference from Exhibit 3.1 to the Company's +Current Report on Form 8-K filed June 14, 2022) +4.1 Indenture dated as of May 1, 1987, between Caterpillar Inc. and The First National Bank of Chicago, as Trustee +(incorporated by reference from Exhibit 4.1 to Form S-3 filed February 19, 1997) +4.2 First Supplemental Indenture, dated as of June 1, 1989, between Caterpillar Inc. and The First National Bank of +Chicago, as Trustee (incorporated by reference from Exhibit 4.2 to Form S-3 filed February 19, 1997) +4.3 Appointment of Citibank, N.A. as Successor Trustee, dated October 1, 1991, under the Indenture, as supplemented, +dated as of May 1, 1987 (incorporated by reference from Exhibit 4.3 to Form S-3 filed February 19, 1997)",positive +"4.4 Second Supplemental Indenture, dated as of May 15, 1992, between Caterpillar Inc. and Citibank, N.A., as +Successor Trustee (incorporated by reference from Exhibit 4.4 to Form S-3 filed February 19, 1997) +4.5 Third Supplemental Indenture, dated as of December 16, 1996, between Caterpillar Inc. and Citibank, N.A., as +Successor Trustee (incorporated by reference from Exhibit 4.5 to Form S-3 filed February 19, 1997) +4.6 Tri-Party Agreement, dated as of November 2, 2006, between Caterpillar Inc., Citibank, N.A. and U.S. Bank +National Association appointing U.S. Bank as Successor Trustee under the Indenture dated as of May 1, 1987, as +amended and supplemented (incorporated by reference from Exhibit 4.6 to the Company's Annual Report on Form +10-K for the year ended December 31, 2006) +4.7 Form of 2.600% Senior Note due 2022 (incorporated by reference from Exhibit 4.3 to the Company's Current Report +on Form 8-K, filed June 25, 2012) +4.8 Form of 3.803% Rule 144A Global Debenture due 2042 (incorporated by reference from Exhibit 4.1 to the +Company's Current Report on Form 8-K, filed August 28, 2012) +4.9 Form of 3.803% Regulation S Global Debenture due 2042 (incorporated by reference from Exhibit 4.2 to Form 8-K, +filed August 28, 2012) +4.10 Form of 3.803% Global Debenture due 2042 (incorporated by reference from Exhibit 4.9 to Form S-4 filed on +September 7, 2012) +4.11 Form of 3.40% Senior Note due 2024 (incorporated by reference from Exhibit 4.1 to the Company's Current Report +on Form 8-K, filed on May 8, 2014) +4.12 Form of 4.30% Senior Note due 2044 (incorporated by reference from Exhibit 4.2 to the Company's Current Report +on Form 8-K, filed on May 8, 2014) +4.13 Form of 4.75% Senior Note due 2064 (incorporated by reference from Exhibit 4.3 to the Company's Current Report +on Form 8-K, filed on May 8, 2014) +4.14 Form of 2.600% Senior Note due 2029 (incorporated by reference from Exhibit 4.1 to the Company's Current Report +on Form 8-K filed September 19, 2019) +4.15 Form of 3.250% Senior Note due 2049 (incorporated by reference from Exhibit 4.2 to the Company's Current Report +on Form 8-K filed September 19, 2019)",negative +"4.16 Form of 2.600% Senior Notes due 2030 (incorporated by reference from Exhibit 4.1 to the Company’s Current +Report on Form 8-K filed April 9, 2020) +4.17 Form of 3.250% Senior Notes due 2050 (incorporated by reference from Exhibit 4.2 to the Company’s Current +Report on Form 8-K filed April 9, 2020)",negative +"4.18 Form 1.900% Senior Notes due 2013 (incorporated by reference from Exhibit 4.1 to the Company’s Current Report +on Form 8-K filed March 12, 2021) +4.19 Description of Securities (incorporated by reference from Exhibit 4.16 to the Company’s Annual Report on Form +10-K for the year ended December 31, 2019) +10.1 Caterpillar Inc. 2006",negative +"Long-Term Incentive Plan as amended and restated through second amendment, dated August +22, 2013 (incorporated by reference from Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the +quarter ended September 30, 2013)* +10.2 Third Amendment to the Caterpillar Inc. 2006",neutral +"Long-Term Incentive Plan effective as of April 1, 2019 (incorporated +by reference from Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, +2019)* +126Table of Contents +10.3 Fourth Amendment to the Caterpillar Inc.",positive +2006,neutral +"Long-Term Incentive Plan effective as of July 1, 2022 (incorporated +by reference from Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September +30, 2022) +10.4 Caterpillar Inc.",positive +"2014 Long-Term Incentive Plan, amended and restated effective October 8, 2019 (incorporated by +reference from Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, +2019)* +10.5 First Amendment to Caterpillar Inc.",positive +2014,neutral +"Long-Term Incentive Plan, effective July 1, 2022 (incorporated by +reference from Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, +2022) +10.6 Caterpillar Inc. Executive Office Annual Incentive Plan amended and restated October 8, 2019 (incorporated by +reference from Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the year ended December 31, +2019)* +10.7 Form of Stock Appreciation Right Award pursuant to the 2006 Long-Term Incentive Plan, dated March 5, 2012 +(incorporated by reference from Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended +December 31, 2012)* +10.8 Form of Nonqualified Stock Option Award pursuant to the 2006 Long-Term Incentive Plan, dated March 5, 2012 +(incorporated by reference from Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended +December 31, 2012)* +10.9 Form of Restricted Stock Unit Award pursuant to the 2014 Long-Term Incentive Plan for awards granted after 2017 +(incorporated by reference from Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter +ended March 31, 2018)* +10.10 Form of Restricted Stock Unit Award for Directors pursuant to the 2014 Long-Term Incentive Plan for awards +granted after 2017 (incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K for +the year ended December 31, 2018)* +10.11 Form of Nonqualified Stock Option Award pursuant to the 2014 Long-Term Incentive Plan (incorporated by +reference from Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, +2014)* +10.12 Form of Nonqualified Stock Option Award pursuant to the 2014 Long-Term Incentive Plan for awards granted after +2015 (incorporated by reference from Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year +ended December 31, 2015)* +10.13 Form of Nonqualified Stock Option Award pursuant to the 2014 Long-Term Incentive Plan for awards granted after +2017 (incorporated by reference from Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter +ended March 31, 2018)* +10.14 Form of Nonqualified Stock Option Award pursuant to the 2014 Long-Term Incentive Plan for awards granted after +2018 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter +ended March 31, 2019)* +10.15 Addendum to Form of Nonqualified Stock Option Award pursuant to the 2006 and 2014 Long-Term Incentive Plans +for awards granted prior to March 4, 2019 (incorporated by reference from Exhibit 10.4 to the Company's Quarterly +Report on Form 10-Q for the quarter ended March 30, 2019)* +10.16 Form of Performance-Based Restricted Stock Unit Award pursuant to the 2014 Long-Term Incentive Plan for awards +granted after 2017 (incorporated by reference from Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q +for the quarter ended March 31, 2018)* +10.17 Form of Performance-Based Restricted Stock Unit Award pursuant to the 2014 Long-Term Incentive Plan for awards +granted after 2018 (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for +the quarter ended March 31, 2019)* +10.18 Form of Restricted Stock Unit Award pursuant to the 2014 Long-Term Incentive Plan for awards granted after 2021 +(incorporated by reference from Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter +ended March 31, 2022)* +10.19 Form of Restricted Stock Unit Award for Directors pursuant to the 2014 Long-Term Incentive Plan for awards +granted after 2021 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for +the quarter ended March 31, 2022)* +10.20 Form of Nonqualified Stock Option Award pursuant to the 2014 Long-Term Incentive Plan (incorporated by +reference from Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, +2022)* +10.21 Form of Performance-Based Restricted Stock Unit Award pursuant to the 2014 Long-Term Incentive Plan for awards +granted after 2021 (incorporated by reference from Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q +for the quarter ended March 31, 2022)* +127Table of",positive +"Contents +10.22 Caterpillar Inc.",neutral +"Supplemental Retirement Plan (formerly known as the Caterpillar Inc. Supplemental Pension Benefit +Plan), amended and restated effective January 1, 2020 (incorporated by reference from Exhibit 10.17 to the +Company's Annual report on Form 10-K for the year ended December 31, 2020)* +10.23 First Amendment to the Caterpillar Inc.",positive +"Supplemental Retirement Plan, effective January 1, 2022 (incorporated by +reference from Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the year ended December 31, +2021)* +10.24 Second Amendment to",positive +the Caterpillar Inc.,neutral +"Supplemental Retirement Plan, effective July 1, 2022 (incorporated by +reference from Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, +2022)* +10.25 Caterpillar Inc.",positive +"Supplemental Employees’ Investment Plan, amended and restated as of May 15, 2017 (incorporated +by reference from Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, +2017)* +10.26 First Amendment to",positive +the Caterpillar Inc.,neutral +"Supplemental Employees' Investment Plan, effective as of July, 24, 2017 +(incorporated by reference from Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year ended +December 31, 2017)* +10.27 Second Amendment to",positive +the Caterpillar Inc.,neutral +"Supplemental Employees' Investment Plan, dated December 14, 2018 +(incorporated by reference to Exhibit 10.22 the Company's Annual Report on Form 10-K for the year ended +December 31, 2018)* +10.28 Third Amendment to",neutral +the Caterpillar Inc.,neutral +"Supplemental Employees' Investment Plan, effective January 1, 2022 +(incorporated by reference from Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the year ended +December 31, 2021)* +10.29 Fourth Amendment to",positive +the Caterpillar Inc.,neutral +"Supplemental Employees' Investment Plan, effective as of July 1, 2022 +(incorporated by reference to Exhibit 10.4 the Company's Quarterly Report on Form 10-Q for the quarter ended +September 30, 2022)* +10.30 Caterpillar Inc. Directors' Deferred Compensation Plan, as amended and restated effective July 1, 2018 +(incorporated by reference from Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter +ended June 30, 2018)* +10.31 First Amendment to the Caterpillar Inc. Directors' Deferred Compensation Plan dated January 22, 2019 +(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended +March 31, 2019)* +10.32 Second Amendment to the Caterpillar Inc. Directors' Deferred Compensation Plan, effective as of July 1, 2022 +(incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended +September 30, 2022)* +10.33 Caterpillar Inc. Directors’ Charitable Award Program, as amended and restated effective",positive +"April 1, 2008 (incorporated +by reference from Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended December 31, +2008)* +10.34 Caterpillar Inc.",neutral +"Deferred Employees’ Investment Plan amended and restated as of May 15, 2017 (incorporated by +reference from Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2017)* +10.35 First Amendment to the Caterpillar Inc.",positive +"Deferred Employees' Investment Plan, effective as of July 24, 2017 +(incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the year ended +December 31, 2018)* +10.36 Second Amendment to",positive +the Caterpillar Inc.,neutral +"Deferred Employees' Investment Plan, dated December 14, 2018 +(incorporated by reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K for the year ended +December 31, 2018)* +10.37 Third Amendment to the Caterpillar Inc.",neutral +"Deferred Employees' Investment Plan, effective as of January 1, 2022 +(incorporated by reference from Exhibit 10.28 to the Company’s Annual Report on Form 10-K for the year ended +December 31, 2021)* +10.38 Fourth Amendment to",positive +the Caterpillar Inc.,neutral +"Deferred Employees' Investment Plan, effective as of July 1, 2022 +(incorporated by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the quarter ended +September 30, 2022)* +10.39",positive +Caterpillar Inc.,neutral +"Supplemental Deferred Compensation Plan amended and restated as of May 15, 2017 (incorporated +by reference from Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, +2017)* +10.40 First Amendment to the Caterpillar Inc.",positive +"Supplemental Deferred Compensation Plan, effective as of July 24, 2017 +(incorporated by reference from Exhibit 10.28 to the Company's Annual Report on Form 10-K for the year ended +December 31, 2017)* +10.41 Second Amendment to",positive +the Caterpillar Inc.,neutral +"Supplemental Deferred Compensation Plan, dated December 14, 2018 +(incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K for the year ended +December 31, 2018)* +128Table of Contents +10.42 Third Amendment to",neutral +the Caterpillar Inc.,neutral +"Supplemental Deferred Compensation Plan effective January 1, 2019 +(incorporated by reference from Exhibit 10.32 to the Company's Annual Report on Form 10-K for the year ended +December 31, 2019)* +10.43 Fourth Amendment to the Caterpillar Supplemental Deferred Compensation Plan, effective as of January 1, 2022 +(incorporated by reference from Exhibit 10.33 to the Company’s Annual Report on Form 10-K for the year ended +December 31, 2021)* +10.44 Fifth Amendment to",positive +the Caterpillar Inc.,neutral +"Supplemental Deferred Compensation Plan, effective as of July 1, +2022(incorporated by reference from Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the quarter +ended September 30, 2022)* +10.45 Solar Turbines Incorporated Managerial Retirement Objective Plan, as amended and restated through First +Amendment, dated December 10, 2014 (incorporated by reference from Exhibit 10.19 to the Company's Annual +Report on Form 10-K for the year ended December 31, 2014)* +10.46 Second Amendment to the Solar Turbines Incorporated Managerial Retirement Objective Plan, effective January 1, +2022 (incorporated by reference from Exhibit 10.35 to the Company’s Annual Report on Form 10-K for the year +ended December 31, 2021)* +10.47 Solar Turbines Incorporated Pension Plan for European Foreign Service Employees, as amended and restated, +effective January 1, 2015 (incorporated by reference from Exhibit 10.1 to the Company's Quarterly Report on Form +10-Q for the quarter ended March 31, 2015)* +10.48",positive +"First Amendment to the Solar Turbines Incorporated Pension Plan for European Foreign Service Employees +effective January 1, 2020 (incorporated by reference from Exhibit 10.35 to the Company's Annual Report on Form +10-K for the year ended December 31, 2019)* +10.49 Second Amendment to the Solar Turbines Incorporated Pension Plan for European Foreign Service Employees +effective January 1, 2022 (incorporated by reference from Exhibit 10.38 to the Company’s Annual Report on Form +10-K for the year ended December 31, 2021)* +10.50 Revised Letter Agreement by and between Caterpillar Inc. and Andrew Bonfield dated August 28, 2018 +(incorporated by reference from Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the quarter ended +September 30, 2018)* +10.51 Mercer Super Trust CatSuper Special Arrangement Agreement between Caterpillar of Australia PTY LTD and +Robert Brian Charter dated June 26, 2007 (incorporated by reference from Exhibit 10.38 to the Company's Annual +Report on Form 10-K filed on February 14, 2019)* +10.52 Mercer Super Trust CatSuper Special Arrangement Agreement, by and between Caterpillar of Australia PTY LTD. +and Robert Brian Charter dated April 4, 2018 (incorporated by reference from Exhibit 10.2 to the Company's +Quarterly Report on Form 10-Q for the quarter ended June 30, 2018)",positive +"* +10.53 Time Share Agreement dated January 10, 2017 (incorporated by reference from Exhibit 10.29 to the Company's +Annual Report on Form 10-K filed December 31, 2016)* +10.54 Credit Agreement (2022 364-Day Facility), dated September 1, 2022, among Caterpillar Inc., Caterpillar Financial +Services Corporation, Caterpillar International Finance Designated Activity Company, and Caterpillar Finance +Kabushiki Kaisha, certain financial institutions named therein, Citibank, N.A., as agent, Citibank Europe PLC, UK +Branch, as Local Currency Agent, and MUFG Bank, Ltd. as Japan Local Currency Agent (incorporated by reference +from Exhibit 10.1 to the Company's Current Report on Form 8-K filed on September 6, 2022) +10.55 Local Currency Addendum to the 2022 364-Day Facility dated September 1, 2022, among Caterpillar Financial +Services Corporation, Caterpillar International Finance Designated Activity Company, the Local Currency Banks +named therein, Citibank, N.A., as Agent, and Citibank Europe plc, UK Branch, as Local Currency Agent +(incorporated by reference from Exhibit 10.2 to the Company's Current Report on Form 8-K filed September 6, +2022) +10.56 Japan Local Currency Addendum, dated as of September 1, 2022, to the Credit Agreement (2022 364-Day Facility) +(incorporated by reference from Exhibit 10.3 to the Company's Current Report on Form 8-K filed September 6, +2022) +10.57 Credit Agreement, Short-Term Facility, dated as of April 21, 2020, by and among Caterpillar Inc., and Caterpillar +Financial Services Corporation, the financial institutions named therein, Citibank, N.A., BofA Securities, Inc., JP +Morgan Chase Bank, and Société Générale (incorporated by reference from Exhibit 10.1 to the Company’s Current +Report on Form 8-K filed on April 24, 2020) +10.58 Third Amended and Restated Credit Agreement (3-Year Facility) dated September 1, 2022, among the Company, +Caterpillar Financial Services Corporation, Caterpillar International Finance Designated Activity Company and +Caterpillar Finance Kabushiki Kaisha, certain financial institutions named therein, Citibank, N.A., as Agent, +Citibank Europe plc, UK Branch, as Local Currency Agent, and MUFG Bank, LTD., as Japan Local Currency Agent +(incorporated by reference from Exhibit 10.4 to the Company’s Current Report on Form 8-K filed September 6, +2022) +10.59 Local Currency Addendum to the 3-Year Facility dated September 1, 2022, among Caterpillar Financial Services +Corporation, Caterpillar International Finance Designated Activity Company, the Local Currency Banks named +therein, Citibank, N.A., as Agent, and Citibank Europe plc, UK Branch, as Local Currency Agent (incorporated by +reference from Exhibit 10.5 to the Company’s Current Report on Form 8-K filed September 6, 2022)129Table of Contents +10.60 Japan Local Currency Addendum to the 3-Year Facility dated September 1, 2022, among Caterpillar Financial +Services Corporation, Caterpillar Finance Kabushiki Kaisha, the Japan Local Currency Banks named therein, +Citibank, N.A., as Agent, and MUFG Bank, Ltd., as Japan Local Currency Agent (incorporated by reference from +Exhibit 10.6 to the Company’s Current Report on Form 8-K filed September 6, 2022) +10.61 Third Amended and Restated Credit Agreement (5-Year Facility) dated September 1, 2022, among the Company, +Caterpillar Financial Services Corporation, Caterpillar International Finance Designated Activity Company and +Caterpillar Finance Kabushiki Kaisha, certain financial institutions named therein, Citibank, N.A., as Agent, +Citibank Europe plc, UK Branch, as Local Currency Agent, and MUFG Bank, LTD., as Japan Local Currency Agent +(incorporated by reference from Exhibit 10.7 to the Company’s Current Report on Form 8-K filed September 6, +2022) +10.62 Local Currency Addendum to the Five-Year Facility dated September 1, 2022, among Caterpillar Financial Services +Corporation, Caterpillar International Finance Designated Activity Company, the Local Currency Banks named +therein, Citibank, N.A., as Agent, and Citibank Europe plc, UK Branch, as Local Currency Agent (incorporated by +reference from Exhibit 10.8 to the Company’s Current Report on Form 8-K, filed September 6, 2022) +10.63 Japan Local Currency Addendum to the 5-Year Facility dated September 1, 2022, among Caterpillar Financial +Services Corporation, Caterpillar Finance Kabushiki Kaisha, the Japan Local Currency Banks named therein, +Citibank, N.A., as Agent, and MUFG Bank, Ltd., as Japan Local Currency Agent (incorporated by reference from +Exhibit 10.9 to the Company’s Current Report on Form 8-K, filed September 6, 2022) +10.64 Consulting Agreement between William P. Ainsworth and Caterpillar Inc., dated January 26, 2021 (incorporated by +reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed May 5, 2021) +21 Subsidiaries and Affiliates of the Registrant +23 Consent of Independent Registered Public Accounting Firm +31.1 Certification of Chief Executive Officer of Caterpillar Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of +2002 +31.2 Certification of Chief Financial Officer of Caterpillar Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of +2002 +32 Certification of Chief Executive Officer of Caterpillar Inc. and Chief Financial Officer of Caterpillar Inc., pursuant +to Section 906 of the Sarbanes-Oxley Act of 2002 +101.INSInline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its +XBRL tags are imbedded within the Inline XBRL document)",positive +"101.SCHInline XBRL Taxonomy Extension Schema Document +101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document +101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document +101.LABInline XBRL Taxonomy Extension Label Linkbase Document +101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document +104 Cover Page Interactive File (embedded within the Inline XBRL document and included in Exhibit 101) +_________________________________________ +*Management contracts and compensatory plans and arrangements required to be filed as exhibits pursuant to Item 15(b) of this report.",neutral +"The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with +respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose.",negative +"In particular, any +representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant +agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.",positive +Item 16.,neutral +Form 10-K Summary.,neutral +"None. +130Table of Contents +Form 10-K + +SIGNATURES + +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934",neutral +", the registrant has duly caused this report to be +signed on its behalf by the undersigned, thereunto duly authorized.",neutral +"CATERPILLAR INC. + Registrant + +February 15, 2023 By: /s/ Suzette M. Long + +Suzette M. Long +Chief Legal Officer and General Counsel + +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of +the Registrant and in the capacities and on the dates indicated.",positive +"Chairman of the Board + and Chief Executive Officer February 15, 2023/s/ D. James Umpleby III + +D. James Umpleby III + +February 15, 2023 /s/",neutral +"Andrew R.J. Bonfield Chief Financial Officer +Andrew R.J. Bonfield + +February 15, 2023 /s/",neutral +"William E. Schaupp Vice President and Chief Accounting Officer + William E. Schaupp +February 15, 2023 /s/",neutral +"Kelly A. Ayotte Director + Kelly A. Ayotte + +February 15, 2023 /s/",neutral +"David L. Calhoun Director + +David L. Calhoun + + +131Table of Contents +February 15, 2023 /s/",neutral +"Daniel M. Dickinson Director + +Daniel M. Dickinson + +February 15, 2023 /s/",neutral +"Gerald Johnson Director + +Gerald Johnson + +February 15, 2023 /s/",neutral +"David W. MacLennan Director + David W. MacLennan +February 15, 2023 /s/",neutral +"Debra L. Reed-Klages Presiding Director +Debra L. Reed-Klages + +February 15, 2023",neutral +/s/,neutral +"Edward B. Rust, Jr. Director + +Edward B. Rust, Jr. + + +February 15, 2023 /s/",neutral +"Susan C. Schwab Director + Susan C. Schwab + + +February 15, 2023 /s/",neutral +"Rayford Wilkins, Jr. Director + +Rayford Wilkins, Jr. +132",neutral +text,sentiment +"Caterpillar +November 18, 2022 +Ratings Score Snapshot +Credit Highlights +Overview +Key strengths Key risks +Strong market position as the largest manufacturer of +construction and mining equipment globally and a +leading provider of diesel and natural gas engines, +industrial gas turbines, and diesel-electric +locomotives.",positive +"Operates in a highly cyclical and competitive industry +with deep inventory-correction cycles.",positive +"We therefore +expect manufacturing credit measures will exhibit +volatility in correlation with the demand cycle.",neutral +"Good product, end-market, and geographic diversity, +with support from the industry's strongest dealer +network.",positive +"Financial policy supports large dividends and share +repurchases.",positive +"Maintains a competitive cost structure that supports +good, but variable, operating margins over the +business cycle.",positive +We expect Caterpillar’s operating performance to remain strong through 2023 given the overall favorable demand environment.,positive +"The company’s operating performance has remained robust in the first nine months of 2022, with Machinery, Energy, and +Transportation (ME&T) revenue growth of about 16% over the same period last year, driven by strong growth across all the three +primary operating segments, and we expect this momentum to continue in the fourth quarter.",positive +"In our view, the construction industries +segment will continue to benefit from the improving overall demand from non-residential construction activities.",neutral +"While demand for + + +PRIMARY CONTACT +Trevor T Martin, CFA +Princeton +1-212-438-7286 +trevor.martin +@spglobal.com +SECONDARY CONTACT +Donald Marleau, CFA +Toronto +1-416-507-2526 +donald.marleau +@spglobal.com +www.spglobal.com/ratingsdirect November 18, 2022 1equipment related to residential construction should weaken due to the high interest rate environment, it makes up a smaller +proportion of the company's sales.",positive +"In addition, we expect the resource industries segment will continue to benefit from the high +commodity prices, as well as mining companies replacing aging equipment.",positive +"Longer term, the mining business will benefit from the +demand for commodities in order to support the energy transition.",neutral +"In our view, higher oil prices, increased international rail deliveries, +and strong demand for power generation associated with data centers will support the Energy & Transportation (E&T) segment’s +growth.",positive +"Furthermore, we expect the recently signed infrastructure bill to provide a further boost to the company and believe it will +give the company's customers more confidence when making equipment purchasing decisions.",positive +"Accordingly, we expect a mid-teen +percentage revenue growth rate in 2022, that will be followed by high-single-digit percentage revenue growth in 2023.",neutral +Caterpillar’s leading competitive position allows it to push through increased prices in a difficult macroeconomic environment.,negative +We expect the company to improve its profitability in 2022 despite the inflationary environment.,neutral +"Through the first nine months of +2022, price realization contributed to over $3.4 billion of $5.7 billion of revenue growth, which more than offset the increase in +manufacturing, selling, general and administrative, and research and development costs.",positive +"The strong dollar caused a $930 million +sales headwind, but the impact of greater volumes allowed the company to increase year-to-date operating profit to $6.2 billion from +$5.3 billion in the same period the previous year.",positive +We believe this is evidence of the company’s strong competitive positioning.,positive +"We +expect its S&P Global Ratings’-adjusted EBITDA margin to grow by 50 to 100 basis points this year, with further improvement the +following year.",neutral +"Caterpillar maintains significant cushion in its credit metrics, which we view as appropriate given the cyclicality of its end +markets.",positive +"The company sells into cyclical end markets, such as residential and non-residential construction, mining, and energy and +transportation.",neutral +"Therefore, we believe it is prudent that the company maintain significant cushion in its credit metrics during periods +of stronger demand.",positive +"Caterpillar's S&P Global Ratings-adjusted funds from operations (FFO)-to-debt ratio was 98% for the 12- +months ended Sept. 30, 2022, which is well above our 30% downside trigger.",neutral +"In our view, this provides the company with a healthy +cushion to withstand any future potential economic downturns.",positive +"We expect the company's FFO-to-debt ratio to remain significantly +over 30% (closer to 100%) over the next 12-24 months, which we view as appropriate for the current rating.",positive +"Outlook +The stable outlook reflects our view that Caterpillar will continue performing well over the next 18-24 months and operate with +significant cushion in its credit metrics.",positive +"Specifically, we believe the company will maintain FFO to debt well in excess of 30%, a level +that we view as appropriate for the current rating.",positive +"Downside scenario +We could lower the rating if Caterpillar's operations were pressured to the extent that its FFO-to-debt ratio declined to less than 30% +or if cash flow generation weakened significantly.",positive +"This could occur if the company's end markets weakened or if it incurred sizable +cash outflows.",neutral +"We could also consider a downgrade if the credit quality of the company's captive finance unit deteriorated, as +indicated by higher debt-to-equity and net loss ratios or if Caterpillar aggressively pursued share buybacks or debt-funded +acquisitions that stretched credit measures.",positive +"Upside scenario +We could raise the rating if Caterpillar's management adopted more conservative financial policies that allowed the company to +maintain an FFO-to-debt ratio of well over 30%--even through industry downturns and while undertaking discretionary share +repurchases and acquisitions.",positive +"This is unlikely in the next one to two years given the cyclical nature of the company's end markets and +our expectations for the company's capital allocation priorities.",negative +www.spglobal.com/ratingsdirect,neutral +"November 18, 2022 2CaterpillarOur Base-Case Scenario +Assumptions +Global GDP growth of 3.2% in 2022 and 2.7% in 2023.",neutral +U.S. real GDP growth of 1.6% in 2022 and 0.2% in 2023.,positive +Asia-Pacific real GDP growth of 3.8% in 2022 and 4.5% in 2023.,positive +Eurozone real GDP growth of 3.1% in 2022 and 0.3% in 2023.,positive +U.S. real equipment investment to grow by 6.8% in 2022 and decline by 0.8% in 2023.,positive +U.S. real residential investment to decline by 9.9% in 2022 and 10.4% in 2023.,positive +A Brent oil price of $90 per barrel (bbl) in 2022 and $75 per barrel (bbl) 2023.,neutral +"We expect a Henry Hub natural gas price of $5.75 +per million Btu (mmBtu) for 2022 and $4.25 per mmBtu in 2023.",positive +"Revenue increases in the mid-teen percentage area in 2022 due to the combined impact of strong demand in all the three +primary operating segments and realization of price increases, followed by high-single-digit growth in 2023.",positive +S&P Global Ratings'-adjusted EBITDA margin grow by 50-100 basis points in 2022 with further improvement in 2023.,neutral +Industrial capital expenditure of $1.1 billion-$1.4 billion annually.,neutral +"About $4 billion-$5 billion of share repurchases and $2.5 billion in dividends in 2022, increasing in 2023.",neutral +"Over the long term, we +forecast the company will deploy substantially all of its ME&T free cash flow toward share repurchases and a growing dividend.",positive +"We assume bolt-on acquisition activity of up to $500 million annually from 2023 onward but have not currently incorporated any +larger acquisitions into our forecast.",neutral +"Key metrics +Caterpillar Inc.--Key Metrics* +Mil. $ 2020a 2021a 2022e 2023f 2024f +Revenue39,022 48,18855,500- +56,000 60,00062,000- +64,000 +EBITDA 6,401 8,2729,800- +10,000 11,00011,500- +12,000 +EBITDA margin (%) 16.4 17.2 17.7-18.0 18.0-19.0 18.0-19.0 +Funds from operations (FFO) 4,719 6,221 7,5008,250- +8,500 9,000 +Free operating cash flow (FOCF)3,415 5,8835,000- +5,500 6,00-6,5006,000- +6,500 +Dividends 2,243 2,332 2,500 2,600 2,650 +Debt/EBITDA (x) 1.2 0.5 0.5-1.0 <1 <1 +FFO/debt (%) 59.6 137.0 100-120 >100 >100 +*All figures adjusted by S&P Global Ratings.",positive +a--Actual.,neutral +e--Estimate.,neutral +f--Forecast.,neutral +"Caterpillar is shifting toward more consistent share repurchase activity and intends to return substantially all of its ME&T free +cash flow to shareholders over time.",positive +"Caterpillar repurchased $3.3 billion in shares in the first nine months of 2022, and we believe +the company will continue to repurchase shares throughout the remainder of the year.",positive +"In addition, the company announced an 8% +dividend increase in the second quarter of 2022.",neutral +"We expect the company will continue to raise its annual dividend and consistently +repurchase shares, at a minimum to offset dilution.",positive +www.spglobal.com/ratingsdirect,neutral +"November 18, 2022 3CaterpillarCaterpillar’s strong backlog bodes well for 2023 demand.",positive +"Although S&P Global economists project a dismal macroeconomic outlook +in 2023, we think several factors will support demand for Caterpillar’s products.",neutral +"Since falling to $12.9 billion in the second quarter of +2020, Caterpillar’s backlog has grown by about 130% to $30 billion.",neutral +"We expect about $24.3 billion of that amount to be fulfilled over +the next 12 months, providing a good line of sight into its revenue.",positive +"Furthermore, the infrastructure bill in the U.S. and low dealer +inventory levels should also keep demand healthy.",positive +"Company Description +Caterpillar manufactures and sells construction and mining equipment; off-highway diesel and natural gas engines; industrial gas +turbines; and diesel-electric locomotives for construction, resource, and energy and transportation industries.",positive +"Founded in 1925, the +company is headquartered in Irving, Tx.",neutral +"The company principally operates through its three primary segments: Construction +Industries, Resource Industries, and Energy & Transportation.",positive +"It also provides financing and related services through its Financial +Products segment.",neutral +www.spglobal.com/ratingsdirect,neutral +"November 18, 2022 4CaterpillarPeer",neutral +"Comparison +Japan-based Komatsu is the world's second-largest manufacturer of construction and mining machinery after U.S.-based +Caterpillar.",neutral +"Like Caterpillar, Komatsu has a sufficient financial cushion relative to the rating.",neutral +"U.S.-based Deere & Co. is the largest global agricultural equipment manufacturer and a major player in the North American +construction market.",positive +Both Caterpillar and Deere both have significant headroom to rating thresholds currently.,positive +"CNH Industrial N.V. (CNHI) is the second-largest agricultural equipment manufacturer and also has a mid-tier position in the +construction equipment, truck, and powertrain markets.",neutral +"Compared with Caterpillar, CNHI is smaller and has lower profitability.",neutral +"U.S.-based Cummins manufactures diesel and natural gas engines and competes with Caterpillar's Energy & Transportation +segment.",positive +Both companies are exposed to cyclical markets yet posted strong operating performance during 2021.,positive +"Peer Comparisons + +Caterpillar Inc.--Peer Comparisons + Caterpillar Inc. Deere & Co.",neutral +"CNH Industrial +N.V.Cummins Inc. +Foreign currency issuer credit rating A/Stable/A-1 A/Stable/A-1 BBB/Stable/A-2 A+/Stable/A-1 +Local currency issuer credit rating A/Stable/A-1 A/Stable/A-1 BBB/Stable/A-2 A+/Stable/A-1 +Period Annual Annual Annual Annual +Period ending 2021-12-31 2021-10-31 2021-12-31 2021-12-31 +Mil. $ $ $ $ +Revenue 48,188 40,441 31,622 24,021 +EBITDA 8,272 7,958 4,062 3,417 +www.spglobal.com/ratingsdirect",negative +"November 18, 2022 5CaterpillarCaterpillar Inc.--Peer Comparisons +Funds from operations (FFO) 6,221 5,916 3,583 2,770 +Interest 501 316 249 126 +Cash interest paid 478 315 170 126 +Operating cash flow (OCF) 6,822 5,867 3,084 2,413 +Capital expenditure 939 842 1,433 784 +Free operating cash flow (FOCF) 5,883 5,025 1,651 1,629 +Discretionary cash flow (DCF) 883 1,447 1,463 (610) +Consolidated cash and short-term investments 10,218 8,745 6,006 3,187 +Gross available cash 10,218 8,745 5,306 3,187 +Debt 4,541 3,569 1,476 2,142 +Equity 12,076 12,520 3,899 9,401 +EBITDA margin (%) 17.2 19.7 12.8 14.2 +Return on capital (%) 37.9 42.8 40.5 24.9 +EBITDA interest coverage (x) 16.5 25.2 16.3 27.2 +FFO cash interest coverage (x) 14.0 19.8 22.1 23.0 +Debt/EBITDA (x) 0.5 0.4 0.4 0.6 +FFO/debt (%) 137.0 165.8 242.7 129.3 +OCF/debt (%) 150.2 164.4 208.9 112.7 +FOCF/debt (%) 129.5 140.8 111.9 76.1 +DCF/debt (%) 19.5 40.6 99.1 (28.5)",positive +Note: All figures are adjusted by S&P Global Ratings.,neutral +"Business Risk +Caterpillar remains the world's largest construction and mining equipment manufacturer, with a broad product line and a global +footprint that is well balanced between mature and higher-growth markets.",positive +"In addition to its excellent scope and market position, +Caterpillar enjoys several competitive advantages, including its premium products and brand, strong technical capabilities, the +industry's strongest dealer network, and its ability to provide financing to its customers.",positive +"Still, Caterpillar's competitors include well- +established manufacturers (such as Cummins Inc. and General Electric Co. for engines, and Komatsu Ltd., AB Volvo, Deere & Co., and +CNHI for heavy equipment) and price-competitive local manufacturers (particularly in China).",positive +The company remains exposed to highly cyclical end markets and to dealer inventory-correction cycles.,positive +"In addition, Caterpillar's +operating leverage has remained high because of a high degree of vertical integration and its ongoing fixed-capital requirements.",positive +"However, Caterpillar is focusing on increasing its services business, including expanded digital capabilities, which over time could +partially mitigate volatility and help achieve more stable profit margin performance through the cycle.",positive +"Financial Risk +We expect the company's FFO-to-debt ratio to increase and remain above 100% in 2022 and 2023 because of top-line and margin +expansion, with additional support from a leaner cost structure following past restructuring actions, which should provide strong +cushion in credit metrics.",positive +"We believe the prolonged supply chain issues could limit incremental margin growth and result in some +degree of foregone revenue, but that the company will manage well in the face of these headwinds.",neutral +www.spglobal.com/ratingsdirect,neutral +"November 18, 2022 6CaterpillarCaterpillar's captive finance business has a high-quality portfolio of assets, with portfolio losses (net of recoveries) of about 0.5% +(10-year average) and leverage of less than 7x as of Sept. 30, 2022 (both figures are as calculated by S&P Global Ratings), which +continues to support our view of Caterpillar's consolidated financial risk.",negative +We assess Caterpillar's captive-finance modifier by considering the captive's non-credit- and non-liquidity-related risks.,positive +"We believe +these risks on aggregate are neutral to the rating.",neutral +"The captive has some exposure to residual value through its operating lease assets, +but we expect lease assets--at about 10% as of Sept. 30, 2022 (as calculated by S&P Global Ratings)--will continue to account for +well below 30% of the total portfolio.",positive +"Similarly, we believe its exposure to dealers does not constitute a meaningful borrower +concentration.",positive +"We revised our 'a+' anchor score on Caterpillar down by one notch because we do not believe the company has articulated a financial +policy that supports a rating higher than 'A'.",positive +The company has historically engaged in significant share repurchases.,positive +"Although we +expect the company would curtail such outflows during a downturn, future shareholder returns and acquisitions could exceed our +base case forecast.",negative +"Debt maturities +2023: $82 million +2024: $999 million +2025: $0 +2026: $0 +2027: $0 +Thereafter: $8.586 billion +Financial summary +Period ending Dec. 31 2017 2018 2019 2020 2021 +Display currency (mil.) $ $ $ $ $ +Revenues 42,676.0",neutral +"51,822.0 50,755.0 39,022.0 48,188.0 +EBITDA 6,885.0 10,548.0 10,189.0 6,401.0 8,272.0 +Funds from operations (FFO) 5,149.6 8,802.0 8,130.9 4,719.1 6,221.2 +Interest expense 584.4 447.3 433.7 526.5 500.6 +Cash interest paid 538.4 409.3 315.7 512.5 477.6 +Operating cash flow (OCF) 5,105.6 6,428.7 5,476.3 4,256.5 6,822.4 +Capital expenditure 698.0 1,016.0 972.0 841.0 939.0 +Free operating cash flow (FOCF)",positive +"4,407.6 5,412.7 4,504.3 3,415.5 5,883.4 +Discretionary cash flow (DCF) 2,576.6 (336.3) (1,674.7) 42.5 883.4 +Consolidated cash and short-term investments 8,261.0 7,857.0 8,284.0 9,352.0 10,218.0 +Gross available cash 8,261.0 7,857.0 8,284.0 9,352.0 10,218.0 +Debt 7,643.0 7,162.1 6,927.9 7,913.4 4,541.5 +Common equity 9,657.2 10,455.4 10,369.0",positive +"10,548.1 12,075.7 +EBITDA margin (%) 16.1 20.4 20.1 16.4 17.2 +Return on capital (%) 26.0 47.9 48.0 24.3 37.9 +EBITDA interest coverage (x) 11.8 23.6 23.5 12.2 16.5 +FFO cash interest coverage (x) 10.6 22.5 26.8 10.2 14.0 +Debt/EBITDA (x) 1.1 0.7 0.7 1.2 0.5 +FFO/debt (%) 67.4 122.9 117.4 59.6 137.0 +OCF/debt (%) 66.8 89.8 79.0 53.8 150.2 +FOCF/debt (%) 57.7 75.6 65.0 43.2 129.5 +DCF/debt (%) 33.7 (4.7) (24.2) 0.5 19.5 +www.spglobal.com/ratingsdirect November 18, 2022 7CaterpillarNote: All figures are adjusted by S&P Global +Ratings.",neutral +"Reconciliation Of Caterpillar Inc. Reported Amounts With S&P Global Adjusted Amounts (Mil. $) + +DebtShareholder +Equity Revenue EBITDAOperating +incomeInterest +expenseS&PGR +adjusted +EBITDAOperating +cash flow DividendsCapital +expenditure +Financial year Dec-31-2021 +Company +reported +amounts",neutral +"37,789 16,484 50,971 9,622 7,333 943 8,272 7,198 2,332 1,207 +Cash taxes paid - - - - - - (1,759) - - - +Cash interest +paid - - - - - - (920) - - - +Lease liabilities 642 - - - - - - - - - +Operating +leases - - - 214 13 13 (13) 201 - - +Postretirement +benefit +obligations/ +deferred +compensation 3,285 - - - - - - - - - +Accessible cash +and liquid +investments (9,544) - - - - - - - - - +Share-based +compensation +expense - - - 200 - - - - - - +Captive finance +operations (27,814) (4,257) (2,783) (1,764) (962) (455) 641 (1,420) - (268) +Nonoperating +income +(expense) - - - - 322 - - - - - +Noncontrolling/ +minority interest - 32 - - - - - - - - +Debt:",positive +"Guarantees 183 - - - - - - - - - +Equity: other - (183) - - - - - - - - +D&A: +Impairment +charges/ +(reversals) - - - - (63) - - - - - +OCF: other - - - - - - - 843 - - +Total adjustments (33,248) (4,408)",negative +"(2,783) (1,350) (690) (442) (2,051) (376) - (268) +www.spglobal.com/ratingsdirect November 18, 2022 8CaterpillarReconciliation Of Caterpillar Inc. Reported Amounts With S&P Global Adjusted Amounts (Mil. $) + +DebtShareholder +Equity Revenue EBITDAOperating +incomeInterest +expenseS&PGR +adjusted +EBITDAOperating +cash flow DividendsCapital +expenditure +S&P Global +Ratings adjustedDebt Equity Revenue EBITDA EBITInterest +expenseFunds from +OperationsOperating +cash flow DividendsCapital +expenditure + 4,541 12,076 48,188 8,272 6,643 501 6,221 6,822 2,332 939 +Liquidity",neutral +We expect Caterpillar will maintain strong liquidity over the next 24 months.,positive +"We estimate ME&T's liquidity sources will exceed its +uses by more than 1.5x and believe its net sources will remain positive even if its forecast EBITDA declines by 30%.",positive +"Qualitative +liquidity factors, which include Caterpillar's well-established and solid relationships with its banks and high standing in the credit +markets, also support the liquidity assessment of strong.",positive +"The captive's funding and liquidity are neutral to our overall liquidity +assessment for Caterpillar.",positive +"We expect the captive to maintain globally diversified funding sources and good access to the financial +markets.",positive +"Principal liquidity sources +Over $6 billion of ME&T cash balances and liquid +investments as of Sept. 30, 2022; +About $7.5 billion-$8.5 billion in annual FFO over the next +24 months; and +$2.92 billion in availability under credit facilities that are +available to the industrial operations, as of Sept. 30, 2022.Principal liquidity uses +An estimated $1.1 billion-$1.3 billion in annual capital +spending over the next 24 months, +Dividend of $2.5 billion-$2.7 billion annually, +Sizable intrayear peak working capital needs, +Share repurchases, and +Modest debt maturities over the next 24 months.",positive +"Covenant Analysis +Requirements +Caterpillar's credit facilities require it to maintain a consolidated net worth above $9 billion.",positive +"Caterpillar Financial is required to +maintain a covenant leverage ratio of no greater than 10 to 1 and a covenant interest coverage ratio of no less than 1.15 to 1. +Compliance expectations +We expect Caterpillar and Caterpillar Financial will continue to comply with the covenant requirements over the next 24 months.",negative +"We +estimate Caterpillar's consolidated debt will remain more than 15% below its covenant net worth limit.",positive +"As of Sept. 30, 2022, the +company had a consolidated net worth under the credit facility of $15.69 billion.",positive +"At the same time, Caterpillar Financial had a +covenant interest coverage ratio of 2.59x and a six-month covenant leverage ratio of 7.03x. +www.spglobal.com/ratingsdirect",neutral +"November 18, 2022 9CaterpillarEnvironmental, Social, And Governance +ESG factors are an overall neutral consideration in our credit rating analysis of Caterpillar Inc.",positive +"The company manufactures +construction and mining equipment, off-highway diesel and natural gas engines, industrial gas turbines, and diesel-electric +locomotives and is therefore exposed to regulations regarding exhaust emissions and environmental sustainability.",positive +"The company's +end markets, particularly mining, also face increasingly stringent environmental standards globally.",positive +"We believe, however, that +Caterpillar is mitigating these risks by funding significant research and development and capital expenditures to improve the energy +efficiency of its products and reduce the environmental impact of its manufacturing plants.",positive +"Group Influence +We view Caterpillar Financial as a core subsidiary of Caterpillar, given its integral importance to the parent (financial services are a +key offering that facilitates the sale of Caterpillar's equipment), our view that it is highly unlikely to be sold, and its strong long-term +support from Caterpillar management under both good and stressful conditions.",positive +"The parent has a support agreement with Caterpillar +Financial that requires Caterpillar to remain the sole owner of Caterpillar Financial and may, under certain circumstances, require +Caterpillar to make payments to Caterpillar Financial if Caterpillar Financial fails to maintain certain financial ratios.",negative +"Issue Ratings--Subordination Risk Analysis +Capital structure +Caterpillar's capital structure (not including debt issued by captive finance subsidiaries) consists primarily of senior unsecured debt +issued at the parent level.",positive +There is no material secured debt.,neutral +"Analytical conclusions +We rate Caterpillar's unsecured debt the same as the 'A' issuer credit rating because the issuer has sufficiently low leverage, as +demonstrated by its overall modest financial risk profile.",positive +This limits the risk of subordination for lenders of unsecured debt.,neutral +"We rate Caterpillar Financial's and its subsidiaries' (Caterpillar International Finance Designated Activity Co., Caterpillar Financial +Australia Ltd., Caterpillar Financial Services Ltd., and Caterpillar Finance Kabushiki Kaisha) unsecured debt at the same level as the +issuer credit rating on Caterpillar Financial.",neutral +"ESG credit indicators provide additional disclosure and transparency at the entity level and reflect S&P Global Ratings’ opinion of the influence +that environmental, social, and governance factors have on our credit rating analysis.",positive +"They are not a sustainability rating or an S&P Global +Ratings ESG Evaluation.",neutral +"The extent of the influence of these factors is reflected on an alphanumerical 1 -5 scale where 1 = positive, 2 = neutral, 3 += moderately negative, 4 = negative, and 5 = very negative.",negative +"For more information, see our commentary “ESG Credit Indicators: Definition And +Applications, ” published Oct. 13,",positive +"2021.ESG Credit Indicators +S-3 S-4 S-5 G-3 G-4 G-5 E-4 E-5 S-1 G-1 E-1 E-3 S-2 G-2 E-2 +www.spglobal.com/ratingsdirect November 18, 2022",neutral +"10CaterpillarRating Component Scores +Foreign currency issuer credit rating A/Stable/A-1 +Local currency issuer credit rating A/Stable/A-1 +Business risk Strong +Country risk Intermediate +Industry risk Intermediate +Competitive position Strong +Financial risk Modest +Cash flow/leverage Modest +Anchor a+ +Diversification/portfolio effect Neutral (no impact) +Capital structure Neutral (no impact) +Financial policy Negative (-1 notch) +Liquidity Strong (no impact) +Management and governance Satisfactory (no impact) +Comparable rating analysis Neutral (no impact) +Stand-alone credit profile a +Related Criteria +- Criteria | Corporates | General:",positive +"Reflecting Subordination Risk In Corporate Issue Ratings, March 28, 2018 +- General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017 +- Criteria | Corporates | General: Methodology:",positive +"The Impact Of Captive Finance Operations On Nonfinancial Corporate +Issuers, Dec. 14, 2015 +- Criteria | Corporates | General: Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Dec. 16, +2014 +- Criteria | Financial Institutions | General: Issue Credit Rating Methodology For Nonbank Financial Institutions And Nonbank +Financial Services Companies, Dec. 9, 2014 +- ARCHIVE | Criteria | Corporates | General: Corporate Methodology:",positive +"Ratios And Adjustments, Nov. 19, 2013 +- General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013 +- ARCHIVE | General Criteria: Group Rating Methodology, Nov. 19, 2013 +- General Criteria: Methodology: Industry Risk, Nov. 19, 2013 +- Criteria | Corporates | General: Corporate Methodology, Nov. 19, 2013 +- ARCHIVE | Criteria | Corporates | Industrials: Key Credit Factors For The Capital Goods Industry, Nov. 19, 2013 +- General Criteria: Methodology:",positive +"Management And Governance Credit Factors For Corporate Entities, Nov. 13, 2012 +- ARCHIVE | General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009 +Ratings Detail (as of November 18, 2022)* +Caterpillar Inc. +Issuer Credit Rating A/Stable/A-1 +www.spglobal.com/ratingsdirect",positive +"November 18, 2022 11CaterpillarRatings Detail (as of November 18, 2022)* +Commercial Paper +Local Currency A-1 +Senior Unsecured A +Issuer Credit Ratings History +26-Oct-2017 A/Stable/A-1 +21-Nov-2016 A/Negative/A-1 +26-Apr-2010 A/Stable/A-1 +Related Entities +Caterpillar Financial Services Corp. +Issuer Credit Rating A/Stable/A-1 +Commercial Paper +Local Currency A-1 +Senior Unsecured A +Senior Unsecured A/A-1 +*Unless otherwise noted, all ratings in this report are global scale ratings.",neutral +"S&P Global Ratings credit ratings on the global scale are +comparable across countries.",neutral +"S&P Global Ratings credit ratings on a national scale are relative to obligors or obligations within that +specific country.",neutral +"Issue and debt ratings could include debt guaranteed by another entity, and rated debt that an entity guarantees.",neutral +www.spglobal.com/ratingsdirect,neutral +"November 18, 2022 12Caterpillarwww.spglobal.com/ratingsdirect November 18, 2022 13Caterpillar +STANDARD & POOR’S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor’s Financial Services LLC.S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors.",negative +"S&P reserves the right +to disseminate its opinions and analyses.",positive +"S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), +and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and +third-party redistributors.",positive +Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities.,positive +"As a result, certain business units of S&P may have information that is not available to other S&P business units.",negative +"S&P has established policies and procedures +to maintain the confidentiality of certain non-public information received in connection with each analytical process.",positive +"To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory +purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion.",positive +"S&P Parties disclaim any duty +whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been +suffered on account thereof.",negative +"Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not +statements of fact.",negative +"S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any +securities or to make any investment decisions, and do not address the suitability of any security.",neutral +"S&P assumes no obligation to update the Content following +publication in any form or format.",neutral +"The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its +management, employees, advisors and/or clients when making investment and other business decisions.",negative +"S&P does not act as a fiduciary or an investment +advisor except where registered as such.",neutral +"While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and +undertakes no duty of due diligence or independent verification of any information it receives.",negative +"Rating-related publications may be published for a variety of +reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit +rating and related analyses.",positive +"No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof +(Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the +prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P).",negative +"The Content shall not be used for any unlawful or +unauthorized purposes.",neutral +"S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do +not guarantee the accuracy, completeness, timeliness or availability of the Content.",neutral +"S&P Parties are not responsible for any errors or omissions (negligent or +otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user.",negative +"The +Content is provided on an “as is” basis.",neutral +"S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY +WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT +THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION.",positive +"In +no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, +costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in +connection with any use of the Content even if advised of the possibility of such damages.",positive +Copyright © 2023 by Standard & Poor's Financial Services LLC.,negative +All rights reserved.,neutral +text,sentiment +"Tear Sheet: +McDonald's Corp. +July 28, 2023 +McDonald’s strong value offering, improving service levels, and relevant marketing are +resonating with customers.",positive +"Global comparable sales increased 11.7% during the second quarter +of fiscal 2023, including 10.3% growth in the U.S., driven by higher checks and traffic.",positive +"Although +customers are adding fewer menu items to their orders and some are trading down to lower- +priced menu items amid elevated inflation, more are visiting McDonald’s restaurants.",positive +"We believe +this trend will continue as challenging macroeconomic conditions spur consumers to seek out +affordable dining options.",positive +"We have slightly revised our revenue forecast higher for 2023, though +we still expect sales growth will slow in the second half of the year and in 2024 due to lower and +less frequent menu price increases as inflation moderates.",negative +Operating margins are expanding despite cost pressures.,neutral +"Ongoing inflationary cost pressures +across commodities, particularly beef, and labor are weighing on McDonald’s company- +operated restaurant margins.",positive +"Nevertheless, McDonald’s franchises approximately 95% of its +restaurants, largely insulating it against higher operating costs.",positive +"McDonald’s adjusted operating +margin through the first half of fiscal 2023 expanded 290 basis points year-over-year.",positive +"We expect +these gains will recede slightly in the second half of the year due to lingering cost pressures and +stepped-up selling, general, and administrative (SG&A) spending on technology and +organizational investments.",negative +"We now forecast S&P Global Ratings-adjusted EBITDA of $15 billion +in 2023, expanding roughly 8% from 2022.",negative +"We expect improving cash flow generation will fund higher capital spending, dividends and +ongoing share repurchases this year.",positive +"McDonald’s has opened 526 net new restaurants this +year, largely entirely in its international markets and primarily in China.",positive +"We expect the pace of +new openings will accelerate in the second half of the year, with the company reaching its +target of 1,500 net new openings.",positive +"We project capital expenditure (capex) will grow +approximately 20% this year to between $2.2 billion and $2.4 billion.",negative +"Good topline growth and +flow through will likely result in free operating cash flow (FOCF) in the $7.5 billion-$8 billion +range in fiscal 2023, though we anticipate all of it will be returned to shareholders through +dividends and share repurchases.",positive +"Our view of the company’s financial policy remains +unchanged, and we expect it will keep S&P Global Ratings-adjusted leverage in the low- to mid- +3x area.",neutral +"Ratings Score SnapshotPrimary contact +Declan Gargan, CFA +San Francisco +1-415-371-5062 +declan.gargan +@spglobal.com +Secondary contact +Diya G Iyer +New York +1-212-438-4001 +diya.iyer +@spglobal.com +www.spglobal.com/ratingsdirect",negative +"July 28, 2023 1Recent Research +•McDonald's Corp., May 2, 2023 +Company Description +McDonald’s is the world's largest restaurant company by revenue, generating more than $124 +billion in systemwide sales during the 12 months ended June 30, 2023.",positive +"The company operates +and franchises more than 40,800 restaurants globally and is primarily a franchisor, with +approximately 95% of its restaurants owned and operated by independent franchisees.",positive +"Outlook +The stable outlook reflects our expectation that McDonald’s highly franchised business model +and successful execution of its strategic growth plan will enable it to achieve higher earnings +and FOCF this year despite challenging macroeconomic conditions.",positive +"Downside scenario +We could lower our rating if the company’s credit measures deteriorate, including S&P Global +Ratings-adjusted leverage above 4x and FOCF to debt below 15%, whether due to sustained +operating performance setbacks or a shift to a more aggressive financial policy.",positive +"Upside scenario +We could raise our rating if the company: +•Demonstrates a clear commitment to a more conservative financial policy that includes +maintaining S&P Global Ratings-adjusted leverage of about 3x and FOCF to debt of about +20%; and +•Sustains operating performance gains, including positive global comparable sales, successful +new restaurant development, and margin expansion.",positive +"Key Metrics +www.spglobal.com/ratingsdirect July 28, 2023 2McDonald's Corp.McDonald's Corp.--Forecast summary +Period ending Dec-31-2019 Dec-31-2020 Dec-31-2021 Dec-31-2022 Dec-31-2023 Dec-31-2024 Dec-31-2025 Dec-31-2026 Dec-31-2027 +(Mil. $) 2019a 2020a 2021a 2022a 2023e 2024f 2025f 2026f 2027f +Revenue21,077 19,208 23,223 23,183 24,994 26,437 27,708 29,025 30,390 +EBITDA (reported)10,633 9,082 12,278 11,241 13,347 14,276 14,990 15,761 16,502",neutral +"Plus: Operating lease +adjustment (OLA) rent 1,607 1,479 1,560 1,476 1,491 1,506 1,521 1,536 1,551 +Plus/(less): Other(15) (32) (398) 1,141 170 200 225 300 300 +EBITDA12,225 10,530 13,440 13,858 15,008 15,982 16,736 17,597 18,353 +Less: Cash interest paid(1,609)",negative +"(1,663) (1,717) (1,657) (1,778) (1,867) (1,948) (1,999) (2,056) +Less: Cash taxes paid(1,590) (1,442) (2,404) (3,024) (2,144) (2,308) (2,432) (2,576) (2,714) +Funds from operations (FFO)9,026 7,425 9,319 9,177 11,086 11,807 12,356 13,021 13,584 +Debt (reported)34,177 37,440 35,623 35,904 35,931 37,897 38,975 39,935 41,148 +Plus: Lease liabilities debt13,379 14,023 13,726 12,796 12,923 13,053 13,183 13,315 13,448 +Less: Accessible cash and +liquid Investments (809) (3,104) (4,238) (2,325) (2,193) (1,800) (1,800) (1,800) (1,800) +Plus/(less): Other601 634 -- -- -- -- -- -- -- +Debt47,348 48,993 45,111 46,374 46,661 49,150 50,359 51,450 52,796 +Cash and short-term +investments (reported) 899 3,449 4,709 2,584 2,437 2,000 2,000 2,000 2,000 +Adjusted ratios +Debt/EBITDA (x)3.9 4.7 3.4 3.3 3.1 3.1 3.0 2.9 2.9 +FFO/debt (%)19.1 15.2 20.7 19.8 23.8 24.0 24.5 25.3 25.7",positive +"All figures are adjusted by S&P Global Ratings, unless stated as reported.",neutral +a--Actual.,neutral +e--Estimate.,neutral +f--Forecast.,neutral +$--U.S. dollar.,neutral +"Financial Summary +McDonald's Corp.--Financial Summary +Period ending Dec-31-2017 Dec-31-2018 Dec-31-2019 Dec-31-2020 Dec-31-2021 Dec-31-2022 +Reporting period 2017a 2018a 2019a 2020a 2021a 2022a +Display currency (mil.)",neutral +"$ $ $ $ $ $ +Revenues 22,820 21,025 21,077 19,208 23,223 23,183 +EBITDA 11,062 11,250 12,225 10,530 13,440 13,858 +Funds from operations (FFO) 6,818 7,996 9,026 7,425 9,319 9,177 +Interest expense 1,494 1,541 1,664 1,745 1,706 1,681 +Cash interest paid 1,458 1,519 1,609 1,663 1,717 1,657 +Operating cash flow (OCF) 6,206 7,556",neutral +"9,186 7,218 10,182 8,389 +Capital expenditure 1,848 2,736 2,386 1,635 2,033 1,890 +Free operating cash flow (FOCF) 4,358 4,820 6,800 5,583 8,148 6,499 +www.spglobal.com/ratingsdirect",positive +"July 28, 2023 3McDonald's Corp.McDonald's Corp.--Financial Summary +Discretionary cash flow (DCF) (3,417) (3,644) (1,758) 922 3,384 (1,565) +Cash and short-term investments 2,464 866 899 3,449 4,709 2,584 +Gross available cash 2,464 866 899",positive +"3,449 4,709 2,584 +Debt 36,371 38,773 47,348 48,993 45,111 46,374 +Common equity (3,268) (6,258) (8,210) (7,825) (4,601) (6,003) +Adjusted ratios +EBITDA margin (%) 48.5 53.5 58.0 54.8 57.9 59.8 +Return on capital (%) 28.1 28.0 26.5 19.6 25.7 25.8 +EBITDA interest coverage (x) 7.4 7.3 7.3 6.0 7.9 8.2 +FFO cash interest coverage (x) 5.7 6.3 6.6 5.5 6.4 6.5 +Debt/EBITDA (x) 3.3 3.4 3.9 4.7 3.4 3.3 +FFO/debt (%) 18.7 20.6 19.1 15.2 20.7 19.8 +OCF/debt (%) 17.1 19.5 19.4 14.7 22.6 18.1 +FOCF/debt (%) 12.0 12.4 14.4 11.4 18.1 14.0 +DCF/debt (%) (9.4) (9.4) (3.7) 1.9 7.5 (3.4) +Peer Comparison +McDonald's Corp.--Peer Comparisons + McDonald's Corp. Starbucks Corp.",negative +Yum!,neutral +"Brands Inc.Restaurant Brands +International Inc. +Foreign currency issuer credit rating BBB+/Stable/A-2 BBB+/Stable/A-2 BB+/Stable/-- BB/Stable/-- +Local currency issuer credit rating BBB+/Stable/A-2 BBB+/Stable/A-2 BB+/Stable/-- BB/Stable/-- +Period Annual Annual Annual Annual +Period ending 2022-12-31 2022-10-02 2022-12-31 2022-12-31 +Mil. $ $ $ $ +Revenue 23,183 32,250 6,842 6,505 +EBITDA 13,858 8,021 2,581 2,481 +Funds from operations (FFO) 9,177 6,158 1,649 1,654 +Interest 1,681 714 570 605 +Cash interest paid 1,657 705 561 552 +Operating cash flow (OCF) 8,389 5,721 1,506 1,627 +Capital expenditure 1,890 1,841 279 100 +Free operating cash flow (FOCF) 6,499 3,880 1,227 1,527 +Discretionary cash flow (DCF) (1,565) (2,523) (622) 230 +www.spglobal.com/ratingsdirect July 28, 2023 4McDonald's Corp.McDonald's Corp.--Peer Comparisons +Cash and short-term investments 2,584 3,183 367 1,178 +Gross available cash 2,584 3,183 367 1,178 +Debt 46,374 21,366 12,459 13,322 +Equity (6,003) (8,699) (8,951) 4,268 +EBITDA margin (%) 59.8 24.9 37.7 38.1 +Return on capital (%) 25.8 38.7 64.7 11.3 +EBITDA interest coverage (x) 8.2 11.2 4.5 4.1 +FFO cash interest coverage (x) 6.5 9.7 3.9 4.0 +Debt/EBITDA (x) 3.3 2.7 4.8 5.4 +FFO/debt (%) 19.8 28.8 13.2 12.4 +OCF/debt (%) 18.1 26.8 12.1 12.2 +FOCF/debt (%) 14.0 18.2 9.8 11.5 +DCF/debt (%) (3.4) (11.8) (5.0) 1.7 +Environmental, Social, And Governance +Governance factors are a moderately positive consideration in our credit rating analysis of +McDonald's.",positive +"The successful development and execution of the Accelerating the Arches growth +strategy, which focuses on menu relevancy, value messaging, and enhanced convenience, +bolster its value proposition for customers and franchisees.",positive +"In our view, McDonald’s strategic +planning strengths will continue to drive higher sales, profitability, and cash flow generation.",positive +"Environmental and social factors are an overall neutral consideration in our credit rating +analysis of McDonald’s.",positive +"Labor intensity is high within the restaurant industry, so labor relations +is a key social risk factor that McDonald’s must manage.",positive +"It directly employs restaurant staff at +its more than 2,100 company-operated locations.",positive +"However, most workers across its system are +employed by its franchisees.",positive +"As a global company, with labor standards and practices that vary +by region, governance of franchisee relationships is critical to ensure fair labor practices are +implemented systemwide.",positive +"Ongoing wage investments illustrate McDonald’s efforts to remain +competitive and address staffing needs.",neutral +"However, higher labor costs will need to be met with +increased productivity or offset by pricing actions to preserve operating margins.",positive +"Restaurant food safety is another critical risk factor as reputational damage can be difficult to +repair.",negative +"We believe McDonald’s careful management of its supply chain as well as its operational +www.spglobal.com/ratingsdirect July 28, 2023 5McDonald's Corp.standards regarding food storage and preparation mitigates the likelihood of a food safety +incident.",negative +"Rating Component Scores +Foreign currency issuer credit rating BBB+/Stable/A-2 +Local currency issuer credit rating BBB+/Stable/A-2 +Business risk Strong +Country risk Low +Industry risk Intermediate +Competitive position Strong +Financial risk Significant +Cash flow/leverage Significant +Anchor bbb +Diversification/portfolio effect Neutral (no impact) +Capital structure Neutral (no impact) +Financial policy Neutral (no impact) +Liquidity Strong (no impact) +Management and governance Strong (no impact) +Comparable rating analysis Positive (+1 notch) +Stand-alone credit profile bbb+ +Related Criteria +•General Criteria: Group Rating Methodology, July 1, 2019 +•Criteria | Corporates | General:",positive +Corporate Methodology:,neutral +"Ratios And Adjustments, April 1, 2019 +•Criteria | Corporates | General:",positive +"Reflecting Subordination Risk In Corporate Issue +Ratings, March 28, 2018 +•General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017 +•Criteria | Corporates | General: Methodology And Assumptions: Liquidity Descriptors For +Global Corporate Issuers, Dec. 16, 2014 +•General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013 +•General Criteria: Methodology: Industry Risk, Nov. 19, 2013 +•Criteria | Corporates | General: Corporate Methodology, Nov. 19, 2013 +•General Criteria: Methodology:",positive +"Management And Governance Credit Factors For Corporate +Entities, Nov. 13, 2012 +•General Criteria: Principles Of Credit Ratings, Feb. 16, 2011 +www.spglobal.com/ratingsdirect",neutral +"July 28, 2023 6McDonald's Corp.www.spglobal.com/ratingsdirect July 28, 2023 7McDonald's Corp. +STANDARD & POOR’S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor’s Financial Services LLC.S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors.",negative +"S&P reserves the right +to disseminate its opinions and analyses.",positive +"S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), +and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and +third-party redistributors.",positive +Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities.,positive +"As a result, certain business units of S&P may have information that is not available to other S&P business units.",negative +"S&P has established policies and procedures +to maintain the confidentiality of certain non-public information received in connection with each analytical process.",positive +"To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory +purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion.",positive +"S&P Parties disclaim any duty +whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been +suffered on account thereof.",negative +"Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not +statements of fact.",negative +"S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, 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credit +rating and related analyses.",positive +"No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof +(Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the +prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P).",negative +"The Content shall not be used for any unlawful or +unauthorized purposes.",neutral +"S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do +not guarantee the accuracy, completeness, timeliness or availability of the Content.",neutral +"S&P Parties are not responsible for any errors or omissions (negligent or +otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user.",negative +"The +Content is provided on an “as is” basis.",neutral +"S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY +WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT +THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION.",positive +"In +no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, +costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in +connection with any use of the Content even if advised of the possibility of such damages.",positive +Copyright © 2023 by Standard & Poor's Financial Services LLC.,negative +All rights reserved.,neutral +text,sentiment +"Morningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 1 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®McDonald's Corp MCD QQ 1 Feb 2023 17:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +265.50 USD +31 Jan 2023240.00 USD +1 Feb 2023 17:10, UTC1.11195.85 USD Bil +31 Jan 2023 +Wide Stable Low Standard ;;;;; +1 Feb 2023 06:00, UTC +Sean Dunlop +Equity Analyst +Morningstar ++1 571 455 6905 +sean.dunlop@morningstar.com +Contents +Analyst Note (31 Jan 2023) +Business Description +Business Strategy & Outlook (1 Feb 2023)",positive +Bulls Say / Bears Say (1 Feb 2023),neutral +Fair Value and Profit Drivers (1 Feb 2023),positive +Economic Moat (1 Feb 2023),positive +"Moat Trend (1 Feb 2023) +Risk and Uncertainty (1 Feb 2023) +Financial Strength (1 Feb 2023)",neutral +Capital Allocation (1 Feb 2023),neutral +"Financials +Recent Analyst Notes +Research Methodology for Valuing +Companies +Important Disclosure",positive +"The conduct of Morningstar’s analysts is governed by Code of +Ethics/Code of Conduct Policy, Personal Security Trading Policy +(or an equivalent of), and Investment Research Policy.",neutral +"For +information regarding conflicts of interest, please visit: http:// +global.morningstar.com/equitydisclosures.",neutral +"The primary analyst covering this company does not own its +stock.",positive +"Reporting Currency: USD | Trading Currency: USD +Currency amounts expressed with ""$"" are in U.S. dollars +(USD) unless otherwise denoted.",neutral +"1The ESG Risk Rating Assessment is a representation of +Sustainalytics’ ESG Risk Rating.",neutral +"McDonald's Margin Compression Sinks Shares After Q4 Results, +but Long-Term Narrative Intact +Analyst Note Sean Dunlop, Equity Analyst, 31 Jan 2023 +Wide-moat McDonald's long-term road map is intact, but fourth-quarter results and 2023 guidance suggest a +protracted recovery to prepandemic profitability.",negative +"Diluted earnings per share of $2.59 aligned closely with our +$2.60 forecast as strong guest traffic offset softer-than-expected margins.",positive +"The 14.6% U.S. restaurant margin and +17.4% international operated markets margin were 40 and 160 basis points shy of our forecasts, with +management's guidance for midteens European inflation in 2023 adding a degree of near-term earnings risk that +we'd underestimated.",negative +"We now project slightly softer earnings growth in 2023, with a full recovery to +prepandemic restaurant margins likely stretching out five or six years (2027) as the firm prices at or below +inflation to defend guest traffic gains.",negative +"We expect to lower our $247 fair value estimate by a low-single-digit +percentage, roughly consistent with the market's reaction to earnings.",positive +"We continue to view McDonald's as well positioned to navigate current headwinds, with its value-driven menu +helping drive 5% comparable guest count growth globally.",neutral +"With increasing evidence of check management, we'd +expect McDonalds to lean into its scale-driven cost advantage to provide compelling value for its customers, +benefiting from the trade-down effect and capturing market share from smaller, less profitable competitors.",positive +"The +firm's growing loyalty program, now reaching 50 million guests in its top operated markets, should also prop up +traffic as consumers rationalize restaurant spending in favor of their favorite brands.",positive +"McDonald's unit growth aspirations strike us as cogent, with 1,500 net openings planned for 2023.",neutral +"A growing +system is a big draw for aspiring franchisees, but we believe that the firm will need to invest heavily in +Financial Summary and Key Statistics +Actual Forecast +2021 2022 2023 2024 +Revenue (USD Mil) 23,223 23,182 24,513 26,357 +Revenue Growth % 20.9 -0.2 5.7 7.5 +Operating Income (Mil) 10,356 9,371 10,913 11,850 +Operating Margin % 44.6 40.4 44.5 45.0 +Adjusted EBITDA (Mil) 12,097 10,922 12,800 13,801 +Adjusted EBITDA Margin % 52.1 47.1 52.2 52.4 +Earnings Per Share (Diluted) (USD) 10.04 8.33 10.30 11.00 +Adjusted Earnings Per Share (Diluted) (USD) 9.30 10.10 10.30 11.00 +Adjusted EPS Growth % 53.7 8.6 2.0 6.8 +Price/Earnings 28.8 26.1 26.0 24.3 +Price/Book -43.8 -32.5",negative +"-20.5 -24.5 +EV/EBITDA 17.2 22.4 18.9 17.5 +Free Cash Flow Yield %",positive +"4.4 2.8 3.6 4.0 +Source: Morningstar Valuation Model.",neutral +"Data as of 13 Jan 2023.Morningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 2 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®McDonald's Corp MCD QQ 1 Feb 2023 17:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +265.50 USD +31 Jan 2023240.00 USD +1 Feb 2023 17:10, UTC1.11195.85 USD Bil +31 Jan 2023 +Wide Stable Low Standard ;;;;; +1 Feb 2023 06:00, UTC +automation and franchisee support to defend unit-level cash returns on investment amid higher input and +construction costs.",positive +"McDonald's attention to consumer value perception has been rewarded by gains in quick-service traffic +share—a laudable achievement, in our view, given that the franchise system remains free to choose its own +menu price points, with corporate control limited to consulting and recommendations.",positive +"One lever that McDonald's +has effectively deployed is franchisee support, with management penciling in $100 million-$150 million in +planned support for struggling franchisees in 2023 (predominantly in Europe), permitting them to maintain +competitive pricing despite flagging operating margins.",positive +"We believe that while dilutive in the near term, the +actions will have a value-accretive effect on the system in the long term, with consumer value perception and +behavior proving extremely sticky in the industry.",negative +"We appreciate the efforts that McDonald's has made to innovate around its ""MCD"" framework, with 35% of sales +coming through digital channels during the quarter.",neutral +"As the firm's base of known customers increases, and as +promotional dollars flow toward app and loyalty incentives in lieu of indiscriminate national offers, we expect +better guest frequency, higher returns on ad spending, and durable same-store sales growth to follow in the +medium term as the MyMcDonald's program achieves scale.",negative +"Business Strategy & Outlook Sean Dunlop, Equity Analyst, 1 Feb 2023",neutral +"As the leader in global food-service sales, McDonald's is taking adequate steps to adjust to an evolving +competitive landscape, in our view, leveraging its scale to invest heavily in digital acuity and menu innovation en +route to compelling unit economics.",positive +"While we expect a turbulent couple of quarters amid a soft macroeconomic environment, we're encouraged by +management's vision for the business, which we believe should enable McDonald's to maintain its edge.",positive +"The firm +has widely embraced customer centricity and technological prowess since its 2015 turnaround, and while the +processes have evolved since then, the firm's focus on the customer experience has not.",negative +"The chain's attention to +digitization is laudable, with 35% of its systemwide sales now coming through digital channels, partially +attributable to a loyalty member base that now measures 50 million across its top six markets.",negative +"We believe that management's ""Accelerating the Arches 2.0"" framework capitalizes well on the firm's cost +advantages in marketing and technology investments.",negative +"The plan focuses on a unified marketing approach, a +commitment to the core menu, and an emphasis on the four D's: delivery, digital, drive-thru, and development.",neutral +"We believe that the pivot is warranted, with consumer adoption of digital channels remaining quite sticky, and +see long-term upside through labor efficiency, improved order accuracy, and suggestive selling, all of which have +grown increasingly important as input cost inflation has driven restaurant margins (and cash-on-cash returns) +sharply lower.",positive +"With the notoriously slow-moving restaurant industry forced to make widespread investments in technology +since the onset of COVID-19, we expect omnichannel ordering capabilities to become a required offering from Sector Industry +t Consumer Cyclical Restaurants +Business Description +McDonald’s is the largest restaurant owner- +operator in the world, with 2021 system +sales of $112 billion across nearly 40,000 +stores and more than 100 markets.",positive +"McDonald’s pioneered the franchise model, +building its impressive footprint through +partnerships with independent restaurant +franchisees around the world.",positive +"The firm earns +more than 60% of its revenue from franchise +royalty fees and lease payments, with the +remainder coming from company-operated +stores across its three core segments: the +United States, internationally operated +markets, and international developmental/ +licensed markets.",positive +"McDonald’s owned 55% of +the real estate and 80% of the buildings in +its franchise system as of the end of 2021, +offering it substantial leverage in +maintaining quality standards and +consistency.",positive +"Morningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 3 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®McDonald's Corp MCD QQ 1 Feb 2023 17:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +265.50 USD +31 Jan 2023240.00 USD +1 Feb 2023 17:10, UTC1.11195.85 USD Bil +31 Jan 2023 +Wide Stable Low Standard ;;;;; +1 Feb 2023 06:00, UTC +larger players.",positive +"McDonald's mobile application, loyalty program, and recent efforts toward order automation and +suggestive selling represent steps in the right direction, a view substantiated by the firm's recent market share +gains, impressive same-store sales growth, and robust unit development pipeline.",positive +"Bulls Say Sean Dunlop, Equity Analyst, 1 Feb 2023 +uWith an expansive drive-thru footprint and base of newly remodeled stores, McDonald’s is well positioned to +take advantage of evolving digital ordering habits.",negative +"uTechnological investments and the ongoing rollout of the firm's loyalty program leverage McDonald's scale and +could positively drive average check and brand affinity.",negative +"uAs the low-cost operator in the space, input cost inflation and consumer pressure offer McDonald’s a chance to +gain share in key markets.",neutral +"Bears Say Sean Dunlop, Equity Analyst, 1 Feb 2023 +uWage inflation, particularly in the U.S., could result in an increase in price competition, additional investments in +automation, and a shift toward relatively cheaper substitutes in the food-at-home category.",positive +"uWhile improving, low satisfaction scores relative to industry benchmarks could impair the brand if left +unresolved, threatening McDonald’s pricing power if the firm is unable to meet changing customer demands.",negative +"uSensitivities to sometimes irrational pricing pressure and limited-time offers can pressure results, as seen during +the chicken sandwich wars.",negative +"Fair Value and Profit Drivers Sean Dunlop, Equity Analyst, 1 Feb 2023",positive +We're lowering our fair value estimate to $240 per share from $247 after digesting fourth-quarter results.,positive +"While +comparable store sales strength and growth in global traffic were encouraging, cost pressures remained front +and center, with flat-to-down projected company-owned restaurant margins leading us to modestly lower our +2023 earnings projections.",neutral +"We expect a full recovery to prepandemic unit-level profitability, but an inability to +push through price increases during a period of consumer pressure suggests a long road to recovery.",positive +"We don't +expect the firm to achieve prepandemic restaurant-level margins until 2027, but do expect the recession-resistant +company to generate nominal sales growth through 2023 and 2024 despite economic turbulence.",neutral +"Our revised fair +value estimate suggests a 2023 price/earnings of 23 times and an enterprise value/2023 EBITDA of 16.5 times.",positive +"We've been impressed by the firm’s ability to drive robust comparable store sales growth as it navigated a global +pandemic, digital transformation, and the divestiture of its largely company-owned Russian market.",positive +"With 20% +same-store sales growth relative to 2019 (a bit north of 6% annualized), we believe that McDonald's has taken +meaningful market share, and we continue to expect near-term outperformance as the firm's value-oriented fare +is uniquely well positioned to cater to a strapped consumer.",positive +"That said, while the firm has been able to pass along +a meaningful portion of cost increases (raising prices roughly 10% in the U.S. from a year ago), it hasn't been able +to fully defray pressure without outrunning its core customer, given that input costs and hourly labor have +swelled by more than 20% relative to February 2020, and we don't expect normalized margins until 2027, given +macroeconomic pressure.",positive +"Morningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 4 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®McDonald's Corp MCD QQ 1 Feb 2023 17:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +265.50 USD +31 Jan 2023240.00 USD +1 Feb 2023 17:10, UTC1.11195.85 USD Bil +31 Jan 2023 +Wide Stable Low Standard ;;;;; +1 Feb 2023 06:00, UTC +We believe that McDonald's has had the luxury of investing through the cycle, while smaller, less capitalized +peers curtailed investments and struggled to defray rising input costs, affording an opportunity to take market +share in the near to medium term, particularly in markets where independent restaurants maintain higher share.",positive +"Driven by the firm's young loyalty program, surging digital sales volumes, and unit development, we expect the +burger giant to continue to capture wallet share abroad, with our forecasts calling for average annual sales +growth of 5.5% and 9.2% through 2027 in the internationally operated markets and internationally developed and +licensed segments, respectively.",negative +"Our operating margin assumptions are largely driven by operating leverage and a favorable mix shift, with +McDonald's selling, general, and administrative expenditures falling to roughly 12% of sales in 2032 from a high- +water mark of 13.3% in 2020, with depreciation normalizing after extensive investments in restaurant remodeling.",positive +"Economic Moat Sean Dunlop, Equity Analyst, 1 Feb 2023 +Low barriers to entry and minimal switching costs render the restaurant industry very competitive, making it +difficult for most operators to develop an economic moat.",positive +"Those who are able to do so, as we see it, focus on +generating pricing power through a substantially differentiated and recognizable brand or by developing +structurally lower operating costs, generally supported by scale-driven pricing advantages and leveraged +systemwide investments in marketing and technology, while spreading administrative expenses over a larger +revenue base.",neutral +"In our view, McDonald’s boasts a wide economic moat, with pricing power, a healthy network of franchisees, and +successful international replication underpinning its brand intangible asset.",positive +"We also believe that McDonald’s +benefits from a durable cost advantage, with its dominant global scale allowing it to procure food and paper at +favorable prices, to leverage marketing and technology investments across its global footprint, and to secure +lower rates from third-party delivery aggregators.",positive +"Our wide moat rating implies the assumption that the firm can +continue to earn positive economic returns for the next 20 years.",positive +"To this point, the firm has earned an average +return on invested capital (inclusive of goodwill) of 18% over the last five years, against a weighted average cost +of capital (as we calculate it) of 7.0%.",negative +"Our 10-year forecast sees an average adjusted ROIC of 26%, +with our 2032 projection of 29% outstripping the firm’s prepandemic average due to positive operating leverage +and refranchising.",negative +"The strength of recent technological investments, the company’s strong performance during a +trying 2020—during which its ROIC of nearly 14% still outperformed its cost of capital—and ongoing success in +international markets leave us confident that McDonald’s will continue to earn excess returns over an extended +horizon.",positive +"With respect to intangible assets, we cite the firm’s ability to pass through food and labor cost inflation to +customers, its impressive restaurant-level margins and unit volume, and number-one quick-service restaurant +market share by sales volume in every major market in which it operates (with the notable exception of China) as +the pillars underpinning our wide moat rating.",positive +"To the first point, McDonald’s U.S. and international +developmental/licensed segments saw their average check increase roughly 5% per year during 2016-19, faster Morningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 5 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®McDonald's Corp MCD QQ 1 Feb 2023 17:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +265.50 USD +31 Jan 2023240.00 USD +1 Feb 2023 17:10, UTC1.11195.85 USD Bil +31 Jan 2023 +Wide Stable Low Standard ;;;;; +1 Feb 2023 06:00, UTC +than food inflation (1.3%) and increases in food-away-from-home pricing (up 2.7%, per USDA data) during that +period.",positive +"While the firm suspended its reporting of that figure due to temporary store closures during the initial +surge of COVID-19, we view more than 6% annualized same-store sales growth and market share gains between +2019 and 2022 as reflective of a competitively advantaged brand, despite margin compression amid an +unprecedented surge in input costs, and expect a full (if protracted) recovery to prepandemic profitability.",positive +"Turning to restaurant-level economics, we believe that the attractiveness of a brand to franchisees is driven by +average unit volume, restaurant-level margins, systemwide stability, and franchise return on investment.",negative +"McDonald’s scores well across the board, with average sales per U.S. franchised restaurant of $3.6 million in +2022, meaningfully outperforming publicly traded peers in the hamburger space (Burger King saw $1.4 million, +Wendy’s saw $1.9 million, and Sonic saw $1.6 million, per Restaurant Business' 2022 top 500 report and our +calculations).",positive +"Given that restaurants feature high incremental operating margins, we estimate that higher sales +lead to meaningfully better store-level operating income than many of McDonald’s direct competitors, a view +corroborated by franchise disclosure documents after adjusting for measurement comparability.",positive +"We +conservatively estimate that McDonald’s franchisees earn midteens cash on cash returns (annual operating +income as a proportion of total cash outlay), with category peers earning midsingle digits to midteens, +underpinning the firm's unit development aspirations and increasing its allure in the eyes of franchisees.",negative +"Finally, with its systemwide sales of $116 billion in 2022, we estimate that McDonald’s attracted roughly 4% of +global consumer food-service sales, nearly doubling closest competitor Yum Brands’ share and illustrating the +firm’s success in international concept replication.",positive +"With a footprint spanning 118 countries and a 55-year +international operating history, McDonald’s has demonstrated brand strength across geographies, tastes, and +cultures.",neutral +"While hiccups along the way have led to philosophical changes in approach, we’re impressed by +McDonald’s ability to transfer winning innovations across the system, as seen with the introduction of Spicy +Chicken McNuggets, which were initially developed in the Chinese market.",positive +"The pace of innovation should only +accelerate moving forward as the firm has migrated its international franchisees onto a more homogeneous +technology stack, and we view investments in digital innovation, loyalty, new format stores, and the firm's +chicken platform as evidence that management is taking appropriate strategic steps to position the firm for the +ongoing evolution of the restaurant industry.",negative +"Turning to the firm’s cost advantage, we believe that McDonald’s commanding scale allows it to benefit from +volume discounts in food and paper procurement from food distributors, fixed-cost leverage over general, +administrative, marketing and technological expenditures, and from lower rates on third-party aggregator +platforms.",negative +"With respect to procurement relationships, QSR operators primarily value cost and on-time delivery.",positive +"Larger case volume per store helps food distributors manage delivery costs per case, particularly with expensive +last-mile delivery, while in-house technological capabilities offer chains the advantage of paying for food +products without added services such as inventory management, marketing strategies, or other consulting +offerings.",negative +"Larger sales volume and geographic reach allow the biggest national restaurant operators to benefit +from purchasing leverage, with food distributors willing to accept lower margins in exchange for higher operating Morningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 6 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®McDonald's Corp MCD QQ 1 Feb 2023 17:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +265.50 USD +31 Jan 2023240.00 USD +1 Feb 2023 17:10, UTC1.11195.85 USD Bil +31 Jan 2023 +Wide Stable Low Standard ;;;;; +1 Feb 2023 06:00, UTC +income (margin dollars).",positive +"While marketing and technology spending are easy to overlook, the benefits of scale are important when building +an international brand.",positive +"With a 4% marketing royalty and $116 billion of 2021 systemwide sales, McDonald’s +advertising cooperatives likely maintain a nearly $4.5 billion marketing kitty to coordinate promotions, like the +firm’s popular Travis Scott and J Balvin “famous” meals, Cactus Cactus Plant Flea Market toys, limited time +offers, or top-of-funnel brand marketing through conventional print, radio, and digital advertising (though we +note that international master franchisees get to set their own marketing rates, so our calculated figure is just an +estimate).",positive +"More concretely, national and international brand awareness help new units achieve normalized +average unit sales more quickly, improving cash payback periods and, by extension, lenders' and franchisees' +appetites to partner with the burger chain.",positive +"On the technology side, the firm has quickly repositioned from technology laggard to leader, piloting AI-enabled +drive-thru ordering, signing a series of delivery partnerships with third-party aggregators, and rolling out a global +loyalty program, illustrating its renewed digital focus.",positive +"While McDonald's has not indicated an appetite for further +acquisitions (like Dynamic Yield and Apprente, both of which have since been divested, for all intents and +purposes), we expect internal investments in mobile ordering, curbside delivery, takeaway windows, and multiple +drive-thru lanes in select locations to help the firm increase throughput during key dayparts, and appreciate the +longer-term potential of technology on labor efficiency, order accuracy, and guest engagement.",negative +"The meaningful +improvement in drive-thru times despite a surge in off-premises volume and labor pressure over the past few +years shows one of the potential benefits of a digital pivot—requiring fewer hours of labor per dollar of +sales—which figures to become increasingly important as the industry remains understaffed and as leisure and +hospitality wages continue to grow.",positive +"In our opinion, effective utilization of technology has become table stakes in +the restaurant industry as firms begin to cultivate a detailed understanding of customers’ behaviors, leverage +machine learning and artificial intelligence to increase customer lifetime value, and provide targeted promotions, +but underlying data from customers who order through loyalty programs and white-label online channels offers a +potentially enduring competitive edge.",positive +"As a result, the firm's digital focus, trying to increase its pool of ""known"" +customers (from 5% at the end of the third quarter of 2021 to a targeted level around 40%) strikes us as +strategically sound, with data increasingly considered tantamount to a factor of production.",positive +"An underappreciated manifestation of the firm's cost edge is reflected in McDonald's ability and willingness to +shore up the health of its franchise system, beyond pure unit economics, in our view.",positive +"With the firm's commitment +to selectively and temporarily shore up franchisee profitability in Europe (to the tune of $100 million-$150 million +in 2023) amid an ongoing surge in food cost inflation, we see traces of a competitive advantage that only the +largest global restaurant operating companies could replicate, with support serving to avoid costly unit closures +and as a proof point that the firm is committed to defending the profitability of its franchisees.",negative +"It also allows +franchisees to invest in long-term customer relationships, underpricing inflation and growing share of industry +traffic as consumers increasingly seek value for their money.",neutral +"Rent holidays in 2020 amid the outbreak of COVID- +19 served a similar end and helped catalyze the impressive string of subsequent results that have solidified the Morningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 7 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®McDonald's Corp MCD QQ 1 Feb 2023 17:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +265.50 USD +31 Jan 2023240.00 USD +1 Feb 2023 17:10, UTC1.11195.85 USD Bil +31 Jan 2023 +Wide Stable Low Standard ;;;;; +1 Feb 2023 06:00, UTC +firm's commanding position in the global restaurant hegemony.",positive +"Finally, though restaurants and third-quarter operators are notoriously opaque regarding contract structures, we +believe that McDonald’s pays lower commissions (low double digits) to aggregators like DoorDash and Uber Eats +than do smaller peers, and far lower than the 30% headline rate.",positive +"As a relatively early entrant in the space, +partnering with Uber Eats in 2017, McDonald’s likely grandfathered in a lower commission, while a subsequent +deal with DoorDash in 2019 occurred as pricing competition reached its zenith.",positive +"Both were renegotiated as global +deals in 2021.",neutral +"Management commentary from delivery firms supports this view, with QSR firms widely viewed as +loss leaders—necessary to attract new consumers, but materially less profitable than independent restaurants +and smaller brands, which rely on the aggregators for demand generation.",negative +"Moat Trend Sean Dunlop, Equity Analyst, 1 Feb 2023",neutral +"We assess McDonald’s moat trend as stable, with the success of the firm’s 2015 turnaround plan becoming +evident with recovering market share, increasing transaction volume, and more durable pricing power.",positive +"While +certain industry headwinds persist, including slowing domestic growth in the QSR burger category, changing +consumer tastes, and hefty competition, we believe that the firm’s competitive position is unlikely to change +materially in the near to medium term after evaluating impending opportunities and threats.",negative +"We model +McDonald’s goodwill-adjusted ROICs steadily increasing from roughly 19% in 2022 to north of 25% in 2026 as the +firm benefits from refranchising in the internationally operated markets segment and gradually recovers toward +prepandemic restaurant-level margins.",negative +"We believe that the firm has skillfully repaired its brand image following declining sales and market share in +2012-15, with a focus on menu innovation, taste, and improved nutritional profiles of happy meals helping the +firm overcome food quality concerns that saw the firm’s market share in the U.S. fall from 16.6% of the limited- +service market in 2012 to 14.5% in 2016.",positive +"The firm's brand intangible asset has stabilized, with the introduction of +real ground beef, menu innovation in the chicken space, and concept testing meat substitute products pointing +to an increased attention to changing consumer demands.",negative +"With respect to cost advantage, the firm’s more than +40,000-unit footprint and $116 billion in 2022 systemwide sales render it unlikely that scale-driven benefits to +food-sourcing costs and preferential rates on delivery platforms will dissipate in the near to medium term.",negative +"Far from undermining the existing restaurant hegemony, we view a technology-led evolution as reinforcing the +largest operators' cost-advantage moats.",positive +"More concretely, we expect that the largest operators and operating +companies will be able to rationalize redundant back-office costs—legal, finance, and human resources—and +require a commensurately lower sales bump or percentage cost-savings from technology investments to generate +a positive ROI.",positive +"This view is reflected in the data, with chain restaurants continuing to gain market share over the +past five years, and with many restaurant-operating companies—narrow-moat RBI, wide-moat Yum Brands, +privately held Inspire Brands, and narrow-moat Darden—seeking roll-up acquisitions with the intent of +generating scale and reducing administrative costs as a percentage of systemwide sales.",positive +"Nonetheless, we’re reluctant to assign a positive trend rating to the firm as the industry finds itself caught in a Morningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 8 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®McDonald's Corp MCD QQ 1 Feb 2023 17:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +265.50 USD +31 Jan 2023240.00 USD +1 Feb 2023 17:10, UTC1.11195.85 USD Bil +31 Jan 2023 +Wide Stable Low Standard ;;;;; +1 Feb 2023 06:00, UTC +complex web of puts and takes.",positive +"Near-term profitability remains an industrywide concern, with strong recent +results threatened by the macroeconomic environment, as labor market pressures and tangled supply chains +drive materials prices higher.",positive +"We also harbor some concerns regarding higher medium-term growth forecasts, +with a less amenable financing environment, surging construction costs, and softer restaurant margins all +pushing cash-on-cash returns in the wrong direction, as we see it.",negative +"We believe that McDonald’s will need to continue to innovate to remain relevant, with fresh beef, the +introduction of a large breast chicken sandwich line, and the concept testing of plant-based meats pointing to +quickly evolving consumer preferences.",positive +"While a pivot toward digital and delivery orders remains a large +opportunity for the firm, there are some risks to cannibalization of relatively more profitable on-premises, drive- +thru, and curbside orders should third-party aggregators see increased adoption.",positive +"Risk and Uncertainty Sean Dunlop, Equity Analyst, 1 Feb 2023 +Consistent with our quantitative methodology, we believe that McDonald's warrants a Low Morningstar +Uncertainty Rating.",positive +"With a heavily franchised structure and recession-resistant value proposition, the firm's cash +flow sensitivity to macroeconomic health appears relatively muted.",negative +"While restaurants saw positive momentum across the board during 2021, steep inflation across all of restaurants' +prime costs—food, labor, and utilities—underpinned a much more challenging 2022.",positive +"McDonald's looks to us like +one of the better-positioned operators in the restaurant industry in future, but we note that consumer pressure +tends to drive a modest mix-shift toward relatively cheaper food at home (grocery) options, which could blunt +sales momentum and pricing power if pressure persists.",positive +"While gradual input cost increases can be offset by +investments in automation and higher prices, larger jumps can prove margin dilutive as we estimate a breakpoint +around 3% for annual menu price increases (in normal years), after which likely traffic and unit volume +contractions drive operating deleverage and lower restaurant margins—exactly what we saw industrywide in +2022.",positive +"Considering environmental, social, and governance factors, we view human capital as the biggest risk for +McDonald's, consistent with most restaurant operators in our coverage.",positive +"The firm's push toward a $15 average +wage at company-owned stores is one of a handful of factors that are dragging on near-term profitability, though +the firm could see a longer-term benefit from commensurately better retention and staffing levels.",negative +"Finally, the firm's ability to appeal to changing consumer demands remains integral to success, with brand +strength demonstrated by pricing power (a big part of average check) and guest traffic.",negative +"Deterioration of the firm's +brand cachet could slow unit growth, soften restaurant-level profitability, and lead to declining attractiveness for +potential franchisees.",negative +"Financial Strength Sean Dunlop, Equity Analyst, 1 Feb 2023",neutral +"We assess McDonald’s financial strength as sound, with the firm maintaining an investment-grade credit rating +and reasonable leverage relative to its competitive set.",positive +"By our calculations, debt/EBITDA clocked in at 3.3 turns at Morningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 9 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®McDonald's Corp MCD QQ 1 Feb 2023 17:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +265.50 USD +31 Jan 2023240.00 USD +1 Feb 2023 17:10, UTC1.11195.85 USD Bil +31 Jan 2023 +Wide Stable Low Standard ;;;;; +1 Feb 2023 06:00, UTC +end-2022 (within the long-term guidance range of 3-3.5 times).",positive +"We think solid free cash flow generation, +averaging 30% of revenue through 2025) and high EBIT coverage of interest payments (8 times for 2023, by our +forecasts) should be more than sufficient to meet near-term obligations while leaving investment plans and +dividends untouched.",positive +"While we acknowledge differences in financing philosophies with private equity ownership, we note that +McDonald’s sports substantially lower leverage than Restaurant Brands International and Yum Brands, two of its +largest peers in the QSR space, which operate with around 5-6 times debt/EBITDA.",neutral +"The company’s commitment +to maintaining an investment-grade credit rating strikes us as prudent, with corporate strength tending to +correspond to more attractive franchisee borrowing rates, bolstering franchisee profitability and shortening +payback periods.",positive +"Finally, the firm maintains substantial cash flow flexibility, with clearly demarcated priorities of growth capital +investment, payment of common stock dividends, and share buybacks.",negative +"We forecast total returns to shareholders +of $20 billion between 2023 and 2025 and recognize that $5.8 billion in modeled share buybacks during that +period provides a healthy cushion that could easily be repurposed to meet debt service or pursue attractive +investment opportunities.",positive +"With stability of cash flows driven by an increasingly franchised model and well- +matched future minimum rent receipts and debt service payments, we do not foresee credit problems on the +horizon for McDonald’s.",neutral +"Capital Allocation Sean Dunlop, Equity Analyst, 1 Feb 2023",neutral +We assign McDonald’s a Standard Morningstar Capital Allocation Rating.,neutral +"Our analysis evaluates what we +determine to be the three key facets of management decision-making from the perspective of shareholders: +balance sheet strength, investment efficacy, and distributions.",neutral +"Our standard rating results from a sound balance +sheet, fair investment strategy, and assessment of shareholder distributions as appropriate.",positive +"With respect to the balance sheet, McDonald’s benefits from low systematic risk, with staggered debt maturities +and very low net debt/enterprise value offsetting higher leverage (3-3.5 times EBITDA is targeted).",positive +"A highly +franchised operating model reduces cash flow uncertainty, while the firm's real estate portfolio offers meaningful +tangible assets, an unusual characteristic for heavily franchised restaurant operators that assuages many +debtholder concerns.",positive +"We view investment decisions as fair, with returns on invested capital increasing throughout our explicit forecast +period as the firm benefits from operating leverage and refranchising.",positive +"The firm’s decision to extensively +refranchise its U.S. store base during 2015-18 strikes us as clever, bringing the percentage of franchised stores to +95% from 81% in the segment and taking $250 million out of the general and administrative cost base.",negative +"Thus far, +the firm has walked the line well between operating a heavily franchised, decentralized system and continuing to +invest in store performance and unit economics, which represents a key investment risk in the space among +franchisors.",negative +"Recent technology investments are encouraging, with diversity in ordering options, customization, +and targeted promotions likely representing table stakes in the restaurant industry moving forward.",neutral +"The firm’s Morningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 10 of 28 +©2023 Morningstar.",negative +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®McDonald's Corp MCD QQ 1 Feb 2023 17:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +265.50 USD +31 Jan 2023240.00 USD +1 Feb 2023 17:10, UTC1.11195.85 USD Bil +31 Jan 2023 +Wide Stable Low Standard ;;;;; +1 Feb 2023 06:00, UTC +ability to cultivate an attractive end-to-end customer experience will be crucial, with increased touchpoints +across systems offering McDonald’s access to previously inaccessible data regarding ordering patterns, customer +trends, and menu preferences by demographic.",positive +"Whether or not the firm is successfully able to leverage such data +remains to be seen, and while we maintain our confidence in the management team’s ability to execute +initiatives that were in place before the pandemic, our “neutral” strategy rating testifies to our wait-and-see +approach regarding the firm’s willingness to make bold and value-accretive investment decisions as we emerge +from the shadow of the pandemic.",positive +"In our view, the firm's targeted 2%-2.5% capital expenditures (as a percentage +of system sales) should continue to fall gradually over time, but remains sufficient to support company-owned +unit growth, strategic investments, and periodic restaurant remodeling.",negative +"Finally, we assess shareholder distributions as appropriate.",positive +"With an anticipated 2023 dividend of $6.08 per share +(which we model growing at a high-single-digit clip over the next three years), the company looks increasingly +attractive to income investors.",positive +"We forecast a dividend payout ratio around 60%, and model more than $20 billion +in shareholder returns over the next three years.",positive +"Importantly, as long as buybacks are executed while the firm +trades below our fair value estimate, they represent an attractive use of capital.",positive +"We believe that the company +has done a laudable job avoiding frivolous spending and value-dilutive investments, maintaining attractive +returns on invested capital and focusing unit expansion in the more attractive international operated and +international developed/licensed markets.",positive +"KMorningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 11 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®McDonald's Corp MCD QQ 1 Feb 2023 17:14, UTC +Price vs. Fair Value +0100200300400Last Close: 265.50 +Fair Value: 240.00 +1 Feb 2023 17:10, UTC +Over Valued +Under Valued +2018 2019 2020 2021 2022",positive +"YTD +0.93 0.90 0.91 1.12 1.07 1.11 Price/Fair Value +5.60 13.95 11.14 27.37 0.42 1.47 Total Return % +Morningstar Rating +Competitors +McDonald's",neutral +Corp MCD Yum Brands Inc YUM,neutral +"Chipotle Mexican Grill Inc CMG Restaurant Bra...ernational Inc QSR +Fair Value +240.00 +Uncertainty : Low +Last Close +265.50 +Fair Value +127.00 +Uncertainty : Low +Last Close +130.51 +Fair Value +1,560.00 +Uncertainty : High +Last Close +1,646.38 +Fair Value +88.00 +Uncertainty : Medium +Last Close +89.03 +Economic Moat + Wide + Wide + Wide + Narrow +Moat Trend Stable Negative Stable Negative +Currency USD USD USD CAD +Fair Value 240.00 1 Feb 2023 17:10, UTC 127.00 1 Feb 2023 17:10, UTC1 1,560.00 1 Feb 2023 17:10, UTC2 88.00 1 Feb 2023 17:10, UTC3 +1-Star Price 300.00 158.75 2,418.00 118.80 +5-Star Price 192.00 101.60 936.00 61.60 +Assessment Over Valued 1 Feb 2023 Fairly Valued 31 Jan 2023 Fairly Valued 31 Jan 2023 Fairly Valued 31 Jan 2023 +Morningstar Rating QQ1 Feb 2023 17:14, UTC QQQ1 Feb 2023 02:15, UTC QQQ1 Feb 2023 02:15, UTC QQQ1 Feb 2023 02:22, UTC +Analyst Sean Dunlop, Equity Analyst Sean Dunlop, Equity Analyst Sean Dunlop, Equity Analyst Sean Dunlop, Equity Analyst +Capital Allocation Standard Standard Exemplary Standard +Price/Fair Value 1.11 1.03 1.06 1.01 +Price/Sales 8.55 5.68 5.52 4.77 +Price/Book — — 19.61 8.80 +Price/Earnings 32.10 29.73 57.37 21.60 +Dividend Yield 2.12% 1.75% — 3.20% +Market Cap 195.85 Bil 36.76 Bil 45.64 Bil 27.23 Bil +52-Week Range 217.68—281.67 103.97—132.87 1,196.28—1,754.56 60.37—92.65 +Investment Style Large Core Mid Core Large Growth Large CoreMorningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 12 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®McDonald's Corp MCD QQ 1 Feb 2023 17:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +265.50 USD +31 Jan 2023240.00 USD +1 Feb 2023 17:10, UTC1.11195.85 USD Bil +31 Jan 2023 +Wide Stable Low Standard ;;;;; +1 Feb 2023 06:00, UTC +Morningstar Valuation Model Summary +Financials as of 13 Jan 2023 Actual Forecast +Fiscal Year, ends 31 Dec 2020 2021 2022 2023 2024 2025 2026 2027 +Revenue (USD Mil) 19,208 23,223 23,182 24,513 26,357 27,441 28,705 29,963 +Operating Income (USD Mil) 7,324 10,356 9,371 10,913 11,850 12,600 13,374 14,161 +EBITDA (USD Mil) 9,075 12,097 10,922 12,800 13,801 14,614 15,447 16,287 +Adjusted EBITDA (USD Mil) 9,075 12,097 10,922 12,800 13,801 14,614 15,447 16,287 +Net Income (USD Mil) 4,731 7,545 6,177 7,521 7,934 8,537 9,089 9,649 +Adjusted Net Income (USD Mil) 4,536 6,990 7,485 7,521 7,934 8,537 9,089 9,649 +Free Cash Flow To The Firm (USD Mil) 5,539 7,880 5,928 8,254 9,136 9,539 10,008 10,699 +Weighted Average Diluted Shares Outstanding (Mil) 750 752 741 730 721 709 693 677 +Earnings Per Share (Diluted) (USD) 6.31 10.04 8.33 10.30 11.00 12.04 13.12 14.26 +Adjusted Earnings Per Share (Diluted) (USD) 6.05 9.30 10.10 10.30 11.00 12.04 13.12 14.26 +Dividends Per Share (USD) 5.16",positive +"5.34 5.52 6.08 6.61 7.16 7.74 8.35 +Margins & Returns as of 13 Jan 2023 Actual Forecast +3 Year Avg 2020 2021 2022 2023 2024 2025 2026 2027",neutral +"5 Year Avg +Operating Margin % 41.1 38.1 44.6 40.4 44.5 45.0 45.9 46.6 47.3 45.9 +EBITDA Margin % — 47.3 52.1 47.1 52.2 52.4 53.3 53.8 54.4 — +Adjusted EBITDA Margin % 48.8 47.3 52.1 47.1 52.2 52.4 53.3 53.8 54.4 53.2 +Net Margin %",neutral +"27.9 24.6 32.5 26.7 30.7 30.1 31.1 31.7 32.2 31.2 +Adjusted Net Margin % 28.7 23.6 30.1 32.3 30.7 30.1 31.1 31.7 32.2 31.2 +Free Cash Flow To The Firm Margin % 29.5 28.8 33.9 25.6 33.7 34.7 34.8 34.9 35.7 34.7 +Growth & Ratios as of 13 Jan 2023 Actual Forecast +3 Year CAGR 2020 2021 2022 2023 2024 2025 2026 2027 5 Year CAGR +Revenue Growth % 3.2 -8.9 20.9 -0.2 5.7 7.5 4.1 4.6 4.4 5.3 +Operating Income Growth % 1.1 -19.3 41.4",positive +-9.5,neutral +16.5,neutral +"8.6 6.3 6.1 5.9 8.6 +EBITDA Growth % 0.0 — — — — — — — — 0.0 +Adjusted EBITDA Growth",neutral +% 0.7 -15.1,neutral +"33.3 -9.7 17.2 7.8 5.9 5.7 5.4 8.3 +Earnings Per Share Growth",neutral +"% 8.8 — — — — — — — — 7.1 +Adjusted Earnings Per Share Growth % 8.8 -22.9 53.7 8.6 2.0 6.8 9.5 8.9 8.7 7.1 +Valuation as of 13 Jan 2023 Actual Forecast +2020 2021 2022 2023 2024 2025 2026 2027 +Price/Earnings 35.5 28.8 26.1 26.0 24.3 22.2 20.4 18.8 +Price/Sales 7.7 6.9 8.6 8.0 7.4 7.1 6.8 6.5 +Price/Book -20.6",neutral +-43.8 -32.5,neutral +-20.5,neutral +-24.5 -27.1,neutral +"-26.5 -24.6 +Price/Cash Flow 31.9 22.5 36.4 27.5 25.1 23.5 22.5 20.8 +EV/EBITDA 21.1 17.2 22.4 18.9 17.5 16.5 15.6 14.8 +EV/EBIT 26.2 20.0 26.1 22.1 20.4 19.2 18.0 17.0 +Dividend Yield % 2.4 2.0 2.1 2.3 2.5 2.7 2.9 3.1 +Dividend Payout",neutral +"% 81.8 53.2 66.2 59.1 60.1 59.5 59.0 58.6 +Free Cash Flow Yield % 3.1 4.4 2.8 3.6 4.0 4.3 4.5 4.8 +Operating Performance / Profitability as of 13 Jan 2023 Actual Forecast +Fiscal Year, ends 31",positive +"Dec 2020 2021 2022 2023 2024 2025 2026 2027 +ROA % 9.5 14.2 11.9 14.9 14.9 14.6 14.5 14.6 +ROE",neutral +% -59.0,neutral +-121.4 -116.5 -96.9,neutral +"-91.2 -114.9 -130.0 -134.5 +ROIC % 13.8 19.7 19.0 22.7 23.5 24.3 25.2 26.1Morningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 13 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®McDonald's Corp MCD QQ 1 Feb 2023 17:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +265.50 USD +31 Jan 2023240.00 USD +1 Feb 2023 17:10, UTC1.11195.85 USD Bil +31 Jan 2023 +Wide Stable Low Standard ;;;;; +1 Feb 2023 06:00, UTC +Financial Leverage Actual Forecast +Fiscal Year, ends 31 Dec 2020 2021 2022 2023 2024 2025 2026 2027 +Debt/Capital % 126.4 114.8 120.1 133.2 124.0 119.2 117.8 118.0 +Assets/Equity -6.7 -11.7 -8.4",positive +-5.3,neutral +-7.1,neutral +-8.7,neutral +"-9.3 -9.2 +Net Debt/EBITDA 3.7 2.6 3.1 2.9 2.6 2.4 2.3 2.2 +Total Debt/EBITDA 4.1 2.9 3.3 3.0 2.9 3.0",neutral +"3.0 3.0 +EBITDA/ Net Interest Expense 7.5 10.2 9.0 9.5 9.2 10.0 10.2 10.3 +Key Valuation Drivers as of 13 Jan 2023 +Cost of Equity % 7.5 +Pre-Tax Cost of Debt % 5.8 +Weighted Average Cost of Capital %",negative +"7.0 +Long-Run Tax Rate %",neutral +"23.0 +Stage II EBI Growth Rate % 3.8 +Stage II Investment Rate % 2.2 +Perpetuity Year 20",neutral +"Additional estimates and scenarios available for download at https://pitchbook.com/. Discounted Cash Flow Valuation as of 13 Jan 2023 +USD Mil +Present Value Stage I 74,766 +Present Value Stage II 58,759 +Present Value Stage III 77,312 +Total Firm Value 210,836 +Cash and Equivalents 2,583 +Debt -35,904 +Other Adjustments -2,276 +Equity Value 175,240 +Projected Diluted Shares 732 +Fair Value per Share (USD) 240.00Morningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 14 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®McDonald's Corp MCD QQ 1 Feb 2023 17:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +265.50 USD +31 Jan 2023240.00 USD +1 Feb 2023 17:10, UTC1.11195.85 USD Bil +31 Jan 2023 +Wide Stable Low Standard ;;;;; +1 Feb 2023 06:00, UTC +Income Statement (USD) Actual Forecast +Fiscal Year, ends 31 Dec 2020 2021 2022 2023 2024 2025 2026 2027 +Revenue (Mil)19,208 23,223 23,182 24,513 26,357 27,441 28,705 29,963 +Cost of Goods Sold (Mil) 9,456 10,643 9,975 10,505 11,225 11,429 11,791 12,139 +Gross Profit (Mil) 9,752 12,580 13,207 14,009 15,131 16,012 16,914 17,824 +Selling, General, Administrative & Other Expenses (Mil) 2,546 2,708 2,862 3,217 3,354 3,488 3,619 3,745 +Advertising & Marketing Expenses — — — — — — — — +Research & Development — — — — — — — — +Depreciation & Amortization (if reported separately) — — — — — — — — +Adjusted Operating Income (Mil) 7,324 10,356 9,371 10,913 11,850 12,600 13,374 14,161 +Financial Non-Cash (Gains)/Losses (Mil) 0 0 0 0 0 0",positive +"0 0 +Irregular Cash (Gains)/Losses (Mil) 0 0 0 0 0 0 0 0 +Operating Income (Mil) 7,324 10,356 9,371 10,913 11,850 12,600 13,374 14,161 +Net Interest Expense (Mil) 1,183 1,228 1,546 1,393 1,546 1,513 1,570 1,630 +Income Tax Expense (Mil) 1,410 1,583 1,648 1,999 2,370 2,550 2,715 2,882 +After-Tax Items (Mil) 0 0 0 0 0 0 0 0 +(Minority Interest) — — — — — — — — +Net Income (Mil) 4,731 7,545 6,177 7,521 7,934 8,537 9,089 9,649 +Adjusted Net Income (Mil) 4,536 6,990 7,485 7,521 7,934 8,537 9,089 9,649 +Weighted Average Diluted Shares Outstanding (Mil) 750 752 741 730 721 709 693 677 +Diluted Earnings Per Share 6.31 10.04 8.33 10.30 11.00 12.04 13.12 14.26 +Diluted Adjusted Earnings Per Share 6.05 9.30 10.10 10.30 11.00 12.04 13.12 14.26 +Dividends Per Common Share (USD)5.16 5.34 5.52 6.08 6.61 7.16 7.74 8.35 +EBITDA (Mil) 9,075 12,097 10,922 12,800 13,801 14,614 15,447 16,287 +Adjusted EBITDA (Mil) 9,075 12,097 10,922 12,800 13,801 14,614 15,447 16,287Morningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 15 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®McDonald's Corp MCD QQ 1 Feb 2023 17:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +265.50 USD +31 Jan 2023240.00 USD +1 Feb 2023 17:10, UTC1.11195.85 USD Bil +31 Jan 2023 +Wide Stable Low Standard ;;;;; +1 Feb 2023 06:00, UTC +Key Cash Flow Items (USD) Actual Forecast as of 13 Jan +Fiscal Year, ends 31 Dec 2020 2021 2022 2023 2024 2025 2026 2027 +Cash from Working Capital (Mil) 820 437 -619 -170 171 110 -21 83 +(Capital Expenditures) (Mil) -1,641",positive +"-2,040",neutral +"-1,899 -2,255 -2,346 -2,425 -2,503 -2,575 +Depreciation (Mil) 1,751 1,742 1,551 1,887 1,951 2,014 2,073 2,125 +Amortization (Mil) 0 0 0 0 0 0 0 0 +Net New (Investment), Organic (Mil) -44",positive +"-564 -1,147",neutral +-367 11 -163,neutral +-290,neutral +"-206 +(Purchases)/Sales of Companies & Assets (Mil) 38 -72",neutral +"-322 0 0 0 0 0 +Net New (Investment), Total (Mil) -7",positive +"-636 -1,469",neutral +-367 11 -163,neutral +"-290 -206 +Other Non-Cash Items, From Cash Flows (Mil) -103 -51 0 0 0 0",negative +"0 0 +Free Cash Flow to the Firm (Mil) 5,539 7,880 5,928 8,254 9,136 9,539 10,008 10,699 +Balance Sheet (USD) Actual Forecast +Fiscal Year, ends 31 Dec 2020 2021 2022 2023 2024 2025 2026 2027 +Assets +Cash and Equivalents (Mil) 3,449 4,709 2,583 1,024 5,071 8,616 11,207 12,418 +Inventory (Mil) 51 56 56 56 56 57 59 61 +Accounts Receivable (Mil) 2,110 1,872 1,872 2,217 2,212 2,334 2,482 2,551 +Net Property, Plant and Equipment (Mil) 24,958 24,721 23,774 24,141 24,537 24,948 25,379 25,828 +Goodwill (Mil) 2,773 2,783 2,783 2,783 2,783 2,783 2,783 2,783 +Other Intangibles (Mil) 0 0",positive +0,neutral +0,neutral +0,neutral +0,neutral +"0 0 +Other Operating Assets (Mil) 15,758 15,265 14,679 15,522 16,690 17,376 18,177 18,973 +Non-Operating Assets (Mil) 3,527 4,450 4,689 4,689 4,689 4,689 4,689 4,689 +Total Assets (Mil) 52,627 53,854 50,436 50,431 56,037 60,804 64,775 67,304 +Liabilities +Accounts Payable (Mil) 741 706 706 754 806 821 847 872 +Debt (Mil) 37,440 35,623 35,904 38,236 40,610 43,447 46,324 48,100 +Other Operating Liabilities (Mil) 22,270 22,127 19,830 20,969 22,488 23,531 24,596 25,683 +Non-Operating Liabilities (Mil) 0 0 0 0 0 0",negative +"0 0 +Total Liabilities (Mil) 60,452 58,455 56,439 59,959 63,903 67,799 71,767 74,655 +Equity +Shareholders' Equity (Mil) -7,825",neutral +"-4,601 -6,003 -9,527",neutral +"-7,866 -6,995 -6,992 -7,351 +Minority Interest (Mil) — — — 0 0 0 0 0 +Total Equity (Mil) -7,825",neutral +"-4,601 -6,003 -9,527",neutral +"-7,866 -6,995 -6,992 -7,351Morningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 16 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®McDonald's Corp MCD QQ 1 Feb 2023 17:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +265.50 USD +31 Jan 2023240.00 USD +1 Feb 2023 17:10, UTC1.11195.85 USD Bil +31 Jan 2023 +Wide Stable Low Standard ;;;;; +1 Feb 2023 06:00, UTC +Management & Ownership +Management Activity as of 31 Mar 2022 +Name Position Share Held Report Date* Insider Activity",positive +Kevin M. Ozan,neutral +"Senior Executive Vice President, Strategic Initiatives 21,968 31 Mar 2022 66,331 +Christopher J. Kempczinski Director, President and Chief Executive Officer 19,027 31 Mar 2022 148,139 +Katherine Beirne Fallon Corporate Executive Vice President and Chief Global Impact Officer 18,025 31 Mar 2022 16,026 +Francesca A. DeBiase Corporate Executive Vice President and Global Chief Supply Chain Officer 20,745 31 Mar 2022 21,770 +Daniel Henry Corporate Executive Vice President and Chief Information Officer 5,035 31 Mar 2022 21,647 +Lloyd H. Dean Independent Director 11,218 31 Mar 2019 1,191 +John W. Rogers Independent Director 151,883 31 Dec 2022 1,191 +Richard H. Lenny Independent Director 41,759 31 Dec 2022 726 +Anthony G. Capuano Independent Director 417 31 Dec 2022 337 +Miles D. White Independent Director 24,765 31 Dec 2022 726 +Fund Ownership as of 31 Jan 2023 +Top Owners % of Shares Held % of Fund Assets Change (k) Portfolio Date +Vanguard Total Stock Market Index Fund 3.04 0.51 93,584 31 Dec 2022 +Vanguard US Total Market Shares ETF 3.04 0.54 93,584 31 Dec 2022 +Vanguard Instl",positive +"Ttl Stck Mkt Idx Tr 3.00 0.48 169,261 30 Sep 2022 +Vanguard 500 Index Fund 2.31 0.60 72,652 31 Dec 2022 +SPDR® S&P 500 ETF Trust 1.11 0.59 -15,260 30 Jan 2023 +Concentrated Holders +Fidelity® Select Leisure Portfolio 0.05 18.78 6,600 31 Dec 2022 +Daiwa FoodTech Mother Fund",neutral +"0.00 9.21 20,820 1 Aug 2022 +FT S&P Dividend Atrts",neutral +"By-Wrt 17 0.00 8.38 23 25 Jan 2023 +FT S&P Dividend Atrts By-Wrt 16 0.00 7.58 28 25 Jan 2023 +FT S&P Dividend Atrts By-Wrt 19 0.00 7.08 32 25 Jan 2023 +Institutional Transactions as of 31 Jan 2023 +Top 5 Buyers % of Shares Held % of Fund Assets Shrs Bought/Sold (k) Portfolio Date +T. Rowe Price Associates, Inc. 1.07 0.30 1,105,231 30 Sep 2022 +FMR Inc 0.60 0.11 904,289 30",positive +"Sep 2022 +1832 Asset Management L.P 0.40 1.44 903,014 30 Sep 2022 +Capital Research Global Investors 0.73 0.40 634,859 30",neutral +"Sep 2022 +Assenagon Asset Management SA 0.10 0.68 594,343 31 Dec 2022 +Top 5 Sellers +Wellington Management Company LLP 2.37 0.85 -2,425,969",positive +"30 Sep 2022 +JPMorgan Chase & Co 2.56 0.62 -912,879",neutral +"30 Sep 2022 +Magellan Asset Management Limited 0.42 5.01 -846,259 30 Sep 2022 +Renaissance Technologies Corp 0.07 0.16 -650,900",negative +"30 Sep 2022 +Nuveen Asset Management, LLC 0.71 0.48",neutral +"-634,167",neutral +30,neutral +"Sep 2022 +*Represents the date on which the owner's name, position, and common shares held were reported by the holder or issuer.",negative +"Morningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 17 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®McDonald's Corp MCD QQ 1 Feb 2023 17:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +265.50 USD +31 Jan 2023240.00 USD +1 Feb 2023 17:10, UTC1.11195.85 USD Bil +31 Jan 2023 +Wide Stable Low Standard ;;;;; +1 Feb 2023 06:00, UTC +Comparable Company Analysis",positive +These companies are chosen by the analyst and the data are shown by nearest calendar year in descending market capitalization order.,neutral +"Valuation Analysis as of 13 Jan 2023 Price/Earnings EV/EBITDA Price/Free Cash Flow Price/Book Price/Sales +Company/Ticker 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E)",neutral +"Yum Brands Inc YUM 31.1 27.4 27.8 22.2 19.9 18.3 27.2 27.8 28.4 -5.0 -4.3 -4.0 6.1 5.4 5.0 +Chipotle Mexican Grill Inc CMG 75.3 49.5 35.8 48.7 33.0 25.5 58.5 54.9 40.0 21.4 20.0 17.6 6.5 5.3 4.6 +Restaurant Brands International Inc QSR 28.2 — 33.2 18.7 19.9 21.2 14.6 14.3 18.4 15.9 — 12.3 4.1 4.2 4.1 +Average 44.9 38.5 32.3 29.9 24.3 21.7 33.4 32.3 28.9 10.8 7.8 8.6 5.6 5.0 4.6 +McDonald's Corp MCD 26.1 26.0 24.3 22.4 18.9 17.5 36.4 27.5 25.1 -32.5",negative +"-20.5 -24.5 8.6 8.0 7.4 +Returns Analysis as of 13 Jan 2023 ROIC % Adjusted ROIC % Return on Equity % Return on Assets %",neutral +"Dividend Yield % +Company/Ticker 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E)",neutral +Yum Brands Inc YUM 66.1 78.6 80.4 50.8 60.5 62.8 -19.4,neutral +"-15.0 -14.7 26.7 21.0 18.5 1.4 1.8 2.1 +Chipotle Mexican Grill Inc CMG 14.8 20.3 24.8 14.7 20.3 24.7 30.3 40.1 51.7 10.3 13.5 17.3 — — — +Restaurant Brands International Inc QSR 13.9 16.7 14.6 9.2 11.0 9.5 56.9 55.8 38.3 5.5 5.9 4.7 2.8 2.4 2.6 +Average 31.6 38.5 39.9 24.9 30.6 32.3 22.6 27.0 25.1 14.2 13.5 13.5 2.1 2.1 2.4 +McDonald's Corp MCD 19.0 22.7 23.5 20.5 24.5 25.3",negative +-116.5 -96.9,neutral +"-91.2 11.9 14.9 14.9 2.1 2.3 2.5 +Growth Analysis as of 13 Jan 2023 Revenue Growth % EBIT Growth % EPS Growth % FCF Growth % DPS Growth % +Company/Ticker 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E)",neutral +"Yum Brands Inc YUM 16.5 4.2 7.8 29.8 7.1 8.7 23.0 6.6 -1.2 73.1 -11.4 8.9 6.4 14.0 19.6 +Chipotle Mexican Grill Inc CMG 26.1 15.1 15.4 177.4 47.3 34.9 85.4 43.3 38.3 239.6 7.2 43.5 — — — +Restaurant Brands International Inc QSR 15.5 13.0 3.2 33.4 10.9 -8.1 34.5 — — -19.2 164.3 -29.5 1.9 1.9 5.4 +Average 19.4 10.8 8.8 80.2 21.8 11.8 47.6 16.6 12.4 97.8",negative +"53.4 7.6 2.8 5.3 8.3 +McDonald's Corp MCD -0.2 5.7 7.5 -9.5 16.5 8.6 8.6 2.0 6.8 -24.8 39.2 10.7 3.4 10.1 8.6 +Profitability Analysis as of 13 Jan 2023 Gross Margin % EBITDA Margin % Operating Margin % Net Margin % FCF Margin % +Company/Ticker 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) +Yum Brands Inc YUM 73.8 74.4 75.2 34.5 35.1 35.4 32.0 32.9 33.2 20.5 20.2 18.0 22.4 19.3 17.5 +Chipotle Mexican Grill Inc CMG 22.6 24.3 25.9 14.0 16.9 19.0 10.7 13.6 16.0 8.6 10.5 12.3 11.1 9.6 11.4 +Restaurant Brands International Inc QSR 58.6 57.2 56.8 36.7 35.2 31.8 32.7 32.1 28.6 22.0 22.7 18.0 28.2 29.3 22.1 +Average 51.7 52.0 52.6 28.4 29.1 28.7 25.1 26.2 25.9 17.0 17.8 16.1 20.6 19.4 17.0 +McDonald's Corp MCD 57.0 57.2 57.4 47.1 52.2 52.4 40.4 44.5 45.0 32.3 30.7 30.1 23.7 29.0 29.6 +Leverage Analysis as of 13 Jan 2023 Debt/Equity % Debt/Total Cap % EBITDA/Net Int.",negative +"Exp Total Debt/EBITDA Asset/Equity +Company/Ticker 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E)",neutral +"Yum Brands Inc YUM -134.3 -135.2 -149.7 391.4 384.4 301.3 4.2 4.5 3.4 5.0 4.9 5.3 -0.7 -0.7 -0.9 +Chipotle Mexican Grill Inc CMG 0.0 0.0 0.0 0.0 0.0 0.0 -135.5 -90.3",neutral +"-380.0 0.0 0.0 0.0 2.9 3.0 3.0 +Restaurant Brands International Inc QSR 581.7 495.5 390.8 85.3 83.2 79.6 4.2 4.3 4.7 6.2 6.6 6.0 10.4 8.8 7.6 +Average 149.1 120.1 80.4 158.9 155.9 127.0 -42.4",negative +"-27.2 -124.0 3.7 3.8 3.8 4.2 3.7 3.2 +McDonald's Corp MCD -598.1",neutral +"-401.3 -516.3 120.1 133.2 124.0 9.0 9.5 9.2 3.3 3.0 2.9 -8.4 -5.3 -7.1 +Liquidity Analysis as of 13 Jan 2023 Cash per Share Current Ratio Quick Ratio Cash/Short-Term Debt Payout",positive +"Ratio % +Company/Ticker 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E)",neutral +"Yum Brands Inc YUM 1.6 2.3 7.5 1.1 1.0 1.1 1.1 1.0 1.1 7.1 1.6 1.3 38.4 51.7 58.0 +Chipotle Mexican Grill Inc CMG 29.0 20.9 22.3 1.6 1.3 1.4 1.5 1.3 1.4 — — — 0.0 0.0 0.0 +Restaurant Brands International Inc QSR 2.3 — 5.4 1.0 2.5 1.6 0.9 2.5 1.6 11.3 43.4 — 78.5 — 85.0 +Average 9.1 6.1 10.6 1.3 1.4 1.3 1.2 1.4 1.3 4.6 11.4 0.8 45.8 27.7 50.8 +McDonald's Corp MCD 3.5 1.4 7.0 1.4 0.7 1.2 1.4 0.7 1.2 — 0.4 1.9 66.2 59.1 60.1Morningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 18 of 28 +©2023 Morningstar.",negative +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®McDonald's Corp MCD QQ 1 Feb 2023 17:14, UTC +Competitors Price vs. Fair Value",positive +"Yum Brands Inc YUM +050100150200Last Close: 130.51 +Fair Value: 127.00 +4 Nov 2022 19:28, UTC +Over Valued +Under Valued +2018 2019 2020 2021 2022 YTD +1.02 0.92 1.03 1.18 1.01 1.03 Price/Fair Value +14.40 11.41 9.64 29.75 -6.12 1.90 Total Return % +Morningstar Rating +Total Return % as of 31 Jan 2023.",positive +Last Close as of 31 Jan 2023.,neutral +"Fair Value as of 4 Nov 2022 19:28, UTC.",positive +"Chipotle Mexican Grill Inc CMG +0500100015002000Last Close: 1,646.38 +Fair Value: 1,560.00 +31 Oct 2022 13:35, UTC +Over Valued +Under Valued +2018 2019 2020 2021 2022",positive +"YTD +1.02 1.25 1.39 1.34 0.89 1.06 Price/Fair Value +49.39 93.87 65.65 26.07 -20.64 18.66 Total Return % +Morningstar Rating +Total Return % as of 31 Jan 2023.",neutral +Last Close as of 31 Jan 2023.,neutral +"Fair Value as of 31 Oct 2022 13:35, UTC.Morningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 19 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®McDonald's Corp MCD QQ 1 Feb 2023 17:14, UTC +Competitors Price vs. Fair Value (Continued) +Restaurant Brands International Inc QSR +050100150200Last Close: 89.03 +Fair Value: 88.00 +9 Nov 2022 19:45, UTC +Over Valued +Under Valued +2018 2019 2020 2021 2022 YTD +0.87 0.87 0.91 0.91 1.00 1.01 Price/Fair Value +-4.66 19.79 -2.61 2.00 17.87 1.67 Total Return % +Morningstar Rating +Total Return % as of 31 Jan 2023.",positive +Last Close as of 31 Jan 2023.,neutral +"Fair Value as of 9 Nov 2022 19:45, UTC.Morningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 20 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®McDonald's Corp MCD QQ 1 Feb 2023 17:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +265.50 USD +31 Jan 2023240.00 USD +1 Feb 2023 17:10, UTC1.11195.85 USD Bil +31 Jan 2023 +Wide Stable Low Standard ;;;;; +1 Feb 2023 06:00, UTC +Recent Analyst Notes +Restaurants' Value Menu Looks Unappetizing as Market Sentiment Outruns Fundamentals Sean +Dunlop,Equity Analyst,24 Jan 2023",positive +"We expect sluggish sales growth to represent the key issue for the restaurant industry in 2023, following a year +of investor concern regarding inflated input costs and margin compression.",neutral +"Though we see modest upside in +wide-moat Domino's and view wide-moat Chipotle shares as fairly valued, the industry trades at a 5% market-cap +weighted premium to our fair value estimates, suggesting that current entry prices are less than salient.",positive +"While +profitability is a genuine concern, with current restaurant margins in our coverage universe falling 440 basis +points below their long-term benchmarks, we expect stabilization in 2023 as commodity costs normalize and as +labor imbalances are gradually corrected by a modest increase in U.S. unemployment.",positive +"More immediately +concerning?",positive +"Consumers are spending nearly 20% more on restaurant meals than usual (share of wallet), despite +signs that traffic is declining among quick-service operators, suggesting that consumers are getting less value for +their money in restaurantland.",positive +"Price-led sales growth tends to have an expiration date, and with our calculations +suggesting that the difference in per-meal cost across those channels has widened by 3% from a quarter ago (to +$4.30), we wouldn't be surprised to see a mix-shift toward the cheaper grocery channel.",positive +"Consequently, we expect +restaurants' pricing power to slow sharply over the balance of the year, with USDA estimates for 4%-5% +increases in food away from home consumer prices (analogous to restaurant price increases) looking cogent to +us.",negative +"By and large, we believe that market prices suggest strong sales momentum and meaningful operating +leverage in 2023, which we expect will prove difficult to realize.",positive +"The relative advantage lies with operators that +boast a cost advantage or pricing power, consistent with our moat ratings, though we don't expect a full margin +recovery until 2027 or 2028.",positive +"McDonald's Strong Relative Value Props Up Results, but Shares Continue to Trade at a Premium Sean +Dunlop,Equity Analyst,27 Oct 2022 +Wide-moat McDonald's posted sales and earnings in line with our expectations, with $5.87 billion in sales and +$2.68 in diluted EPS narrowly missing our top-line forecast of $5.90 billion, but edging our $2.47 EPS estimate.",positive +"In +our view, there are two key takeaways from the quarter: McDonald's core business continues to perform +admirably, and very real near-term pressures linger on the horizon, which may not be fully captured by market +prices.",positive +"We're particularly impressed by positive guest traffic in the United States, representing an acceleration on +a linked-quarter basis and suggesting that the banner is taking share, particularly when considered in +conjunction with declining industry traffic.",positive +"All things considered, we intend to raise our $235 fair value estimate +by around 5%, leaving shares slightly overpriced after a low-single-digit pop in early trading.",positive +"To our first point, we +view third-quarter results, with 6.1% U.S. same-store sales growth, surging loyalty program participation (25 +million active members in the U.S.), and digital success (33% of sales in the firm's top six markets) as reflective of +astute digital and real estate investments made over the past few years, with the business well positioned to Morningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 21 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®McDonald's Corp MCD QQ 1 Feb 2023 17:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +265.50 USD +31 Jan 2023240.00 USD +1 Feb 2023 17:10, UTC1.11195.85 USD Bil +31 Jan 2023 +Wide Stable Low Standard ;;;;; +1 Feb 2023 06:00, UTC +navigate the turbulence we expect over the 12-18 months.",positive +"Management's decision to raise its dividend by 10% +was an encouraging proof point, while traffic gains against the backdrop of 10% price increases are suggestive of +a brand that's resonating well with consumers.",neutral +"Nevertheless, a potential recession is good for no one, despite +McDonald's relatively privileged positioning.",positive +"The ability to keep the system financially healthy with targeted +support is a strategic advantage, but we continue to believe that market prices understate the degree of near- +term sales and margin pressure that a downturn would espouse, with our base case not suggesting a full +restaurant margin recovery until the end of 2024.",positive +Restaurant Pulse Q3 2022:,neutral +"Fast Food Stocks Look Appetizing as Macro Pressure Drives Belt Tightening Sean +Dunlop,Equity Analyst,6",positive +Oct 2022,neutral +"Our restaurant coverage has taken a beating over the past two quarters, shedding 8%-10% of its market cap +(albeit modestly ahead of a 12%-13% decline in Morningstar's U.S. Large Cap Index) as inflation and a weaker +consumer have driven sagging near-term prospects.",positive +"With wages and food costs each up about 20% since the +onset of the COVID-19 pandemic, restauranteurs have been forced to absorb substantial pressure: across our +coverage, we've seen a median decline of 630 basis points of restaurant margin over the past 12 months.",negative +"We +don't expect a full margin recovery until fiscal 2024, particularly since consumers naturally shift spending towards +the relatively cheaper grocery channel amidst periods of economic pressure, blunting restaurant operators' ability +to offset inflation with price increases in the higher cost per meal channel.",positive +"Nevertheless, we see opportunities in +the space for patient investors: only rarely do restaurants trade at the 10%-15% discount to our intrinsic valuation +that we currently see, and we've already pulled down our comparable store sales forecasts by 2%-3% across the +board for the next three to five quarters to adjust for what we view as a nearly inevitable near-term pullback in +demand (and restaurant-level margins proportionately to adjust for operating deleverage).Looking forward, we +prefer companies that maintain diversification across quick-service categories, heavily franchised structures, +which relieve inflationary pressure in food costs and hourly wages (since those are borne by franchisees), and +value-oriented fare in an environment of slower growth—or even an outright recession.",negative +"The piece also outlines +the potential fair value impact from California's Fast Act, which we continue to view as well-intentioned but +inappropriately crafted.",positive +"Our top picks in the space are wide-moat Domino's Pizza and Starbucks, though +Restaurant Brands International and Yum Brands also trade at a meaningful discount to our intrinsic valuation.",positive +"McDonald's Marquee Brand and Value Proposition Drive Solid Q2 Results Despite Consumer Pressure Sean +Dunlop",neutral +",Equity Analyst,26 Jul 2022 +Wide-moat McDonald's posted strong second-quarter results, with revenue of $5.7 billion and adjusted earnings +per share of $2.55 healthily outpacing our forecasts of $5.4 billion and $2.16, respectively.",positive +"Impressively, those +results came against a backdrop of deteriorating consumer confidence, corroborating our view that the burger +chain stands to benefit from the trade-down effect, whereby value-seeking consumers eschew full-service and +fast-casual meals in favor of cheaper fast-food substitutes.",positive +"Given its value position, marquee brand, and heavily Morningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 22 of 28 +©2023 Morningstar.",negative +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®McDonald's Corp MCD QQ 1 Feb 2023 17:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +265.50 USD +31 Jan 2023240.00 USD +1 Feb 2023 17:10, UTC1.11195.85 USD Bil +31 Jan 2023 +Wide Stable Low Standard ;;;;; +1 Feb 2023 06:00, UTC +franchised system, McDonald's strikes us as the most recession-resistant name in our restaurant coverage, +representing one of just a handful of chains that were able to increase comparable-store sales through 2007-09.",positive +"However, we believe that these characteristics are already well appreciated by the market; McDonald’s is the +lone operator in our coverage that trades at a premium to our valuation.",positive +"We expect to raise our $227 fair value +estimate by a low-single-digit percentage due to time value and robust quarterly sales.",positive +"We continue to view +value-oriented quick-service restaurants as well positioned to outperform on a relative basis in the current +environment.",neutral +"While we maintain that tangled supply chains and inflationary pressures will take a few years for +the operator to fully price through (we don’t expect a full year of normalized restaurant-level profitability until +2024), and a modest mix shift toward the lower per-meal cost grocery channel may drag on sales, we see no +reason to meaningfully alter our forecast for long-term restaurant margin (17.5%-18.5%) or comparable-store +sales growth (2.5%-3%), though current pressure will probably result in slower near-term unit growth.",positive +"McDonald’s +took an expected $1.2 billion pretax charge to account for the sale and debranding of its Russian units, partially +offset by a $271 million gain on the sale of its Dynamic Yield subsidiary.",negative +"Restaurant Industry Offers Pockets of Opportunity; We're Buying Starbucks and RBI Sean Dunlop,Equity +Analyst,8 Jul 2022",positive +"We see pockets of attractive value in the restaurant industry despite a surge in share prices over the past two +weeks, with the median company in our coverage trading at about a 10% discount to our intrinsic valuation.",positive +"Our +top picks, wide-moat Starbucks and narrow-moat Restaurant Brands International, enjoy even wider margins of +safety, trading around 20%-25% below our $100 and $67 fair value estimates, respectively.",positive +"We believe this +warrants investor attention.",neutral +"Observing the broader landscape, we flag a triumvirate of near-term pressures likely +underpinning the time horizon-driven divergence between market pricing and our own forecasts: elevated +inflation, particularly on the commodities and food cost of goods sold portion of the ledger; macroeconomic +uncertainty driving softening consumer sentiment; and a rising risk-free rate as the federal-funds and 10-year +Treasury rates continue to rise.",positive +"Nevertheless, we believe that restaurants, particularly heavily franchised quick- +service operators, are relatively recession-resistant, a view borne out by recession sensitivities through the 2007- +09 downturn.",positive +"Further, we adhere to the Morningstar view that a near-term recession belongs outside our base- +case scenario, though steep inflation and contracting real incomes will figure to slow top-line growth for a couple +of quarters as consumers turn to relatively cheaper alternatives.",negative +"In the long run, we suspect that operators with +strong brand intangible assets should be able to pass along input cost inflation, though we don’t expect a full +year of normalized restaurant-level profitability until 2024, given the degree of cost pressures and consumers’ +willingness to bear price hikes (elasticity), with customers exhibiting a historical penchant to modestly shift +spending towards the lower-cost grocery channel during periods of strain.",positive +"Flurry of Leadership Changes at McDonald's Shouldn't Alter Firm's Course; We Maintain Our $227 FVE Sean +Dunlop,Equity Analyst,27 Jun 2022Morningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 23 of 28 +©2023 Morningstar.",negative +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®McDonald's Corp MCD QQ 1 Feb 2023 17:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +265.50 USD +31 Jan 2023240.00 USD +1 Feb 2023 17:10, UTC1.11195.85 USD Bil +31 Jan 2023 +Wide Stable Low Standard ;;;;; +1 Feb 2023 06:00, UTC +Wide-moat McDonald's announced a trio of changes among its executive team, with chief financial officer Kevin +Ozan, chief global supply chain officer Francesca DeBiase, and chief impact officer Katie Fallon set to depart over +the next year.",positive +"Ozan will stay on with the brand until his retirement in mid-2023, overseeing strategic initiatives +and temporarily managing Fallon's responsibilities until a successor is identified.",neutral +"We don't expect to change our +standard capital allocation rating or our $227 fair value estimate as a result of the transition.",positive +"As the most publicly +visible of the three departures, Ozan's contributions have been meaningful and have helped shape the brand +through the halcyon days of the 2000s, a slowdown in the early 2010s, the firm's massive turnaround in the late +2010s, and its handling of the COVID-19 pandemic over the past two and a half years.",positive +"He leaves behind big shoes +to fill, having joined the brand in 1997 (assuming the CFO role in 2015), and will be replaced by a longtime +McDonald's veteran in Ian Borden, who has been with the brand for nearly 30 years, most recently serving as +president of the international business.",positive +"DeBiase's team navigated unprecedented supply chain disruptions over +the past two years with aplomb; she will be replaced by Marion Gross, the current chief supply chain officer for +the North American business and another nearly 30-year McDonald's veteran.",positive +"Given that the two positions with +the most sweeping financial repercussions are being filled by longtime McDonald's acolytes (an encouraging +sign, attesting to the conscientious development of a deep management bench, in our view), we expect few +changes to the firm's strategic roadmap, underpinning our decision to leave our capital allocation rating +untouched.",positive +"Morningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 24 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Research Methodology for Valuing Companies +Morningstar Equity Research Star Rating Methodology +Overview +At the heart of our valuation system is a detailed projec- +tion of a company’s future cash flows, resulting from our +analysts’ research.",positive +"Analysts create custom industry and +company assumptions to feed income statement, balance +sheet, and capital investment assumptions into our glob- +ally standardized, proprietary discounted cash flow, or +DCF, modeling templates.",neutral +"We use scenario analysis, inde- +pth competitive advantage analysis, and a variety of other +analytical tools to augment this process.",negative +"Moreover, we +think analyzing valuation through discounted cash flows +presents a better lens for viewing cyclical companies, +high-growth firms, businesses with finite lives (e.g., +mines), or companies expected to generate negative +earnings over the next few years.",negative +"That said, we don’t dis- +miss multiples altogether but rather use them as support- +ing cross-checks for our DCF-based fair value estimates.",positive +"We also acknowledge that DCF models offer their own +challenges (including a potential proliferation of estim- +ated inputs and the possibility that the method may miss +shortterm market-price movements), but we believe these +negatives are mitigated by deep analysis and our +longterm approach.",positive +"Morningstar’s equity research group (”we,” “our”) be- +lieves that a company’s intrinsic worth results from the +future cash flows it can generate.",positive +"The Morningstar Rating +for stocks identifies stocks trading at a discount or premi- +um to their intrinsic worth—or fair value estimate, in +Morningstar terminology.",positive +"Five-star stocks sell for the +biggest risk adjusted discount to their fair values, where- +as 1-star stocks trade at premiums to their intrinsic worth.",positive +"Four key components drive the Morningstar rating: (1) our +assessment of the firm’s economic moat, (2) our estimate +of the stock’s fair value, (3) our uncertainty around that +fair value estimate and (4) the current market price.",positive +"This +process ultimately culminates in our singlepoint star rat- +ing.",neutral +1.,neutral +"Economic Moat +The concept of an economic moat plays a vital role not +only in our qualitative assessment of a firm’s long-term +investment potential, but also in the actual calculation of +our fair value estimates.",positive +"An economic moat is a structural +feature that allows a firm to sustain excess profits over a long period of time.",negative +"We define economic profits as re- +turns on invested capital (or ROIC) over and above our es- +timate of a firm’s cost of capital, or weighted average +cost of capital (or WACC).",negative +"Without a moat, profits are +more susceptible to competition.",positive +"We have identified five +sources of economic moats: intangible assets, switching +costs, network effect, cost advantage, and efficient scale.",positive +"Companies with a narrow moat are those we believe are +more likely than not to achieve normalized excess returns +for at least the next 10 years.",neutral +"Wide-moat companies are +those in which we have very high confidence that excess +returns will remain for 10 years, with excess returns more +likely than not to remain for at least 20 years.",positive +"The longer +a firm generates economic profits, the higher its intrinsic +value.",positive +"We believe low-quality, no-moat companies will +see their normalized returns gravitate toward the firm’s +cost of capital more quickly than companies with moats.",positive +"When considering a company's moat, we also assess +whether there is a substantial threat of value destruction, +stemming from risks related to ESG, industry disruption, +financial health, or other idiosyncratic issues.",negative +"In this con- +text, a risk is considered potentially value destructive if its +occurrence would eliminate a firm’s economic profit on a +cumulative or midcycle basis.",negative +"If we deem the probability +of occurrence sufficiently high, we would not characterize +the company as possessing an economic moat.",positive +"To assess the sustainability of excess profits, analysts +perform ongoing assessments of the moat trend.",neutral +"A firm’s +moat trend is positive in cases where we think its sources +of competitive advantage are growing stronger; stable +where we don’t anticipate changes to competitive ad- +vantages over the next several years; or negative when +we see signs of deterioration.",negative +2.,neutral +"Estimated Fair Value +Combining our analysts’ financial forecasts with the +firm’s economic moat helps us assess how long returns +on invested capital are likely to exceed the firm’s cost of +capital.",positive +"Returns of firms with a wide economic moat rat- +ing are assumed to fade to the perpetuity period over a +longer period of time than the returns of narrow-moat +firms, and both will fade slower than no-moat firms, in- +creasing our estimate of their intrinsic value.",positive +Our model is divided into three distinct stages:,positive +"Stage I: Explicit Forecast +In this stage, which can last five to 10 years, analysts +make full financial statement forecasts, including items +such as revenue, profit margins, tax rates, changes in +workingcapital accounts, and capital spending.",positive +"Based on +these projections, we calculate earnings before interest, +after taxes (EBI) and the net new investment (NNI) to de- +rive our annual free cash flow forecast.",positive +Stage II:,neutral +"Fade +The second stage of our model is the period it will take +the company’s return on new invested capital—the re- +turn on capital of the next dollar invested (“RONIC”)—to +decline (or rise) to its cost of capital.",positive +"During the Stage II +period, we use a formula to approximate cash flows in +lieu of explicitly modeling the income statement, balance +sheet, and cash flow statement as we do in Stage I.",negative +"The +length of the second stage depends on the strength of +the company’s economic moat.",positive +"We forecast this period to +last anywhere from one year (for companies with no eco- +nomic moat) to 10–15 years or more (for wide-moat com- +panies).",positive +"During this period, cash flows are forecast using +four assumptions: an average growth rate for EBI over the +period, a normalized investment rate, average return on +new invested capital (RONIC), and the number of years +until perpetuity, when excess returns cease.",negative +"The invest- +ment rate and return on new invested capital decline un- +til a perpetuity value is calculated.",positive +"In the case of firms +that do not earn their cost of capital, we assume marginal +ROICs rise to the firm’s cost of capital (usually attribut- +able to less reinvestment), and we may truncate the +second stage.",negative +Stage III:,neutral +"Perpetuity +Once a company’s marginal ROIC hits its cost of capital, +we calculate a continuing value, using a standard per- +petuity formula.",neutral +"At perpetuity, we assume that any +growth or decline or investment in the business neither +creates nor destroys value and that any new investment +provides a return in line with estimated WACC.",positive +"Because a dollar earned today is worth more than a dollar +earned tomorrow, we discount our projections of cash +flows in stages I, II, and III to arrive at a total present +value of expected future cash flows.",positive +"Because we are +modeling free cash flow to the firm—representing cash +available to provide a return to all capital providers—we +discount future cash flows using the WACC, which is a +weighted average of the costs of equity, debt, and pre- +ferred stock (and any other funding sources), using ex- +pected future proportionate long-term, market-value +weights.",positive +3.,neutral +"Uncertainty Around That Fair Value EstimateMorningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 25 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Research Methodology for Valuing Companies +Morningstar Equity Research Star Rating Methodology + Morningstar’s Uncertainty Rating is designed to capture +the range of potential outcomes for a company’s intrinsic +value.",positive +"This rating is used to assign the margin of safety +required before investing, which in turn explicitly drives +our stock star rating system.",neutral +"The Uncertainty Rating is +aimed at identifying the confidence we should have in as- +signing a fair value estimate for a given stock.",positive +"Our Uncertainty Rating is meant to take into account any- +thing that can increase the potential dispersion of future +outcomes for the intrinsic value of a company, and any- +thing that can affect our ability to accurately predict +these outcomes.",positive +"The rating begins with a suggested rat- +ing produced by a quantitative process based on the trail- +ing 12-month standard deviation of daily stock returns.",neutral +"An analyst overlay is then applied, with analysts using +the suggested rating, historical rating data, and their own +knowledge of the company to inform them as they make +the final Uncertainty Rating decision.",positive +"Ultimately, the rat- +ing decision rests with the analyst.",neutral +"Analysts take into ac- +count many characteristics when making their final de- +cision, including cyclical factors, operational and financial +factors such as leverage, company-specific events, ESG +risks, and anything else that might increase the potential +dispersion of future outcomes and our ability to estimate +those outcomes.",positive +"Our recommended margin of safety—the discount to fair +value demanded before we’d recommend buying or +selling the stock—widens as our uncertainty of the es- +timated value of the equity increases.",positive +"The more uncertain +we are about the potential dispersion of outcomes, the +greater the discount we require relative to our estimate of +the value of the firm before we would recommend the +purchase of the shares.",positive +"In addition, the Uncertainty Rat- +ing provides guidance in portfolio construction based on +risk tolerance.",neutral +"Our Uncertainty Ratings are: Low, Medium, High, Very +High, and Extreme.",positive +"Margin of Safety +Qualitative Analysis +Uncertainty Ratings QQQQQ Rating QRating +Low 20% Discount 25% Premium +Medium 30% Discount 35% Premium +High 40% Discount 55% Premium +Very High 50% Discount 75%",positive +"Premium +Extreme 75% Discount 300% Premium",negative +"Our uncertainty rating is based on the interquartile range, +or the middle 50% of potential outcomes, covering the +25th percentile–75th percentile.",neutral +"This means that when a +stock hits 5 stars, we expect there is a 75% chance that +the intrinsic value of that stock lies above the current +market price.",neutral +"Similarly, when a stock hits 1 star, we ex-pect there is a 75% chance that the intrinsic value of that +stock lies below the current market price.",neutral +4.,neutral +Market Price,neutral +"The market prices used in this analysis and noted in the +report come from exchange on which the stock is listed +which we believe is a reliable source.",neutral +"For more details about our methodology, please go to +https://shareholders.morningstar.com +Morningstar Star Rating for Stocks +Once we determine the fair value estimate of a stock, we +compare it with the stock’s current market price on a +daily basis, and the star rating is automatically re-calcu- +lated at the market close on every day the market on +which the stock is listed is open.",positive +"Our analysts keep close +tabs on the companies they follow, and, based on thor- +ough and ongoing analysis, raise or lower their fair value +estimates as warranted.",positive +"Please note, there is no predefined distribution of stars.",neutral +"That is, the percentage of stocks that earn 5 stars can +fluctuate daily, so the star ratings, in the aggregate, can +serve as a gauge of the broader market’s valuation.",neutral +"When there are many 5-star stocks, the stock market as a +whole is more undervalued, in our opinion, than when +very few companies garner our highest rating.",positive +"We expect that if our base-case assumptions are true the +market price will converge on our fair value estimate over time generally within three years (although it is im- +possible to predict the exact time frame in which market +prices may adjust).",positive +"Our star ratings are guideposts to a broad audience and +individuals must consider their own specific investment +goals, risk tolerance, tax situation, time horizon, income +needs, and complete investment portfolio, among other +factors.",positive +"The Morningstar Star Ratings for stocks are defined be- +low: +QQQQQ",neutral +"We believe appreciation beyond a fair risk ad- +justed return is highly likely over a multiyear time frame.",positive +"Scenario analysis developed by our analysts indicates +that the current market price represents an excessively +pessimistic outlook, limiting downside risk and maximiz- +ing upside potential.",negative +QQQQ,neutral +"We believe appreciation beyond a fair risk-ad- +justed return is likely.",positive +"QQQ Indicates our belief that investors are likely to re- +ceive a fair risk-adjusted return (approximately cost of +equity).",positive +"QQ We believe investors are likely to receive a less than +fair risk-adjusted return.",positive +"Q Indicates a high probability of undesirable risk-adjus- +ted returns from the current market price over a multiyear Morningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 26 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Research Methodology for Valuing Companies +time frame, based on our analysis.",positive +"Scenario analysis by +our analysts indicates that the market is pricing in an ex- +cessively optimistic outlook, limiting upside potential and +leaving the investor exposed to Capital loss.",neutral +"Other Definitions +Last Price: Price of the stock as of the close of the mar- +ket of the last trading day before date of the report.",negative +"Capital Allocation Rating: Our Capital Allocation (or +Stewardship)",neutral +"Rating represents our assessment of the +quality of management’s capital allocation, with particu- +lar emphasis on the firm’s balance sheet, investments, +and shareholder distributions.",negative +"Analysts consider compan- +ies’ investment strategy and valuation, balance sheet +management, and dividend and share buyback policies.",neutral +"Corporate governance factors are only considered if they +are likely to materially impact shareholder value, though +either the balance sheet, investment, or shareholder dis- +tributions.",neutral +"Analysts assign one of three ratings: ""Exem- +plary"", ""Standard"", or ""Poor"".",negative +"Analysts judge Capital Alloc- +ation from an equity holder’s perspective.",neutral +"Ratings are de- +termined on a forward looking and absolute basis.",positive +"The +Standard rating is most common as most managers will +exhibit neither exceptionally strong nor poor capital alloc- +ation.",positive +"Capital Allocation (or Stewardship) analysis published pri- +or to Dec. 9, 2020, was determined using a different pro- +cess.",neutral +"Beyond investment strategy, financial leverage, and +dividend and share buyback policies, analysts also con- +sidered execution, compensation, related party transac- +tions, and accounting practices in the rating.",neutral +"Capital Allocation Rating: Our Capital Allocation (or +Stewardship)",neutral +"Rating represents our assessment of the +quality of management’s capital allocation, with particu- +lar emphasis on the firm’s balance sheet, investments, +and shareholder distributions.",negative +"Analysts consider compan- +ies’ investment strategy and valuation, balance sheet +management, and dividend and share buyback policies.",neutral +"Corporate governance factors are only considered if they +are likely to materially impact shareholder value, though +either the balance sheet, investment, or shareholder dis- +tributions.",neutral +"Analysts assign one of three ratings: ""Exem- +plary"", ""Standard"", or ""Poor"".",negative +"Analysts judge Capital Alloc- +ation from an equity holder’s perspective.",neutral +"Ratings are de- +termined on a forward looking and absolute basis.",positive +"The +Standard rating is most common as most managers will +exhibit neither exceptionally strong nor poor capital alloc- +ation.",positive +"Capital Allocation (or Stewardship) analysis published pri- +or to Dec. 9, 2020, was determined using a different pro- +cess.",neutral +"Beyond investment strategy, financial leverage, and +dividend and share buyback policies, analysts also con-sidered execution, compensation, related party transac- +tions, and accounting practices in the rating.",neutral +"Sustainalytics ESG Risk Rating Assessment: The ESG +Risk Rating Assessment is provided by Sustainalytics; a +Morningstar company.",neutral +"Sustainalytics’ ESG Risk Ratings measure the degree to +which company’s economic value at risk is driven by en- +vironment, social and governance (ESG) factors.",positive +"Sustainalytics analyzes over 1,300 data points to assess a +company’s exposure to and management of ESG risks.",neutral +"In +other words, ESG Risk Ratings measures a company’s un- +managed ESG Risks represented as a quantitative score.",negative +"Unmanaged Risk is measured on an open-ended scale +starting at zero (no risk) with lower scores representing +less unmanaged risk and, for 95% of cases, the unman- +aged ESG Risk score is below 50.",negative +"Based on their quantitative scores, companies are +grouped into one of five Risk Categories (negligible, low, +medium, high, severe).",positive +"These risk categories are absolute, +meaning that a ‘high risk’ assessment reflects a compar- +able degree of unmanaged ESG risk across all subindus- +tries covered.",positive +"The ESG Risk Rating Assessment is a visual representa- +tion of Sustainalytics ESG Risk Categories on a 1 to 5 +scale.",neutral +"Companies with Negligible Risk = 5 Globes, Low +Risk = 4, Medium Risk = 3 Globes, High Risk = 2 Globes, +Severe Risk = 1 Globe.",positive +"For more information, please visit +sustainalytics.com/esg-ratings/ +Ratings should not be used as the sole basis in evaluating +a company or security.",positive +"Ratings involve unknown risks and +uncertainties which may cause our expectations not to +occur or to differ significantly from what was expected +and should not be considered an offer or solicitation to +buy or sell a security.",positive +"Risk Warning +Please note that investments in securities are subject to +market and other risks and there is no assurance or guar- +antee that the intended investment objectives will be +achieved.",negative +"Past performance of a security may or may not +be sustained in future and is no indication of future per- +formance.",negative +"A security investment return and an investor’s +principal value will fluctuate so that, when redeemed, an +investor’s shares may be worth more or less than their +original cost.",positive +"A security’s current investment performance +may be lower or higher than the investment performance +noted within the report.",positive +"Morningstar’s Uncertainty Rating +serves as a useful data point with respect to sensitivity +analysis of the assumptions used in our determining a fair +value price.",positive +"General Disclosure +Unless otherwise provided in a separate agreement, re- +cipients accessing this report may only use it in the coun- +try in which the Morningstar distributor is based.",positive +"Unless +stated otherwise, the original distributor of the report is +Morningstar Research Services LLC, a U.S.A. domiciled +financial institution.",positive +"This report is for informational purposes only and has no +regard to the specific investment objectives, financial +situation or particular needs of any specific recipient.",positive +"This +publication is intended to provide information to assist in- +stitutional investors in making their own investment de- +cisions, not to provide investment advice to any specific +investor.",positive +"Therefore, investments discussed and recom- +mendations made herein may not be suitable for all in- +vestors: recipients must exercise their own independent +judgment as to the suitability of such investments and re- +commendations in the light of their own investment ob- +jectives, experience, taxation status and financial posi- +tion.",positive +"The information, data, analyses and opinions presented +herein are not warranted to be accurate, correct, com- +plete or timely.",positive +"Unless otherwise provided in a separate +agreement, neither Morningstar, Inc. or the Equity Re- +search Group represents that the report contents meet all +of the presentation and/or disclosure standards applic- +able in the jurisdiction the recipient is located.",positive +"Except as otherwise required by law or provided for in a +separate agreement, the analyst, Morningstar, Inc. and +the Equity Research Group and their officers, directors +and employees shall not be responsible or liable for any +trading decisions, damages or other losses resulting from, +or related to, the information, data, analyses or opinions +within the report.",negative +"The Equity Research Group encourages +recipients recipients of this report to read all relevant is- +sue documents (e.g., prospectus) pertaining to the secur- +ity concerned, including without limitation, information +relevant to its investment objectives, risks, and costs be- +fore making an in vestment decision and when deemed +necessary, to seek the advice of a legal, tax, and/or",positive +"ac- +counting professional.",positive +"The Report and its contents are not directed to, or inten- +ded for distribution to or use by, any person or entity who +is a citizen or resident of or located in any locality, state, +country or other jurisdiction where such distribution, pub- +lication, availability or use would be contrary to law or +regulation or which would subject Morningstar, Inc. or its +affiliates to any registration or licensing requirements in +such jurisdiction.",negative +"Morningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 27 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Research Methodology for Valuing Companies +Where this report is made available in a language other +than English and in the case of inconsistencies between +the English and translated versions of the report, the Eng- +lish version will control and supersede any ambiguities +associated with any part or section of a report that has +been issued in a foreign language.",positive +"Neither the analyst, +Morningstar, Inc., or the Equity Research Group guaran- +tees the accuracy of the translations.",neutral +"This report may be distributed in certain localities, coun- +tries and/or jurisdictions (“Territories”) by independent +third parties or independent intermediaries and/or distrib- +utors (“Distributors”).",positive +"Such Distributors are not acting as +agents or representatives of the analyst, Morningstar, +Inc. or the Equity Research Group.",neutral +"In Territories where a +Distributor distributes our report, the Distributor is solely +responsible for complying with all applicable regulations, +laws, rules, circulars, codes and guidelines established by +local and/or regional regulatory bodies, including laws in +connection with the distribution third-party research re- +ports.",positive +"Conflicts of Interest +uNo interests are held by the analyst with respect to the +security subject of this investment research report.",negative +"uMorningstar, Inc. may hold a long position in the se- +curity subject of this investment research report that +exceeds 0.5% of the total issued share capital of the +security.",negative +"To determine if such is the case, please click +http://msi.morningstar.com and http://mdi.morning- +star.com +uAnalysts’ compensation is derived from Morningstar, +Inc.’s overall earnings and consists of salary, bonus +and in some cases restricted stock.",neutral +"uNeither Morningstar, Inc. or the Equity Research Group +receives commissions for providing research nor do +they charge companies to be rated.",neutral +"uNeither Morningstar, Inc. or the Equity Research Group +is a market maker or a liquidity provider of the security +noted within this report.",neutral +"uNeither Morningstar, Inc. or the Equity Research Group +has been a lead manager or co-lead manager over the +previous 12-months of any publicly disclosed offer of +financial instruments of the issuer.",negative +"uMorningstar, Inc.’s investment management group +does have arrangements with financial institutions to +provide portfolio management/investment advice some +of which an analyst may issue investment research re- +ports on.",neutral +"However, analysts do not have authority over +Morningstar’s investment management group’s busi- +ness arrangements nor allow employees from the in- +vestment management group to participate or influ- +ence the analysis or opinion prepared by them.",neutral +"Morningstar, Inc. is a publicly traded company (Ticker +Symbol: MORN) and thus a financial institution the se- +curity of which is the subject of this report may own umore than 5% of Morningstar, Inc.’s total outstanding +shares.",positive +"Please access Morningstar, Inc.’s proxy state- +ment, “Security Ownership of Certain Beneficial Own- +ers and Management” section https:// +shareholders.morningstar.com/investor-relations/fin- +ancials/sec-filings/default.aspx +uMorningstar, Inc. may provide the product issuer or its +related entities with services or products for a fee and +on an arms’ length basis including software products +and licenses, research and consulting services, data 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advice it has been prepared without reference to +an investor’s objectives, financial situation or needs.",neutral +"In- +vestors should consider the advice in light of these mat- +ters and, if applicable, the relevant Product Disclosure +Statement before making any decision to invest.",positive +"Refer to +our Financial Advice Provider Disclosure Statement at +www.morningstar.com.au/s/fapds.pdf for more informa-tion.",positive +"For Recipients in Hong Kong: The Report is distributed +by Morningstar Investment Management Asia Limited, +which is regulated by the Hong Kong Securities and Fu- +tures Commission to provide services to professional in- +vestors only.",positive +"Neither Morningstar Investment Manage- +ment Asia Limited, nor its representatives, are acting or +will be deemed to be acting as an investment profession- +al to any recipients of this information unless expressly +agreed to by Morningstar Investment Management Asia +Limited.",negative +"For enquiries regarding this research, please con- +tact a Morningstar Investment Management Asia Limited +Licensed Representative at https://shareholders.morning- +star.com +For recipients in India:",negative +"This Investment Research is is- +sued by Morningstar Investment Adviser India Private +Limited.",negative +"Morningstar Investment Adviser India Private +Limited is registered with the Securities and Exchange +Board of India (Registration number INA000001357 ) and +provides investment advice and research.",negative +"Morningstar In- +vestment Adviser India Private Limited has not been the +subject of any disciplinary action by SEBI or any other leg- +al/regulatory body.",negative +"Morningstar Investment Adviser India +Private Limited is a wholly owned subsidiary of Morning- +star Investment Management LLC.",negative +"In India, Morningstar +Investment Adviser India Private Limited has one asso- +ciate, Morningstar India Private Limited, which provides +data related services, financial data analysis and 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an investment professional to any +recipients of this information.",positive +For recipients in Singapore:,neutral +"For Institutional Investor +audiences only.",neutral +"Recipients of this report should contact +their financial professional in Singapore in relation to this +report.",positive +"Morningstar, Inc., and its affiliates, relies on cer- +tain exemptions (Financial Advisers Regulations, Section Morningstar Equity Company Report | Report as of 1 Feb 2023 17:23, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 28 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Research Methodology for Valuing Companies +32B and 32C) to provide its investment research to recipi- +ents in Singapore.",positive +text,sentiment +"UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, DC 20549 +FORM10-K + ☒ ANNUAL REPOR T PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934",neutral +"For the fiscal year ended December 31, 2022 +or +☐ TRANSITION REPOR T PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934",neutral +"For the transition period from to +Commission File Number 1-5231 +McDONALD’S CORPORATION +(Exact name of registrant as specified in its charter)",positive +"Delaware 36-2361282 +(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) +110 North Carpenter Street, Chicago, Illinois 60607 +(Address of principal executive offices)(Zip code) +Registrant’ s telephone number , including area code: (630) 623-3000 +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading Symbol(s)",negative +"Name of each exchange on which registered +Common Stock, $0.01 par value MCD New York Stock Exchange +Securities registered pursuant to Section 12(g) of the Act: None +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.",positive +Yes ☒,neutral +"No ☐ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.",neutral +"Yes ☐ No ☒ +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the +preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 +days.",negative +Yes ☒,neutral +"No ☐ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T +(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).",neutral +Yes ☒,neutral +"No ☐ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth +company.",positive +"See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and ""emerging growth company"" in Rule 12b-2 of the Exchange +Act.",positive +"Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised +financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.",positive +"☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over +financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))",neutral +by the registered public accounting firm that prepared or issued its audit report.,negative +☒,neutral +"If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the +correction of an error to previously issued financial statements.",negative +"☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the +registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b) ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).",positive +Yes ☐ No ☒,neutral +"The aggregate market value of the registrant's common stock held by non-affiliates as of June 30, 2022: $181,588,534,180.",negative +"The number of shares outstanding of the registrant’s common stock as of January 31, 2023: 731,496,951. +DOCUMENTS INCORPORATED BY REFERENCE +Part III of this Form 10-K incorporates information by reference from the registrant’s 2023 definitive proxy statement, which will be filed no later than 120 days after +December 31, 2022.McDONALD’S CORPORA TION +TABLE OF C ONT ENTS +ORGANIZATION OF THIS ANNUAL REPORT ON FORM 10-K +The order and presentation of content in this Annual Report on Form 10-K (""Form 10-K"") dif fers from the traditional U.S. Securities and Exchange +Commission (""SEC"")",positive +Form 10-K format.,neutral +"McDonald's Corporation believes the format used in this Form 10-K improves readability and better presents +how it organizes and manages its business.",positive +"See ""Form 10-K Cross-Reference Index"" for a cross-reference index to the traditional SEC Form 10-K +format.",negative +"Page +Forward-Looking Statements 3 +About McDonald's 3 + Business Summary 3 +Management's Discussion and Analysis of Financial Condition and Results of Operations 8 + Management's V iew of the Business 8 + 2022 Financial Performance 8 + Strategic Direction 9 + Outlook 10 + Consolidated Operating Results 11 + Cash Flows 19 + Financial Position and Capital Resources 22 + Other Matters 24 +Other Key Information 25 + Stock Performance Graph 25 + Market for Registrant's Common Equity , Related Stockholder Matters and Issuer Purchases of Equity Securities 26 + Risk Factors 27 + Legal Proceedings 33 + Properties 33 + Information About our Executive Of ficers 34 + Availability of Company Information 35 +Financial Statements and Supplementary Data 35 +Controls and Procedures 62 +Security Ownership of Certain Beneficial Owners and Management and",negative +"Related Stockholder Matters 62 +Exhibits and Financial Statement Schedules 63 +Form 10-K Cross-Reference Index 65 +Signatures 66 +All trademarks used herein are the property of their respective owners and are used with permission.",neutral +FOR WARD-LOOKING ST ATEMENTS,neutral +"The information in this Form 10-K contains forward-looking statements about future events and circumstances and their ef fects upon revenues, +expenses and business opportunities.",neutral +"Generally speaking, any statement in this Form 10-K not based upon historical fact is a forward-looking +statement.",positive +"Forward-looking statements can also be identified by the use of forward-looking or conditional words, such as “could,” “should,” “can,” +“continue,” “aim,” “estimate,” “forecast,” “intend,” “look,” “may ,” “will,” “expect,” “believe,” “anticipate,” “plan,” “remain,” “confident” and “commit” or +similar expressions.",positive +"In particular , statements regarding the Company's plans, strategies, prospects and expectations regarding its business and +industry , as well as environmental, social and governance (""ESG"") and similar commitments, are forward-looking statements.",positive +"They reflect +expectations, are not guarantees of performance and speak only as of the dates the statements are made.",neutral +"Factors that could cause actual results to +differ materially from those in the forward-looking statements include those reflected in the Risk Factors section on page 27 of this Form 10-K and +elsewhere in the Company's filings with the SEC.",negative +"Except as required by law , the Company does not undertake to update such forward-looking +statements.",neutral +You should not rely unduly on forward-looking statements.,neutral +"ABOUT McDONALD'S +McDonald’ s Corporation, the registrant, together with its subsidiaries, is referred to herein as the ""Company .""",neutral +"The Company , its franchisees and +suppliers are referred to herein as the ""System.",neutral +""" +BUSINESS SUMMARY +GENERAL +For the year ended December 31, 2022, there were no material changes to the Company's corporate structure or in its method of conducting business.",positive +Refer to the Segment and Geographic Information section on page 48 of this Form 10-K for additional information.,neutral +"DESCRIPTION OF THE BUSINESS +The Company franchises and operates McDonald’ s restaurants, which serve a locally relevant menu of quality food and beverages in communities +across more than 100 countries.",positive +"Of the 40,275 McDonald's restaurants at year-end 2022 , approximately 95% were franchised.",negative +"The Company’ s reporting segments are aligned with its strategic priorities and reflect how management reviews and evaluates operating +performance.",neutral +"Significant reportable segments include the United States (""U.S."") and International Operated Markets.",positive +"In addition, there is the +International Developmental Licensed Markets & Corporate segment, which includes markets in over 80 countries, as well as Corporate activities.",neutral +"McDonald’ s franchised restaurants are owned and operated under one of the following structures - conventional franchise, developmental +license or af filiate.",negative +"The optimal ownership structure for an individual restaurant, trading area or market (country) is based on a variety of factors, +including the availability of individuals with entrepreneurial experience and financial resources, as well as the local legal and regulatory environment in +critical areas such as property ownership and franchising.",positive +"The business relationship between the Company and its independent franchisees is +supported by adhering to standards and policies, including McDonald's Global Brand Standards, and is of fundamental importance to overall +performance and to protecting the McDonald’ s brand.",neutral +"The Company is primarily a franchisor and believes franchising is paramount to delivering great-tasting food, locally relevant customer +experiences and driving profitability .",positive +"Franchising enables an individual to be their own employer and maintain control over all employment related +matters, marketing and pricing decisions, while also benefiting from the strength of McDonald’ s global brand, operating system and financial +resources.",positive +Directly operating McDonald’ s restaurants contributes significantly to the Company's ability to act as a credible franchisor .,positive +"One of the strengths of +the franchising model is that the expertise from operating Company-owned restaurants allows McDonald’ s to improve the operations and success of all +restaurants while innovations from franchisees can be tested and, when viable, ef ficiently implemented across relevant restaurants.",positive +"Having Company- +owned and operated restaurants provides Company personnel with a venue for restaurant operations training experience.",neutral +"In addition, in our Company- +owned and operated restaurants, and in collaboration with franchisees, the Company is able to further develop and refine operating standards, +marketing concepts and product and pricing strategies that will ultimately benefit McDonald’ s restaurants.",positive +The Company’ s revenues consist of sales by Company-operated restaurants and fees from restaurants operated by franchisees.,neutral +"Fees vary by +type of site, amount of Company investment, if any , and local business conditions.",neutral +"These fees, along with occupancy and operating rights, are +stipulated in franchise/license agreements that generally have 20-year terms.",positive +"The Company’ s Other revenues are comprised of fees paid by +franchisees to recover a portion of costs incurred by the Company for various technology platforms, revenues from brand licensing arrangements to +market and sell consumer packaged goods using the McDonald’ s brand and, for periods prior to its sale on April 1, 2022, third-party revenues for the +Company's Dynamic Yield business.",negative +"Conventional Franchise +Under a conventional franchise arrangement, the Company generally owns or secures a long-term lease on the land and building for the restaurant +location and the franchisee pays for equipment, signs, seating and décor .",negative +"The Company believes that ownership of real estate, combined with the co- +investment by franchisees, enables it to achieve restaurant performance levels that are among the highest in the industry .",positive +Franchisees are responsible for reinvesting capital in their businesses over time.,positive +"In addition, to accelerate implementation of certain initiatives, +the Company may co-invest with franchisees to fund improvements to their restaurants or operating systems.",positive +"These investments, developed in +collaboration with franchisees, are designed to cater to consumer preferences, improve local business performance and increase the value of the +McDonald's brand through the development of modernized, more attractive and higher revenue generating restaurants.",positive +McDonald's Corporation 2022 Annual Report 3The Company requires franchisees to meet rigorous standards and generally does not work with passive investors.,positive +"The business relationship with +franchisees is designed to facilitate consistency and high quality at all McDonald’ s restaurants.",positive +"Conventional franchisees contribute to the Company’ s +revenue, primarily through the payment of rent and royalties based upon a percent of sales, with specified minimum rent payments, along with initial +fees paid upon the opening of a new restaurant or grant of a new franchise.",positive +"The Company's heavily franchised business model is designed to +generate stable and predictable revenue, which is largely a function of franchisee sales, and resulting cash flow streams.",negative +Developmental License or Affiliate,neutral +"Under a developmental license or af filiate arrangement, licensees are responsible for operating and managing their businesses, providing capital +(including the real estate interest) and developing and opening new restaurants.",positive +"The Company generally does not invest any capital under a +developmental license or af filiate arrangement, and it receives a royalty based on a percent of sales, and generally receives initial fees upon the +opening of a new restaurant or grant of a new license.",positive +"While developmental license and af filiate arrangements are largely the same, af filiate arrangements are used in a limited number of foreign +markets (primarily China and Japan) within the International Developmental Licensed Markets segment as well as a limited number of individual +restaurants within the International Operated Markets segment, where the Company also has an equity investment and records its share of net results +in equity in earnings of unconsolidated af filiates.",positive +"PURPOSE, MISSION AND VALUES",neutral +"Through its size and scale, McDonald's embraces and prioritizes its role and commitment to the communities in which it operates through its purpose +to feed and foster communities, and its mission to make delicious feel-good moments for everyone.",positive +"The Company is guided by five core values that +define who we are and how we run our business across the three-legged stool of McDonald’ s franchisees, suppliers, and employees: +1.Serve – We put our customers and people first; +2.Inclusion – We open our doors to everyone; +3.Integrity – We do the right thing; +4.Community – We are good neighbors; and +5.Family – We get better together .",positive +"The Company believes that its people, all around the world, set it apart and bring these values to life on a daily basis.",neutral +"HUMAN CAPITAL MANAGEMENT +The Company’ s people strategies aim to create an environment grounded in diversity , equity , and inclusion (“DEI”).",neutral +"To do this, the Company continues +to evaluate and evolve its compensation and benefits programs to remain locally relevant and competitive, while of fering quality training and learning +opportunities, and continues to uphold a high standard of health and safety for employees and customers alike.",positive +You can find more information about the Company's human capital management and related initiatives in its “Purpose & Impact” report.,positive +"Our People +Company employees, which include those in the Company's corporate and other of fices as well as in Company-owned and operated restaurants, +totaled over 150,000 worldwide as of year-end 2022, of which approximately 70% were based outside of the U.S.",negative +"In addition to Company employees, +the over two million individuals who work in McDonald's franchised restaurants around the world are critical to the Company’ s success, enabling it to +drive long-term value creation and further its purpose and mission.",positive +"People are at the cornerstone of the Company's business and an essential part of +the System. +Diversity, Equity and Inclusion +The Company's aspiration is that no matter where you are in the world, when you interact with McDonald’ s, DEI is as evident and familiar as the +Arches themselves.",positive +"A diverse workforce is and will continue to be critical to McDonald’ s success, and the Company is committed to making this a +continued priority .",positive +"The Company adheres to a global DEI strategy designed to drive accountability across the System to better represent the diverse +communities in which McDonald’ s operates, to accelerate cultures of inclusion and belonging and to further dismantle barriers to economic opportunity .",positive +"The Company’ s DEI strategy reflects its commitment to deliver equitable treatment for all people and includes: +•ongoing ef forts to improve the representation of women and underrepresented groups at all levels of the Company; +•a franchisee recruitment initiative to increase the number of new franchisees from all backgrounds, including underrepresented groups, +particularly for those who may face socio-economic barriers to entry; +•best practice sharing with franchisees and suppliers to support them in furthering DEI progress within their own organizations; +•upholding human rights and cultivating a respectful workplace that is ethical, truthful and dependable; and +•a commitment to equal pay among Company employees with comparable job responsibilities, experience, performance and contributions, as +well as fair treatment in access, opportunity and advancement for all.",positive +"While McDonald’ s is proud of its more than 65-year history as an employer , its global DEI strategy is designed to facilitate continued growth in +how the Company approaches equitable opportunity and its role in catalyzing it across the System and beyond.",positive +"The Company is committed to +accelerating representation, inclusion and opportunity for underrepresented groups, not only within the Company but across the System.",neutral +"This goal is +underscored by the Company's Mutual Commitment to Diversity , Equity and Inclusion, a pledge that invites the Company’ s",neutral +"U.S. based suppliers to +commit to accountability for DEI progress within their own organizations.",positive +"Aligned with the Company's +McDonald's Corporation 2022 Annual Report 4purpose, mission and values, the Mutual Commitment draws on McDonald's size and scale and highlights its opportunity to accelerate meaningful +change for employees, franchisees, suppliers, customers and communities.",positive +"To reinforce the importance of the Company’ s values, the Company’ s incentive plan includes quantitative human capital metrics that hold +executives accountable for making progress on DEI goals.",neutral +"In addition to the Company’ s financial performance, executives are measured on +quantitative metrics that include championing the Company's core values, improving representation within leadership roles (Senior Director and above) +and assessing feelings of inclusion within the Company .",neutral +"In addition, in 2022, the Company introduced an owner/operator diversity metric into its +incentive plan for certain key of ficers and managing directors.",positive +"For more information on employee, Board and franchisee representation, as well as diverse-owned supplier spend and equal pay , see the +Company's Global Diversity , Equity , and Inclusion Report, including the Diversity Snapshot.",positive +"Respectful Workplace Environment +Fostering safe, inclusive and respectful workplaces, wherever McDonald's does business, has been integral to the Company for its more than 65-year +history .",positive +"The Company understands the importance of providing a positive experience and making everyone feel valued, both in its of fices and in +McDonald's restaurants.",positive +"The Company’ s commitment to human rights is set forth in its Human Rights Policy and is furthered by its Standards of +Business Conduct, which apply to Company employees, and its Supplier Code of Conduct, which sets forth human rights requirements for the +Company's global suppliers.",neutral +"Company employees are trained on and are required to annually certify their understanding of, and commitment to +upholding, the Standards of Business Conduct.",neutral +"Further , the Company’ s Global Brand Standards (which apply to all McDonald’ s restaurants, whether Company-owned or franchised)",neutral +"prioritize +action in four areas: harassment, discrimination, and retaliation prevention; workplace violence prevention; restaurant employee feedback; and health +and safety .",positive +"Beginning in 2022, the first full year in which the Global Brand Standards were in ef fect, all restaurants were assessed on the Global Brand +Standards in accordance with the applicable McDonald’ s market’ s business evaluation processes.",positive +"As part of its commitment to a respectful workplace environment, the Company recognizes how important it is to provide channels for its +employees to report human rights and similar concerns that may violate Company policies and standards.",positive +"Employees can do so in many ways, +including through an anonymous global channel, the Business Integrity Line, which is staf fed by a live operator from an independent company and is +available 24 hours a day , 365 days a year .",positive +This is complemented by additional reporting channels in many markets.,positive +"The Company expects its +employees and franchisees to uphold human rights and cultivate respectful workplaces, which builds trust, protects the integrity of the McDonald's +brand and fuels Systemwide success.",positive +"Compensation, Benefits, and Talent Development +The compensation and benefits provided to Company employees, including both corporate staf f and Company-owned restaurant employees, is +established based upon competitive considerations in the relevant labor market.",positive +"The amount and type of compensation varies by an employee's level +and location, and typically includes some combination of the following (in addition to base pay): cash bonuses, stock-based awards, retirement savings +programs, and health and welfare benefits.",negative +"Company employees may also receive paid time of f, family care resources, tuition assistance and flexible +work schedules.",neutral +"In 2021, the Company publicly communicated its ongoing commitment to equal pay , which is supported by an annual pay gap analysis that aims +to ensure equitable pay practices are consistently implemented and executed across the Company .",positive +"Results of the 2022 pay gap analysis showed that +women globally in Company owned and operated markets were paid 99.91 cents on the dollar in base pay on average of what men were paid for +similar work.",negative +"Further , there was no base pay gap disfavoring underrepresented groups in the U.S.",positive +"These results indicate the Company substantially +attained equal pay , and by the end of the first quarter of 2023, intends to close the small gaps identified in line with the commitment to close pay gaps +identified in annual equal pay analyses.",neutral +"In line with its core values, the Company continuously emphasizes the importance of pay that is competitive, +non-discriminatory , performance-based, transparent and compliant with legal and regulatory standards.",positive +"Additionally , McDonald’ s has a long-standing commitment to providing training, education benefits and career path opportunities, which empower +the people and communities it serves.",neutral +"Learning and development is a competitive advantage to McDonald’ s and a true dif ferentiator to its employee +value proposition.",positive +"McDonald’ s Hamburger University has eight campuses around the world, as well as online and on-demand resources, that provide +training for Company employees as well as franchisees and their eligible employees.",neutral +"The Company is committed to providing opportunities for people +to enhance their skills and fulfill their potential through talent development programs, apprenticeship opportunities, language and technical skill training +and support for continuing education, as it believes this helps to facilitate talent attraction, career development and retention.",neutral +"Communities +McDonald’ s embraces its role and commitment to the communities it serves.",neutral +"Through its Youth Opportunity program, the Company aims to reduce +barriers to employment for two million youth by 2025 through supporting pre-employment job readiness training, employment opportunities and +workplace development programs.",positive +"The Company is also proud to support the network of over 260 local chapters of Ronald McDonald House Charities +(“RMHC”) spanning over 60 countries and regions that creates, finds and supports programs that directly improve the health and well-being of children +and their families.",positive +"In 2020, the Company announced a five-year , $100 million commitment to RMHC.",neutral +"In addition, the Company maintains a Global Food Disposition Policy to help support its suppliers and distributors around the world in disposing of +food in alignment with McDonald’ s food waste hierarchy , including by enabling food donations wherever possible.",negative +"The Policy , which aims to avoid food +waste and loss while also allowing the System to meet the needs of local communities, is a critical part of the Company's sustainability work and its +purpose to feed and foster communities.",negative +"The Company continues to bring its Community Impact strategy to life through enhanced support ef forts because its business thrives when +communities thrive.",neutral +"As a System, McDonald’ s creates opportunities that encourage Company employees, franchisees and their employees, suppliers +and customers to get involved in philanthropic and volunteering opportunities.",neutral +"McDonald's Corporation 2022 Annual Report 5ENVIRONMENTAL MATTERS +The Company prioritizes action and progress across a range of environmental matters, and endeavors to improve its long-term sustainability and +resiliency , which benefit the System and the communities McDonald's serves.",positive +"The Company monitors environmental regulations and stakeholder +expectations in order to be well-positioned to respond in a timely and appropriate manner , as it cannot predict the precise nature of how these matters +will continue to evolve.",positive +"Although any impact would likely vary by geographic region and/or market, the adoption of new environmental laws or +regulations may increase costs and/or operational complexity for the Company .",positive +"To guide its management of environmental matters and to strengthen its resiliency , the Company has developed goals and commitments that are +informed by relevant frameworks, including the Taskforce on Climate-Related Financial Disclosures (TCFD).",positive +"These include initiatives to reduce +Systemwide greenhouse gas emissions, support deforestation free sourcing throughout the Company's global supply chain, ef ficiently manage natural +resources and support biodiversity , responsibly source ingredients and packaging and increase the availability of recycling in restaurants to reduce +waste.",positive +"These are areas of increasing importance to the Company and its stakeholders and where the Company believes it can have a significant +impact and help to drive industry-wide change.",positive +"In recent years, the Company has made significant progress on many of its global goals and +commitments.",positive +"You can find more information about these initiatives, as well as other environmental sustainability matters, in the Company's “Our +Purpose & Impact” report.",positive +"Information can also be found in the Company's annual Climate Change, Forests and W ater reports submitted to CDP , an +organization that helps companies manage their environmental impacts.",neutral +"The Company monitors and manages the evolving environmental landscape to further understand potential risks and opportunities for the +business in collaboration with expert partners.",neutral +"The Company believes taking action on environmental matters will drive long-term business value by +ensuring that it is managing operational costs in its energy supply , improving the security of its raw material supply , stewarding the environment in its +surrounding communities and reducing its exposure to increasing environmental risks, regulation and costs.",negative +"SUPPLY CHAIN, FOOD SAFETY AND QUALITY",neutral +"The Company and its franchisees purchase food, packaging, equipment and other goods from numerous independent suppliers.",negative +"The Company has +established and enforces high food safety and quality standards and maintains quality centers around the world designed to promote consistency of +these quality standards and menu compliance.",positive +"The quality management systems and processes involve ongoing product reviews, virtual supplier visits +and third-party verifications.",neutral +"A Food Safety Advisory Council, comprised of the Company’ s internal food safety experts as well as suppliers and outside +academics, supports our food safety risk management work and provides strategic global leadership for all aspects of food safety and quality .",neutral +"The +Company also has ongoing programs to elevate food safety culture throughout the business by educating employees about food safety practices, +including proper storage, handling and preparation of food for customers, and conducting trainings for its suppliers and restaurant operators to share +best practices on food safety and quality .",positive +The Company works closely with suppliers to encourage innovation and drive continuous improvement across its global supply chain.,neutral +"Leveraging +its scale, supply chain infrastructure and risk management strategies, the Company collaborates with suppliers on contingency planning to achieve +continuous supply and competitive, predictable costs over the long term.",negative +"The Company also works closely with suppliers and other third-party experts +to drive sustainable sourcing initiatives, including the environmental matters discussed above and improving the health and welfare of the animals +within its supply chain.",negative +"Led by its Chief Supply Chain Of ficer, the Company has developed and implemented a comprehensive strategy that its global +supply chain organization leverages to identify , assess and manage risk in its supply chain.",positive +"To reinforce the importance of its values, the Company maintains a Supplier Code of Conduct that applies to all of its suppliers around the world.",neutral +"The Company expects all of its suppliers to meet the rigorous standards set forth in the Code, which cover areas including human rights, workplace +environment, business integrity and environmental management.",neutral +"In addition, the Company has a comprehensive Supplier W orkplace Accountability +(SWA) program to help suppliers understand its expectations, verify compliance and work toward continuous improvement.",neutral +"PRODUCTS +McDonald’ s restaurants of fer a substantially uniform menu, although there are geographic variations to suit local consumer preferences and tastes.",neutral +"McDonald’ s menu features hamburgers and cheeseburgers, the Big Mac, the Quarter Pounder with Cheese, the Filet-O-Fish, the McChicken and +other chicken sandwiches, Chicken McNuggets, W orld Famous Fries, salads, shakes, McFlurry frozen desserts, sundaes, soft serve cones, bakery +items, soft drinks, cof fee, McCafé beverages and other beverages. +McDonald’ s restaurants in the U.S. and many international markets of fer a full or limited breakfast menu.",positive +"Breakfast of ferings may include +breakfast sandwiches, such as the Egg McMuf fin, Sausage McMuf fin with Egg and McGriddles, biscuit and bagel sandwiches, oatmeal, hash browns, +breakfast burritos and hotcakes.",neutral +"In addition to these menu items, restaurants sell a variety of other products during limited-time promotions.",negative +"Taste, quality , choice, value and nutrition are important to customers, and the Company is continuously evolving its menu to meet its customers' needs, +including testing new products on an ongoing basis.",positive +"MARKETING +McDonald’ s global brand is well known.",neutral +"Marketing, promotional and public relations activities are designed with customers in mind and are focused on +promoting the McDonald’ s brand and dif ferentiating the Company from its competitors.",neutral +"Marketing and promotional ef forts focus on value, quality , food +taste, menu choice, nutrition, convenience, cultural relevance and the customer experience.",positive +McDonald's Corporation 2022 Annual Report 6INTELLECTUAL PROPERTY,neutral +"The Company owns or is licensed to use valuable intellectual property , including trademarks, service marks, patents, copyrights, trade secrets and +other proprietary information.",positive +"The Company considers the ""McDonald's"" trademark and the Golden Arches Logo to be of material importance to its +business.",positive +"Depending on the jurisdiction, trademarks and service marks generally are valid as long as they are used and/or registered.",positive +"The Company's +patents, copyrights and licenses are of varying durations.",neutral +"COMPETITION +McDonald’ s restaurants compete with international, national, regional and local retailers of traditional, fast casual and other food service competitors.",negative +"The Company measures its competitive position within the informal eating out (""IEO"") segment, which is inclusive of the Company's primary +competition of quick-service restaurants, but also includes 100% home delivery/takeaway providers, street stalls or kiosks, cafés, specialist cof fee +shops, self-service cafeterias and juice/smoothie bars.",positive +"The Company competes among quick-service restaurants primarily on the basis of price, +convenience, service, experience, menu variety and product quality .",positive +"GOVERNMENT REGULATIONS +The Company has global operations and is therefore subject to the laws of the United States and many foreign jurisdictions in which it operates and +the rules and regulations of various governing bodies, which may dif fer among jurisdictions.",positive +"As discussed under “Legal Proceedings – Government +Regulations” on page 33 of this Form 10-K, governments have adopted laws and regulations involving various aspects of the restaurant business, +including, but not limited to, advertising, franchising, health, safety , environment, competition, zoning, employment and taxation.",positive +"In addition, during the last three years, markets experienced varying levels of governmental restrictions on restaurant operations in response to +the COVID-19 pandemic, including restrictions related to operating hours, dine-in capacity , and dining room and restaurant closures.",positive +"These restrictions +affected the Company’ s revenues for all three years, with a more limited impact in 2022 due to the lesser extent of the restrictions.",positive +"While costs associated with legal and regulatory compliance have increased along with the number and scope of laws and regulations af fecting +our business, these costs are not expected to have a material ef fect on the Company’ s capital expenditures, earnings or competitive position.",positive +"McDonald's Corporation 2022 Annual Report 7MANAGEMENT'S DISCUSSION AND ANAL YSIS OF FINANCIAL CONDITION AND RESUL TS OF +OPERA TIONS +MANAGEMENT'S VIEW OF THE BUSINESS",neutral +"In analyzing business trends, management reviews results on a constant currency basis and considers a variety of performance and financial +measures, some of which are considered to be non-GAAP , including comparable sales and guest count growth, Systemwide sales growth, after-tax +return on invested capital from continuing operations, free cash flow and free cash flow conversion rate, as described below .",positive +"Management believes +these measures are important in understanding the financial performance of the Company .",positive +"•Constant currency results exclude the ef fects of foreign currency translation and are calculated by translating current year results at prior year +average exchange rates.",negative +"Management reviews and analyzes business results excluding the ef fect of foreign currency translation, impairment and +other charges and gains, as well as material regulatory and other income tax impacts, and bases incentive compensation plans on these results +because the Company believes this better represents underlying business trends.",positive +"•Comparable sales and comparable guest counts are compared to the same period in the prior year and represent sales and transactions, +respectively , at all restaurants, whether operated by the Company or by franchisees, in operation at least thirteen months including those +temporarily closed.",negative +"Some of the reasons restaurants may be temporarily closed include reimaging or remodeling, rebuilding, road construction, +natural disasters and acts of war , terrorism or other hostilities (including restaurants temporarily closed due to COVID-19, as well as those that +remain closed in Ukraine).",negative +"Restaurants in Russia were treated as permanently closed as of April 1, 2022 and therefore excluded from the +calculation of comparable sales and comparable guest counts beginning in the second quarter of 2022.",negative +"Comparable sales exclude the impact of +currency translation and the sales of any market considered hyper-inflationary (generally identified as those markets whose cumulative inflation +rate over a three-year period exceeds 100%), which management believes more accurately reflects the underlying business trends.",positive +"Comparable +sales are driven by changes in guest counts and average check, the latter of which is af fected by changes in pricing and product mix.",negative +"•Systemwide sales include sales at all restaurants, whether operated by the Company or by franchisees.",neutral +"This includes sales from digital channels, +which are comprised of the mobile app, delivery and kiosk at both Company-operated and franchised restaurants.",neutral +"While franchised sales are not +recorded as revenues by the Company , management believes the information is important in understanding the Company's financial performance +because these sales are the basis on which the Company calculates and records franchised revenues and are indicative of the financial health of +the franchisee base.",negative +"The Company's revenues consist of sales by Company-operated restaurants and fees from franchised restaurants operated +by conventional franchisees, developmental licensees and af filiates.",negative +"Changes in Systemwide sales are primarily driven by comparable sales and +net restaurant unit expansion.",positive +"•The Company’ s after-tax return on invested capital (""ROIC"") from continuing operations is a metric that management believes measures capital- +allocation ef fectiveness over time.",neutral +"Other companies may calculate ROIC dif ferently , limiting the usefulness of the measure for comparisons with +other companies.",negative +Refer to the reconciliation in Exhibit 99.1 to this Form 10-K for further information on the Company's calculation of ROIC.,neutral +"•Free cash flow , defined as cash provided by operations less capital expenditures, and free cash flow conversion rate , defined as free cash flow +divided by net income, are measures reviewed by management in order to evaluate the Company’ s ability to convert net profits into cash +resources, after reinvesting in the core business, that can be used to pursue opportunities to enhance shareholder value.",positive +"Refer to the +reconciliations in Exhibit 99.1 to this Form 10-K for further information on the Company's calculations of free cash flow and free cash flow +conversion rate.",positive +2022 FINANCIAL PERFORMANCE,neutral +"In 2022, global comparable sales increased 10.9%, primarily due to strong sales performance across all segments from continued execution of the +Accelerating the Arches strategy .",positive +"•Comparable sales in the U.S. increased 5.9%, benefiting primarily from strong average check growth driven by strategic menu price increases, +successful menu and marketing promotions and continued digital and delivery growth.",positive +"•Comparable sales in the International Operated segment increased 13.3%, reflecting positive comparable sales across the segment, primarily +driven by France, Germany and the U.K. +•Comparable sales in the International Developmental Licensed segment increased 16.0%, reflecting positive comparable sales across the +segment, led by Japan and Brazil, partly of fset by negative comparable sales in China due to continued COVID-19 related government +restrictions.",positive +"Earnings and cash flow growth rates presented below were impacted in 2022 by charges from the sale of the Company's business in Russia, the +settlement of a tax audit in France and a gain on the sale of the Company's Dynamic Yield business.",neutral +"Additionally , 2021 results were impacted by gains +on the Company's sale of McDonald's Japan stock, the remeasurement of deferred taxes as a result of a change in the U.K. statutory income tax rate +and charges from the sale of McD Tech Labs.",neutral +"Current year and prior year charges and gains are detailed along with reconciliations to the non-GAAP measures in the Net Income and Diluted +Earnings Per Share section on page 12 and Operating Income section on page 17 in this Form 10-K.",positive +"In addition to the comparable sales results above, the Company had the following financial results in 2022: +•Consolidated revenues were flat (increased 6% in constant currencies) at $23.2 billion.",negative +•Systemwide sales increased 5% (1 1% in constant currencies) to $1 18.2 billion.,neutral +McDonald's Corporation 2022 Annual Report 8•Consolidated operating income decreased 10% (3% in constant currencies) to $9.4 billion.,negative +"•Operating margin, defined as operating income as a percent of total revenues, decreased from 44.6% in 2021 to 40.4% in 2022.",negative +•Diluted earnings per share of $8.33 decreased 17% (12% in constant currencies).,negative +"•Cash provided by operations was $7.4 billion, a 19% decrease from the prior year .",neutral +"•Capital expenditures of $1.9 billion were allocated approximately 50% to each of reinvestment in existing restaurants and new restaurant +openings.",negative +"•Free cash flow was $5.5 billion, a 23% decrease from the prior year .",neutral +"•Across the System, over 1,500 new restaurants (including those in our developmental licensee and af filiated markets) were opened.",positive +"•The Company increased its quarterly cash dividend per share by 10% to $1.52 for the fourth quarter , equivalent to an annual dividend of $6.08 +per share.",neutral +The Company returned a total of $8.1 billion to shareholders through dividends and share repurchases in 2022.,neutral +STRATEGIC DIRECTION,neutral +"In early 2023, the Company announced an evolution of its successful Accelerating the Arches strategy (the “Strategy”).",positive +"The Strategy , which +encompasses all aspects of McDonald’ s business as the leading global omni-channel restaurant brand, continues to reflect the Company’ s purpose, +mission and values.",neutral +"Enhancements to the Strategy include the additions of Restaurant Development to the MCD growth pillars and an internal ef fort, +Accelerating the Organization , both of which are aimed at elevating the Company’ s performance.",neutral +"The Company's guiding purpose, mission and values +are discussed in a dedicated section on page 4 of this Form 10-K. +GROWTH PILLARS +The following growth pillars, MCD, build on historic strengths and articulate areas of further opportunity .",neutral +"Under the Strategy , the Company will: +•Maximize our Marketing by investing in new , culturally relevant approaches, grounded in fan truths, to ef fectively communicate the story of our +brand, food and purpose.",positive +"This is exemplified by campaigns that elevate the entire brand, such as the Famous Orders platform that has been +repeatedly adopted by markets across the globe, the FIF A World Cup campaign that debuted in 75 markets, the UK’ s Raise Your Arches +campaign that was picked up by 30 markets around the globe and The Cactus Plant Flea Market Box in the U.S.",positive +"The Company is committed to a +marketing strategy that highlights value at every tier of the menu, as af fordability remains a cornerstone of the McDonald’ s brand and is especially +important to our customers in uncertain economic environments.",positive +"•Commit to the Core menu by tapping into customer demand for the familiar and focusing on serving our iconic products such as our W orld +Famous Fries, the Big Mac, our Chicken McNuggets and the McFlurry .",positive +"Around the world, McDonald’ s possesses 10 of these ""billion-dollar brand +equities.""",neutral +"The Company will continue to improve on its classics by implementing a series of operational and formulation changes designed to +deliver hotter , juicer , tastier burgers across the globe.",neutral +"While leaning into core icons like Chicken McNuggets, ongoing focus will include scaling +emerging equities such as the McSpicy and McCrispy Chicken Sandwiches.",negative +"The Company also continues to see a significant opportunity with +coffee, demonstrated by markets leveraging the McCafé brand, customer experience, value and quality to drive long-term growth.",positive +"•Double Down on the 4D's: Digital, Delivery , Drive Thru and the recent addition of Restaurant Development by leveraging competitive +strengths and building a powerful digital experience growth engine to deliver a personalized and convenient customer experience.",positive +"To unlock +further growth, the Company expects to continue to accelerate the pace of restaurant openings and technology innovation so that whenever and +however customers choose to interact with McDonald’ s, they can enjoy a fast, easy experience that meets their needs.",positive +"In 2022, digital channels +(the mobile app, delivery and kiosk) comprised nearly 35% of Systemwide sales in the Company’ s top six markets, representing over $25 billion +in digital Systemwide sales.",positive +◦Digital:,neutral +"The Company’ s digital experience growth engine — “MyMcDonald’ s” — is transforming its of ferings across drive thru, takeaway , +delivery , curbside pick-up and dine-in with digital enhancements.",neutral +"Through the digital tools, customers can access personalized of fers, +participate in a loyalty program, order through the mobile app and receive McDonald's food through the channel of their choice.",neutral +"The +Company has successful loyalty programs in over 50 markets around the world, including its top six markets.",positive +"As of December 31, 2022, +the Company’ s loyalty customers have proven to be highly engaged, with nearly 50 million active loyalty members across the top six +markets in the last 90 days, including 28 million in the U.S. +◦Delivery:",positive +"The Company has continued to expand the number of restaurants of fering delivery to nearly 35,000, representing over 85% of +McDonald's restaurants.",positive +"Delivery is available in about 100 markets, and the Company is continuing to build on and enhance the delivery +experience for customers by adding the ability to place a delivery order on the McDonald's mobile app in some of its largest markets.",positive +"This capability is now available in the U.S., the U.K., Canada and Australia.",positive +"The Company has also put in place long-term strategic +partnerships with UberEats, DoorDash, Just Eat Takeaway .com",neutral +and Deliveroo.,neutral +"These partnerships are expected to benefit the +Company , its customers and franchisees by optimizing operational ef ficiencies and creating a seamless customer experience.",neutral +"◦Drive Thru: The Company has drive thru locations in over 26,000 restaurants globally , including nearly 95% of the over 13,000 locations +in the U.S.",positive +"This channel remains a competitive advantage, and we expect that it will become even more critical to meeting customers’ +demand for flexibility and choice.",positive +"The Company continues to build on its drive thru advantage, as the vast majority of new restaurant +openings in the U.S. and International Operated Market segments will include a drive thru.",positive +McDonald's Corporation 2022 Annual Report 9◦Restaurant Development:,neutral +"The Company will accelerate the pace of restaurant openings with the recent addition of this component to +the MCD growth pillars.",neutral +"In 2023, the Company plans to open approximately 1,900 new restaurant units across the globe, which will +contribute to nearly 4% net unit growth.",negative +"The Company believes there is opportunity for further growth in many of its largest markets and +to explore new formats under the McDonald’ s brand over the coming years.",positive +"FOUNDATION +Foundational to the Strategy is keeping the customer and restaurant crew at the center of everything we do, along with a relentless focus on running +great restaurants, empowering our people and modernizing ways of working through Accelerating the Organization .",positive +•Running Great Restaurants:,positive +"The Company of fers the speed, choice and personalization that its customers expect and serves delicious food +people feel good about eating, with convenient locations and hours and af fordable prices.",positive +"•Empowering our People: The Company believes the employee experience is critical to its success and, in 2022, implemented Global Brand +Standards which are designed to create a culture of safety for both employees and customers in McDonald’ s restaurants around the world.",positive +"•Accelerating the Organization : The Company will unlock further growth as it modernizes the way it works by focusing on becoming faster , +more innovative and more ef ficient at solving problems for its customers and people.",positive +"This work is guided by a commitment to provide people +with career paths for growth and development that capitalize on the global nature of the Company's business.",neutral +"These ef forts, coupled with investments in innovation, are designed to enhance the customer experience and deliver long-term profitable growth for all +stakeholders.",neutral +"The Strategy is aligned with the Company’ s capital allocation philosophy of investing in opportunities to grow the business (through new +restaurants and reinvesting in existing restaurants) and returning free cash flow to shareholders over time through dividends and share repurchases.",positive +"The Company believes the Strategy builds on its inherent strengths by harnessing its competitive advantages while leveraging its size, scale and +agility to adapt and adjust to uncertain economic and operating environments to meet consumer demands.",positive +"The Strategy is supported by a strong +global senior leadership team aimed at executing against the MCD growth pillars and accelerating the Company’ s broad-based business momentum.",positive +"OUTLOOK +Based on current conditions, the following is provided to assist in forecasting the Company's future results for 2023.",neutral +•,neutral +"The Company expects net restaurant unit expansion will contribute nearly 1.5% to 2023 Systemwide sales growth, in constant +currencies.",positive +•,neutral +"The Company expects full year 2023 selling, general and administrative expenses of about 2.2% to 2.3% of Systemwide sales.",positive +•,neutral +The Company expects 2023 operating margin percent to be about 45%.,neutral +"• Based on current interest and foreign currency exchange rates, the Company expects interest expense for the full year 2023 to increase +between 10% and 12%, driven primarily by higher average interest rates.",positive +•,neutral +The Company expects the ef fective income tax rate for the full year 2023 to be in the 20% to 22% range.,positive +"Some volatility may result in a +quarterly tax rate outside of the annual range.",neutral +•,neutral +"The Company expects 2023 capital expenditures to be between $2.2 and $2.4 billion, about half of which will be directed towards new +restaurant unit expansion across the U.S. and International Operated Markets.",negative +"Globally , the Company expects to open about 1,900 +restaurants.",neutral +"The Company will open more than 400 restaurants in the U.S. and International Operated Markets segments, and +developmental licensees and af filiates will contribute capital towards about 1,500 restaurant openings in their respective markets.",positive +"The +Company expects about 1,500 net restaurant additions in 2023.",neutral +•,neutral +The Company expects to achieve a free cash flow conversion rate greater than 90%.,positive +McDonald's Corporation 2022 Annual Report 10CONSOLIDATED OPERATING RESULTS,neutral +"The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes beginning on page 35 of +this Form 10-K. This section generally discusses 2022 and 2021 items and the year-to-year comparisons between the years ended December 31, +2022 and 2021.",positive +"Discussions of 2020 items and the year-to-year comparisons between the years ended December 31, 2021 and 2020 are not included +in their entirety in this Form 10-K and can be found in the “Management’ s Discussion and Analysis of Financial Condition and Results of Operations” +section of the Company’",neutral +"s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 24, 2022.",negative +"Impact of COVID-19 Restrictions +During the last three years, markets experienced varying levels of governmental restrictions on restaurant operations in response to the COVID-19 +pandemic, including restrictions related to operating hours, dine-in capacity , and dining room and restaurant closures.",positive +"These restrictions af fected the +Company’ s revenues for all three years, with a more limited impact in 2022 due to the lesser extent of the restrictions.",positive +"As most revenues and the +Company's share of net results in equity investments are based on a percent of sales, consumer sentiment and government restrictions as a result of +COVID-19 may continue to have an impact on results.",positive +"Impact of the War in Ukraine +During the first quarter of 2022, McDonald’ s temporarily closed restaurants in Russia and Ukraine due to the ongoing war in the region.",positive +"Restaurants +remained closed in Russia through the Company's sale of its Russian business in the second quarter 2022.",negative +"Beginning in September 2022, the Company began reopening restaurants in Ukraine.",neutral +"Operating results +2022 2021 2020 +Dollars and shares in millions, except per share data AmountIncrease/ +(decrease) AmountIncrease/ +(decrease) Amount +Revenues +Sales by Company-operated restaurants $8,748 (11 %) $9,787 20 % $8,139 +Revenues from franchised restaurants 14,106 8 13,085 22 10,726 +Other revenues 329 (6) 351 2 343 +Total revenues 23,183 — 23,223 21 19,208 +Operating costs and expenses +Company-operated restaurant expenses 7,381 (8) 8,047 15 6,981 +Franchised restaurants-occupancy expenses 2,350 1 2,335 6 2,208 +Other restaurant expenses 245 (6) 260 (2) 267 +Selling, general & administrative expenses +Depreciation and amortization 370 12 330 10 301 +Other 2,492 5 2,378 6 2,245 +Other operating (income) expense, net 974 n/m (483) n/m (118) +Total operating costs and expenses 13,812 7 12,867 8 11,884 +Operating income 9,371 (10) 10,356 41 7,324 +Interest expense 1,207 2 1,186 (3) 1,218 +Nonoperating (income) expense, net 339 n/m 42 n/m (35) +Income before provision for income taxes 7,825 (14) 9,128 49 6,141 +Provision for income taxes 1,648 4 1,583 12 1,410 +Net income $6,177 (18 %) $7,545 59 % $4,731 +Earnings per common share—diluted $ 8.33 (17 %) $10.04 59 % $ 6.31 +Weighted-average common shares outstanding— +diluted 741.3 (1 %) 751.8 — % 750.1 +n/m Not meaningful +IMPACT OF FOREIGN CURRENCY TRANSLATION ON REPORTED RESULTS",negative +"The impact of foreign currency translation on consolidated operating results in 2022 reflected the weakening of all major currencies against the U.S. +Dollar , driven by the Euro, British Pound, and Australian Dollar .",negative +"While changes in foreign currency exchange rates af fect reported results, McDonald’ s mitigates exposures, where practical, by purchasing goods +and services in local currencies, financing in local currencies and hedging certain foreign-denominated cash flows.",positive +"Results excluding the ef fect of +foreign currency translation (referred to as constant currency) are calculated by translating current year results at prior year average exchange rates.",negative +"McDonald's Corporation 2022 Annual Report 11Impact of foreign currency translation on reported results + Reported amountCurrency translation +benefit/(cost)",negative +"In millions, except per share data 2022 2021 2020 2022 2021 2020 +Revenues $23,183 $23,223 $19,208 $(1,419) $ 488 $ (75) +Company-operated margins 1,368 1,740 1,158 (99) 42 (1) +Franchised margins 11,756 10,750 8,519 (646) 223 32 +Selling, general & administrative expenses 2,862 2,708 2,546 63 (28) (2) +Operating income 9,371 10,356 7,324 (652) 231 35 +Net income 6,177 7,545 4,731 (386) 150 26 +Earnings per common share—diluted 8.33 10.04 6.31 (0.52) 0.20 0.04 +NET INCOME AND DILUTED EARNINGS PER COMMON SHARE",negative +"In 2022, net income decreased 18% (13% in constant currencies) to $6.2 billion and diluted earnings per common share decreased 17% (12% in +constant currencies) to $8.33.",negative +Foreign currency translation had a negative impact of $0.52 on diluted earnings per share.,negative +"2022 results included: +•Net pre-tax charges of $1,281 million, or $1.44 per share, related to the sale of the Company's business in Russia +•Net pre-tax gain of $271 million, or $0.40 per share, related to the Company's sale of its Dynamic Yield business +•$537 million, or $0.73 per share, of nonoperating expense related to the settlement of a tax audit in France +2021 results included: +•Net pre-tax gains of $339 million, or $0.33 per share, primarily related to the sale of McDonald's Japan stock +•Pre-tax charges of $54 million, or $0.05 per share, primarily related to the sale of McD Tech Labs +•$364 million, or $0.48 per share, of income tax benefit related to the remeasurement of deferred taxes as a result of a change in the U.K. +statutory income tax rate +Outlined below is additional information for the full year 2022 and 2021: +Net Income Reconciliation + Amount Increase/(decrease)Increase/(decrease) +excluding currency +translation +2022 2021 2022 2022 +GAAP net income $ 6,177.4 $ 7,545.2 (18 %) (13 %) +(Gains) charges 770.7 (202.7) +Income tax (benefit) cost, net — (363.7) +France tax settlement 537.2 — +Non-GAAP net income $ 7,485.3 $ 6,978.8 7 % 13 % +Diluted Earnings Per Common Share Reconciliation + Amount Increase/(decrease)Increase/(decrease) +excluding currency +translation +2022 2021 2022 2022 +GAAP earnings per share-diluted $ 8.33 $ 10.04 (17 %) (12 %) +(Gains) charges 1.04 (0.28) +Income tax (benefit) cost, net — (0.48) +France tax settlement 0.73 — +Non-GAAP earnings per share-diluted $ 10.10 $ 9.28 9 % 15 % +In constant currencies, after consideration of the adjustments to reconcile our GAAP to Non-GAAP results above, 2022 reflected strong operating +performance driven by higher sales-driven Franchised margins.",positive +"Company-operated margins were negatively impacted by the permanent restaurant +closures as a result of the sale of the Company's business in Russia and the temporary restaurant closures in Ukraine, as well as by inflationary cost +pressures.",negative +"In addition, net income reflected an income tax benefit associated with global tax audit progression.",neutral +"The Company repurchased 15.8 million shares of its stock for $3.9 billion in 2022 and 3.4 million shares of its stock for $846 million in 2021.McDonald's Corporation 2022 Annual Report 12REVENUES +The Company's revenues consist of sales by Company-operated restaurants and fees from restaurants operated by franchisees, developmental +licensees and af filiates.",neutral +"Revenues from conventional franchised restaurants include rent and royalties based on a percent of sales with minimum rent +payments, and initial fees.",negative +"Revenues from restaurants licensed to developmental licensees and af filiates include a royalty based on a percent of sales, +and generally include initial fees.",positive +"The Company’ s Other revenues are comprised of fees paid by franchisees to recover a portion of costs incurred by +the Company for various technology platforms, revenues from brand licensing arrangements to market and sell consumer packaged goods using the +McDonald’ s brand and, for periods prior to its sale on April 1, 2022, third-party revenues for the Company's Dynamic Yield business .",negative +"Franchised restaurants represented 95% of McDonald's restaurants worldwide at December 31, 2022.",neutral +"The Company's heavily franchised +business model is designed to generate stable and predictable revenue, which is largely a function of franchisee sales, and resulting cash flow +streams.",negative +"Revenues + Amount Increase/(decrease)Increase/(decrease) +excluding currency +translation +Dollars in millions 2022 2021 2020 2022 2021 2022 2021 +Company-operated sales: +U.S. $2,836 $2,617 $2,395 8 % 9 % 8 % 9 % +International Operated Markets 5,179 6,456 5,114 (20) 26 (11) 23 +International Developmental Licensed Markets & +Corporate 733 715 630 3 13 16 10 +Total $8,748 $9,788 $8,139 (11 %) 20 % (4 %) 18 % +Franchised revenues: +U.S. $6,585 $6,094 $5,261 8 % 16 % 8 % 16 % +International Operated Markets 5,985 5,638 4,348 6 30 18 24 +International Developmental Licensed Markets & +Corporate 1,536 1,353 1,117 14 21 22 20 +Total $14,106 $13,085 $10,726 8 % 22 % 14 % 19 % +Total Company-operated sales and Franchised +revenues: +U.S. $9,421 $8,711 $7,656 8 % 14 % 8 % 14 % +International Operated Markets 11,164 12,094 9,462 (8) 28 2 23 +International Developmental Licensed Markets & +Corporate 2,269 2,068 1,747 10 18 20 16 +Total $22,854 $22,873 $18,865 — % 21 % 6 % 19 % +Total Other revenues $ 329 $ 350 $ 343 (6 %) 2 % (3 %) — % +Total Revenues $23,183 $23,223 $19,208 — % 21 % 6 % 18 %",positive +"In 2022, total Company-operated sales and franchised revenues were flat (increased 6% in constant currencies).",negative +"In the International Operated +Markets segment, results reflected positive constant currency sales performance, driven by France, Germany and the U.K., of fset by lower Company- +operated sales due to permanent restaurant closures as a result of the sale of the Company's business in Russia and the temporary restaurant +closures in Ukraine.",positive +The International Developmental Licensed Markets segment reflected strong sales performance across all geographic regions.,positive +"TOTAL REVENUES BY SEGMENT +U.S. +International Operated Markets +International Developmental Licensed Markets & CorporateThe following tables present comparable sales and Systemwide sales increases/(decreases): +McDonald's Corporation 2022 Annual Report 13Comparable sales increases/(decreases)* + 2022 2021 2020 +U.S. 5.9 % 13.8 % 0.4 % +International Operated Markets 13.3 21.6 (15.0) +International Developmental Licensed Markets & Corporate 16.0 16.6 (10.5)",neutral +Total 10.9 % 17.0 % (7.7 %),neutral +"*For both International Operated Markets and Total comparable sales calculations for 2022, restaurants in Russia were treated as permanently closed starting April +1, 2022 and therefore excluded from the calculations beginning in the second quarter of 2022.",negative +"Restaurants from Ukraine were treated as temporarily closed and +therefore included in the calculations.",negative +"Beginning in September 2022, the Company began reopening restaurants in Ukraine.",neutral +"Due to the more significant impact of +COVID-19 in 2020, comparable sales growth from 2020 to 2021 may not be fully indicative of the Company's performance.",positive +"Systemwide sales increases/(decreases)** + Increase/(decrease) +excluding currency +translation +2022 2021 2022 2021 +U.S. 6 % 13 % 6 % 13 % +International Operated Markets — 29 11 24 +International Developmental Licensed Markets & Corporate 10 21 21 20 +Total 5 % 21 % 11 % 18 % + **",neutral +"Unlike comparable sales, the Company has not excluded sales from hyperinflationary markets from Systemwide sales as these sales are the basis on which the +Company calculates and records revenues.",neutral +"2022 results reflect the impact of the permanent restaurant closures as a result of the sale of the Company's business +in Russia and the temporary restaurant closures in Ukraine.",neutral +"Franchised sales are not recorded as revenues by the Company , but are the basis on which the Company calculates and records franchised +revenues and are indicative of the financial health of the franchisee base.",negative +"The following table presents franchised sales and the related +increases/(decreases): +Franchised sales +Amount Increase/(decrease)Increase/(decrease) +excluding currency +translation +Dollars in millions 2022 2021 2020 2022 2021 2022 2021 +U.S. $45,898 $43,344 $38,123 6 % 14 % 6 % 14 % +International Operated Markets 34,537 33,097 25,446 4 30 15 24 +International Developmental Licensed Markets & +Corporate 29,038 26,234 21,609 11 21 21 21 +Total $109,473 $102,675 $85,178 7 % 21 % 13 % 18 % +Ownership type +Conventional franchised",negative +"$80,066 $75,956 $63,297 5 % 20 % 10 % 18 % +Developmental licensed 18,444 15,151 11,781 22 29 31 28 +Foreign af filiated 10,963 11,568 10,100 (5) 15 6 13 +Total $109,473 $102,675 $85,178 7 % 21 % 13 % 18 % +McDonald's Corporation 2022 Annual Report 14RESTAURANT MARGINS +Franchised restaurant margins are measured as revenues from franchised restaurants less franchised restaurant occupancy costs.",negative +"Franchised +revenues include rent and royalties based on a percent of sales, and initial fees.",neutral +"Franchised restaurant occupancy costs include lease expense and +depreciation, as the Company generally owns or secures a long-term lease on the land and building for the restaurant location.",positive +"Company-operated restaurant margins are measured as sales from Company-operated restaurants less costs for food & paper , payroll & +employee benefits and occupancy & other operating expenses necessary to run an individual restaurant.",negative +"Company-operated margins exclude costs +that are not allocated to individual restaurants, primarily payroll & employee benefit costs of non-restaurant support staf f, which are included in Selling, +general and administrative expenses.",positive +"Restaurant margins + Amount Increase/(decrease)Increase/(decrease) +excluding currency +translation +Dollars in millions 2022 2021 2020 2022 2021 2022 2021 +Franchised: +U.S. $5,341 $4,906 $4,097 9 % 20 % 9 % 20 % +International Operated Markets 4,900 4,516 3,329 8 36 20 29 +International Developmental Licensed Markets & +Corporate1,515 1,328 1,093 14 22 23 20 +Total $11,756 $10,750 $8,519 9 % 26 % 15 % 24 % +Company-operated: +U.S. $ 429 $ 511 $ 405 (16 %) 26 % (16 %) 26 % +International Operated Markets 913 1,208 748 (24) 61 (17) 56 +International Developmental Licensed Markets & +Corporaten/m n/m n/m n/m n/m n/m n/m +Total $1,368 $1,740 $1,158 (21 %)",neutral +"50 % (16 %) 47 % +Total restaurant margins: +U.S. $5,770 $5,417 $4,502 7 % 20 % 7 % 20 % +International Operated Markets 5,813 5,724 4,077 2 40 12 34 +International Developmental Licensed Markets & +Corporaten/m n/m n/m n/m n/m n/m n/m +Total $13,124 $12,490 $9,677 5 % 29 % 11 % 26 % +n/m Not meaningful +In 2022, total restaurant margins increased 5% (1 1% in constant currencies), which reflected strong sales performance across all segments.",positive +Franchised margins represented nearly 90% of restaurant margin dollars.,positive +"Total restaurant margin growth was negatively impacted in both periods by foreign currency translation due to the weakening of all major +currencies against the U.S. Dollar .",negative +Franchised margins in the U.S. reflected higher depreciation costs related to investments in restaurant modernization.,positive +"Company-operated margins in the U.S. and International Operated Markets segment reflected positive sales performance driven by strategic +menu price increases, and the negative impact of inflationary pressures.",negative +"Results in the International Operated Markets segment were also negatively +impacted by the restaurant closures in Russia and Ukraine.",negative +"Total restaurant margins included $1,501 million of depreciation and amortization expenses in 2022.",neutral +"RESTAURANT MARGINS BY TYPE (In millions) +McDonald's Corporation 2022 Annual Report 15SELLING, GENERAL & ADMINISTRATIVE EXPENSES +Selling, general & administrative expenses + Amount Increase/(decrease)Increase/(decrease) +excluding currency +translation +Dollars in millions 2022 2021 2020 2022 2021 2022 2021 +U.S. $692 $696 $625 (1 %) 11 % (1 %) 11 % +International Operated Markets 629 692 700 (9) (1) — (5) +International Developmental Licensed Markets & +Corporate 1,541 1,320 1,221 17 8 17 8 +Total Selling, General & Administrative Expenses $2,862 $2,708 $2,546 6 % 6 % 8 % 5 % +Less: Incentive-Based Compensation 404 439 158 (8) n/m (6) n/m",positive +"Total Excluding Incentive-Based Compensation $2,458 $2,269 $2,388 8 % (5 %) 11 % (6 %) +(1) Includes home office support costs in areas such as facilities, finance, human resources, investments in strategic technology initiatives, legal, marketing, restaurant operations, +supply chain and training.",positive +(2) Includes all cash incentives and share-based compensation expense.,neutral +"In 2022, consolidated selling, general and administrative expenses increased 6% (8% in constant currencies), reflecting higher costs for investments in +restaurant technology , incremental costs related to strategic initiatives, the Company's 2022 W orldwide Owner/Operator convention and proxy contest, +as well as the impact of inflationary cost pressures.",positive +"Management believes that analyzing selling, general & administrative expenses as a percent of Systemwide sales is meaningful because these costs +are incurred to support the overall McDonald's business.",positive +"SELLING, GENERAL & ADMINISTRATIVE EXPENSES AS A PERCENT OF SYSTEMWIDE SALES +OTHER OPERATING (INCOME) EXPENSE, NET +Other operating (income) expense, net(1) +(2)In millions 2022 2021 2020 +Gains on sales of restaurant businesses $ (60) $ (96) $ (23) +Equity in earnings of unconsolidated af filiates (113) (177) (117) +Asset dispositions and other (income) expense, net 137 75 290 +Impairment and other charges (gains), net 1,010 (285) (268)",negative +"Total $ 974 $(483) $(118) +McDonald's Corporation 2022 Annual Report 16•Gains on sales of restaurant businesses +In 2022, gains on sales of restaurant businesses decreased primarily due to a lower number of restaurant sales in the U.S. +•Equity in earnings of unconsolidated af filiates +In 2022, equity in earnings of unconsolidated af filiates decreased due to lower equity in earnings from China as a result of the continued impact of +COVID-19 related government restrictions, and lower equity in earnings from the International Operated Markets segment, primarily as a result of +dissolving a restaurant joint partnership.",negative +"Results also reflected lower equity in earnings from Japan, due to the Company's reduced ownership in +McDonald's Japan when compared to 2021.",negative +"•Asset dispositions and other (income) expense, net +Asset dispositions and other (income) expense, net reflected higher asset write-of fs, costs incurred to support the Company's business in Ukraine, and +the comparison to a prior year gain on the strategic sale of restaurant properties.",neutral +"Results also reflected a gain as a result of an increase to fair value of +an existing restaurant joint venture in connection with the buyout of a joint venture partner within the International Operated Markets segment.",positive +"•Impairment and other charges (gains), net +In 2022, impairment and other charges (gains), net reflected $1,281 million of pre-tax charges related to the sale of the Company's business in Russia +and a pre-tax gain of $271 million related to the Company's sale of its Dynamic Yield business.",negative +"Results in 2021 reflected net pre-tax gains of $339 million, primarily related to the sale of McDonald's Japan stock.",neutral +"These results were partly of fset +by $54 million of pre-tax charges, primarily related to the sale of McD Tech Labs. +OPERATING INCOME +Operating income + Amount Increase/(decrease)Increase/(decrease) +excluding currency +translation +Dollars in millions 2022 2021 2020 2022 2021 2022 2021 +U.S. $5,136 $4,755 $3,789 8 % 25 % 8 % 25 % +International Operated Markets 3,926 5,130 3,315 (23) 55 (13) 48 +International Developmental Licensed Markets & +Corporate 309 471 220 (34) n/m (5) n/m +Total $9,371 $10,356 $7,324 (10 %) 41 % (3 %) 38 % +Operating margin 40.4 % 44.6 % 38.1 % +Operating income reconciliation* + Amount Increase/(decrease)Increase/(decrease) +excluding currency +translation +Dollars in millions 2022 2021 2022 2022 +GAAP operating income $ 9,371 $10,356 (10 %) (3 %) +Russia sale charge 1,281 — +Dynamic Yield sale gain (271) — +Japan stock sale gains — (339) +McD Tech Labs sale charge — 54 +Non-GAAP operating income $10,381 $10,071 3 % 10 % +Non-GAAP operating margin 44.8 % 43.4 % +*Refer to the Impairment and other charges (gains), net line within the Other Operating (Income) Expense, Net section above for details of the gains and charges in +this table.",negative +•Operating Income: Operating income decreased 10% (3% in constant currencies).,negative +"Excluding the current year and prior year items in the table +above, operating income increased 3% (10% in constant currencies) for 2022.",neutral +•U.S.:,neutral +"Operating income increased due to sales-driven growth in Franchised margins, partly of fset by inflationary pressures on labor and +commodities in Company-operated restaurant margins.",negative +"•International Operated Markets: Constant currency results reflected positive sales performance led by France, Germany , and the U.K. +Results were partly of fset by the impact of restaurant closures in Russia and Ukraine as well as inflationary pressures in Company- +operated restaurant margins.",positive +"•International Developmental Licensed Markets & Corporate: Results reflected strong sales performance, primarily in Brazil and +Japan, and higher Corporate general and administrative expenses.",positive +"McDonald's Corporation 2022 Annual Report 17OPERATING INCOME BY SEGMENT* +U.S. +International Operated Markets +International Developmental Licensed Markets & Corporate* +*The IDL segment data in this graphic excludes Corporate activities, which is a Non-GAAP presentation.",neutral +•Operating margin: Operating margin is defined as operating income as a percent of total revenues.,neutral +"The contributions to operating margin dif fer +by segment due to each segment's ownership structure, primarily due to the relative percentage of franchised versus Company-operated +restaurants.",negative +"Additionally , temporary restaurant closures, which vary by segment, impact the contribution of each segment to the consolidated +operating margin.",neutral +"NON-GAAP OPERATING MARGIN PERCENT ROLL-FORWARD* +Non-GAAP Increase Decrease +*Refer to the Operating Income section on page 17 in this Form 10-K for details regarding operating margin percent for 2022.McDonald's Corporation 2022 Annual Report 18INTEREST EXPENSE +Interest expense increased 2% (4% in constant currencies) and decreased 3% (4% in constant currencies) in 2022 and 2021, respectively .",negative +"Results in +2022 reflected higher average interest rates.",positive +"NONOPERATING (INCOME) EXPENSE, NET +Nonoperating (income) expense, net",neutral +"In millions 2022 2021 2020 +Interest income $ (44) $ (9) $ (18) +Foreign currency and hedging activity (134) 37 (3) +Other expense 517 14 (14) +Total $339 $ 42 $ (35)",negative +"In 2022, Interest income increased due to higher average interest rates.",negative +"Foreign currency and hedging activity includes net gains or losses on certain hedges that reduce the exposure to variability on certain intercompany +foreign currency cash flow streams.",positive +"In 2022, Other (income) expense, net included $537 million of nonoperating expense related to the settlement of a tax audit in France.",negative +PROVISION FOR INCOME TAXES,neutral +"In 2022 and 2021, the reported ef fective income tax rates were 21.1% and 17.3%, respectively .",neutral +Results for 2022 reflected the tax impact of $537 million of nonoperating expense related to the settlement of a tax audit in France.,neutral +"During the +year, the Company finalized and settled certain tax examinations and remeasured other income tax reserves based on audit progression.",positive +Results for 2021 included $364 million of income tax benefits due to a change in the U.K. statutory income tax rate.,negative +"Excluding the income tax +benefits and the tax impact of net gains, the ef fective income tax rate for the year was 21.1%.",neutral +"Consolidated deferred tax assets, net of valuation allowance, was $6.1 billion in 2022 and $6.6 billion in 2021.",neutral +"Substantially all of the net tax +assets are expected to be realized in the U.S. and other profitable markets.",negative +"RECENTLY ISSUED ACCOUNTING STANDARDS +Recently issued accounting standards are included on page 41 of this Form 10-K. +CASH FLOWS +The Company has a long history of generating significant cash from operations and has substantial credit capacity to fund operating and discretionary +spending such as capital expenditures, debt repayments, dividends and share repurchases.",positive +"Cash provided by operations totaled $7.4 billion in 2022, a decrease of $1.7 billion or 19%.",neutral +"Free cash flow was $5.5 billion in 2022, a decrease of +$1.6 billion or 23%.",positive +The Company’ s free cash flow conversion rate was 89% in 2022 and 94% in 2021.,positive +"Cash provided by operations decreased in +2022 compared to 2021 primarily due to the settlement of a tax audit in France, changes in working capital, and the negative impact of foreign +currency rates on operating results.",negative +"Cash used for investing activities totaled $2.7 billion in 2022, an increase of $512 million compared with 2021.",neutral +"The increase was primarily due to +higher purchases of restaurant businesses, partly of fset by proceeds from the sale of Dynamic Yield in 2022 and proceeds from the sale of McDonald’ s +Japan stock in 2021.",positive +"Cash used for financing activities totaled $6.6 billion in 2022, an increase of $1.0 billion compared with 2021.",neutral +"The increase was primarily due to +increased treasury stock purchases, partly of fset by increased net debt issuances.",negative +"The Company’ s cash and equivalents balance was $2.6 billion and $4.7 billion at year end 2022 and 2021, respectively .",neutral +"In addition to cash and +equivalents on hand and cash provided by operations, the Company can meet short-term funding needs through its continued access to commercial +paper borrowings and line of credit agreements.",neutral +McDonald's Corporation 2022 Annual Report 19RESTAURANT DEVELOPMENT AND CAPITAL EXPENDITURES,neutral +"In 2022, the Company opened 1,576 restaurants and closed 1,332 restaurants.",negative +"In 2021, the Company opened 1,494 restaurants and closed 661 +restaurants.",negative +"The increase in closures in 2022 was primarily due to the closure of 855 restaurants as a result of the sale of the Company's business in +Russia.",negative +"Systemwide restaurants at year end +2022 2021 2020 +U.S. 13,444 13,438 13,682 +International Operated Markets 10,103 10,785 10,560 +International Developmental Licensed Markets & Corporate 16,728 15,808 14,956 +Total 40,275 40,031 39,198 +RESTAURANTS BY OWNERSHIP TYPE +Franchised restaurants Company-operated restaurants +Approximately 95% of the restaurants at year-end 2022 were franchised, including 95% in the U.S., 89% in International Operated Markets and +98% in the International Developmental Licensed Markets.",negative +"Capital expenditures decreased $141 million or 7% in 2022 due to lower reinvestment in existing restaurants, primarily as a result of the sale of +the Company's business in Russia and temporary restaurant closures in Ukraine.",negative +McDonald's Corporation 2022 Annual Report 20CAPITAL EXPENDITURES BY TYPE (In millions),neutral +* Primarily corporate equipment and other office-related expenditures.,negative +New restaurant investments in all years were concentrated in markets with strong returns and/or opportunities for long-term growth.,positive +"Average +development costs vary widely by market depending on the types of restaurants built and the real estate and construction costs within each market.",negative +"These costs, which include land, buildings and equipment, are managed through the use of optimally-sized restaurants, construction and design +efficiencies, as well as leveraging the Company's global sourcing network and best practices.",positive +"As of December 31, 2022 and 2021, the Company owned approximately 57% and 55%, respectively , of the land and 80% of the buildings for +restaurants in its consolidated markets.",negative +SHARE REPURCHASES AND DIVIDENDS,neutral +"In 2022, the Company returned approximately $8.1 billion to shareholders through a combination of dividends paid and shares repurchased.",negative +"Shares repurchased and dividends +In millions, except per share data 2022 2021 2020 +Number of shares repurchased 15.8 3.4 4.3 +Shares outstanding at year end 731 745 745 +Dividends declared per share $ 5.66 $ 5.25 $ 5.04 +Treasury stock purchases (in Shareholders' equity) $3,896 $ 846 $ 874 +Dividends paid 4,168 3,919 3,753 +Total returned to shareholders $8,064 $4,765 $4,627",positive +"In December 2019, the Company's Board of Directors approved a share repurchase program, ef fective January 1, 2020, that authorized the +purchase of up to $15 billion of the Company's outstanding stock, with no specified expiration date.",positive +"In 2022, approximately 15.8 million shares were +repurchased for $3.9 billion, bringing total purchases under the program to approximately 23.5 million shares or $5.6 billion.",negative +The Company has paid dividends on its common stock for 47 consecutive years and has increased the dividend amount every year .,negative +"The 2022 full +year dividend of $5.66 per share reflects the quarterly dividend paid for each of the first three quarters of $1.38 per share, with an increase to $1.52 +per share paid in the fourth quarter .",positive +"This 10% increase in the quarterly dividend equates to a $6.08 per share annual dividend and reflects the +Company’ s confidence in the ongoing strength and reliability of its cash flow .",neutral +"As in the past, future dividend amounts will be considered after reviewing +profitability expectations and financing needs, and will be declared at the discretion of the Company’ s Board of Directors.",negative +"McDonald's Corporation 2022 Annual Report 21FINANCIAL POSITION AND CAPITAL RESOURCES +TOTAL ASSETS AND RETURN +Total assets decreased $3.4 billion or 6% in 2022, primarily due to a decrease in Cash and equivalents driven by lower cash from operations and +increased treasury stock purchases, partly of fset by increased net debt issuances.",negative +"Net property and equipment decreased $0.9 billion in 2022, +primarily due to the sale of the Company's business in Russia.",negative +"Net property and equipment and the Lease right-of-use asset, net represented +approximately 47% and approximately 25%, respectively , of total assets at year-end.",negative +"Approximately 87% of total assets were in the U.S. and +International Operated Markets at year-end 2022.",negative +"The Company’ s after-tax ROIC from continuing operations is a metric that management believes measures capital-allocation ef fectiveness over +time and was 22.6%, 21.5% and 14.9% as of December 31, 2022, 2021 and 2020, respectively .",neutral +"The increase from 2020 to 2021 was primarily due to +improved operating results and recovery from the impact of COVID-19 as well as lower average debt balances compared to the prior year .",negative +"Refer to the +reconciliation in Exhibit 99.1 to this Form 10-K. +FINANCING AND MARKET RISK",neutral +The Company generally borrows on a long-term basis and is exposed to the impact of interest rate changes and foreign currency fluctuations.,negative +"Debt +obligations at December 31, 2022 totaled $35.9 billion, compared with $35.6 billion at December 31, 2021.",neutral +"The net increase in 2022 was due to net +issuances of $1.2 billion, partly of fset by the impact of changes in exchange rates on foreign currency denominated debt of $814 million.",negative +"Debt highlights +2022 2021 2020 +Fixed-rate debt as a percent of total debt 96 % 95 % 95 % +Weighted-average annual interest rate of total debt 3.5 3.2 3.2 +Foreign currency-denominated debt as a percent of total debt 36 36 36 +Total debt as a percent of total capitalization (total debt and total Shareholders' equity) 120 115 126 +Cash provided by operations as a percent of total debt 20 26 17 +(1) All percentages are as of December 31, except for the weighted-average annual interest rate, which is for the year .",negative +See reconciliation in Exhibit 99.1.,neutral +(2) Based on debt obligations before the effects of fair value hedging adjustments and deferred debt costs.,positive +"These effects are excluded as they have no impact on the obligation at +maturity .",neutral +"See the Debt Financing footnote on page 55 of this Form 10-K. +(3) Includes the effect of interest rate swaps used to hedge debt.",neutral +"Standard & Poor's and Moody's currently rate the Company’ s commercial paper A-2 and P-2, respectively , and its long-term debt BBB+ and Baa1, +respectively .",negative +"To access the debt capital markets, the Company relies on credit-rating agencies to assign short-term and long-term credit ratings.",neutral +"Certain of the Company’ s debt obligations contain cross-acceleration provisions and restrictions on Company and subsidiary mortgages and the +long-term debt of certain subsidiaries.",positive +"There are no provisions in the Company’ s debt obligations that would accelerate repayment of debt as a result +of a change in credit ratings or a material adverse change in the Company’ s business.",neutral +"In December 2022, the Company's Board of Directors +authorized $15 billion of borrowing capacity with no specified expiration date, all of which remained outstanding as of December 31, 2022.",positive +"These +borrowings may include (i) public or private of fering of debt securities; (ii) direct borrowing from banks or other financial institutions; and (iii) other forms +of indebtedness.",negative +"In addition to debt securities available through a medium-term notes program registered with the SEC and a Global Medium-T erm +Notes program, the Company is authorized to issue up to $5 billion of commercial paper , and has $3.5 billion available under a committed line of credit +agreement (see the Debt Financing footnote on page 55 of this Form 10-K).",positive +"As of December 31, 2022, the Company's subsidiaries also had $267 +million of borrowings outstanding, primarily under uncommitted foreign currency line of credit agreements.",positive +"The Company uses major capital markets, bank financings and derivatives to meet its financing requirements.",positive +"The Company manages its debt +portfolio in response to changes in interest rates and foreign currency rates by periodically retiring, redeeming and repurchasing debt, terminating +swaps and using derivatives.",positive +The Company does not hold or issue derivatives for trading purposes.,neutral +All swaps are over-the-counter instruments.,neutral +"In managing the impact of interest rate changes and foreign currency fluctuations, the Company uses interest rate swaps and finances in the +currencies in which assets are denominated.",negative +"The Company uses foreign currency debt and derivatives to hedge the foreign currency risk associated +with certain royalties, intercompany financings and long-term investments in foreign subsidiaries and af filiates.",negative +"This reduces the impact of fluctuating +foreign currencies on cash flows and shareholders’ equity .",negative +"Total foreign currency-denominated debt was $13.0 billion and $12.8 billion for the years +ended December 31, 2022 and 2021, respectively .",negative +"In addition, where practical, the Company’ s restaurants purchase goods and services in local +currencies resulting in natural hedges.",positive +"See the Summary of significant accounting policies footnote related to financial instruments and hedging +activities on page 45 of this Form 10-K for additional information regarding the accounting impact and use of derivatives.",positive +The Company does not have significant exposure to any individual counterparty and has master agreements that contain netting arrangements.,positive +"Certain of these agreements also require each party to post collateral if credit ratings fall below , or aggregate exposures exceed, certain contractual +limits.",positive +"At December 31, 2022, the Company was required to post $78 million of collateral due to the negative fair value of certain derivative positions.",positive +"The Company's counterparties were not required to post collateral on any derivative position, other than on certain hedges of the Company’ s +supplemental benefit plan liabilities where the counterparties were required to post collateral on their liability positions.",positive +The Company’ s net asset exposure is diversified among a broad basket of currencies.,positive +"The Company’ s largest net asset exposures (defined as +foreign currency assets less foreign currency liabilities) at year end were as follows:(1) +(2,3) +(3) +(2) +(2) +(2) +McDonald's Corporation 2022 Annual Report 22Foreign currency net asset exposures +In millions of U.S. Dollars 2022 2021 +British Pounds Sterling $1,167 $1,293 +Australian Dollars 884 855 +Canadian Dollars 575 904 +Polish Zloty 444 427 +New Zealand Dollars 275 267 +The Company prepared sensitivity analyses of its financial instruments to determine the impact of hypothetical changes in interest rates and +foreign currency exchange rates on the Company’ s results of operations, cash flows and the fair value of its financial instruments.",positive +"The interest rate +analysis assumed a one percentage point adverse change in interest rates on all financial instruments, but did not consider the ef fects of the reduced +level of economic activity that could exist in such an environment.",positive +"The foreign currency rate analysis assumed that each foreign currency rate would +change by 10% in the same direction relative to the U.S. Dollar on all financial instruments; however , the analysis did not include the potential impact +on revenues, local currency prices or the ef fect of fluctuating currencies on the Company’ s anticipated foreign currency royalties and other payments +received from the markets.",negative +"Based on the results of these analyses of the Company’ s financial instruments, neither a one percentage point adverse +change in interest rates from 2022 levels nor a 10% adverse change in foreign currency rates from 2022 levels would materially af fect the Company’ s +results of operations, cash flows or the fair value of its financial instruments.",positive +"LIQUIDITY AND USES OF CASH +The Company generates significant cash from operations and expects available cash and cash equivalents, future operating cash flows and its +ability to issue debt to be suf ficient to finance its foreseeable operating needs and other cash requirements.",positive +"Consistent with prior years, the Company expects existing domestic cash and equivalents, domestic cash flows from operations, the ability to +issue domestic debt and repatriation of a portion of foreign earnings to continue to be suf ficient to fund its domestic operating, investing and financing +activities.",positive +"The Company also continues to expect existing foreign cash and equivalents and foreign cash flows from operations to be suf ficient to fund +its foreign operating, investing and financing activities.",negative +"In the future, should more capital be required to fund activities in the U.S. than is generated by +domestic operations and is available through the issuance of domestic debt, the Company could elect to repatriate a greater portion of future periods' +earnings from foreign jurisdictions.",positive +The Company has significant operations outside the U.S. where it earns approximately 60% of its operating income.,negative +"A significant portion of these +historical earnings have been reinvested in foreign jurisdictions where the Company has made, and will continue to make, substantial investments to +support the ongoing development and growth of its international operations.",positive +"Sources of Liquidity +The Company has long-term revenue and cash flow streams that relate to its franchise arrangements.",neutral +"Minimum rent payments under franchise +arrangements are based on the Company’ s underlying investment in owned sites and parallel the Company’ s underlying lease obligations and +escalations on properties that are leased.",neutral +"The Company believes that control over the real estate enables it to achieve restaurant performance levels +that are among the highest in the industry .",positive +"Refer to the Franchise Arrangements footnote on page 49 of this Form 10-K for additional information on +future gross minimum payments due to the Company under existing conventional franchise arrangements.",negative +"Additionally , the Company is authorized to utilize up to $15 billion of borrowing capacity in various forms by the Board of Directors, all of which +remained outstanding as of December 31, 2022.",positive +"The Company is also authorized to issue up to $5 billion of commercial paper , and has $3.5 billion +available under a committed line of credit agreement.",positive +"Refer to the Financing and Market Risk section on page 22 of this Form 10-K. +Material Cash Requirements and Uses of Cash +Material cash requirements primarily consist of lease obligations (related to both Company-operated and franchised restaurants) and debt +obligations.",positive +"Refer to the Leasing Arrangements footnote on page 50 and the Debt Financing footnote on page 55 of this Form 10-K for more +information.",positive +"The Company also records liabilities related to supplemental benefit plans maintained in the U.S. as well as liabilities for gross unrecognized tax +benefits on certain tax positions.",positive +"Details related to these obligations are provided in the Employee Benefit Plan footnote on page 54 and the Income +Taxes footnote on page 52 of this Form 10-K. +The Company contracts with vendors and suppliers in the normal course of business.",positive +"These contracts may include items related to construction +projects, inventory , energy , marketing, technology and other services.",negative +"Generally , these items are shorter term in nature and have no minimum payment +requirements.",positive +"These expenses, along with other standard operating expenses incurred, are funded from operating cash flows and reflected in other +areas of this Form 10-K (e.g., franchised margins, Company-operated margins and selling, general & administrative expenses that are reflected in the +Consolidated Statement of Income and capital expenditures that are reflected on the Consolidated Statement of Cash Flows).",negative +"Additionally , the Company has guaranteed certain loans totaling approximately $197 million at December 31, 2022.",negative +"These guarantees are +contingent commitments generally issued by the Company to support borrowing arrangements of the System.",negative +"At December 31, 2022, there was no +carrying value for obligations under these guarantees in the Consolidated Balance Sheet.",neutral +"McDonald's Corporation 2022 Annual Report 23OTHER MATTERS +CRITICAL ACCOUNTING POLICIES AND ESTIMATES +Management’ 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 accounting principles generally accepted in the U.S.",positive +"The preparation of these financial +statements requires the Company to make estimates and judgments that af fect the reported amounts of assets, liabilities, revenues and expenses as +well as related disclosures.",neutral +"On an ongoing basis, the Company evaluates its estimates and judgments based on historical experience and various +other factors that are believed to be reasonable under the circumstances.",positive +Actual results may dif fer from these estimates.,neutral +"The Company reviews its financial reporting and disclosure practices and accounting policies quarterly to confirm that they provide accurate and +transparent information relative to the current economic and business environment.",positive +"The Company believes that of its significant accounting policies, +the following involve a higher degree of judgment and/or complexity: +•Property and equipment +Property and equipment are depreciated or amortized on a straight-line basis over their useful lives based on management’ s estimates of the period +over which the assets will generate revenue (not to exceed lease term plus options for leased property).",positive +"The useful lives are estimated based on +historical experience with similar assets, taking into account anticipated technological or other changes.",positive +"Refer to the Property and Equipment section +in the Summary of Significant Accounting Policies footnote on page 42 of this Form 10-K and the Property and Equipment footnote on page 49 of this +Form 10-K for additional information.",positive +"•Leasing Arrangements +The Lease right-of-use asset and Lease liability include an assumption on renewal options that have not yet been exercised by the Company .",neutral +"The +Company also uses an incremental borrowing rate in calculating the Lease liability that represents an estimate of the interest rate the Company would +incur to borrow on a collateralized basis over the term of a lease within a particular currency environment.",positive +"Refer to the Leasing section in the Summary +of Significant Accounting Policies footnote on page 42 of this Form 10-K and the Leasing Arrangements footnote on page 50 of this Form 10-K for +additional information.",positive +"•Long-lived assets impairment review +Long-lived assets (including goodwill) are reviewed for impairment annually .",neutral +"If qualitative indicators of impairment are present, such as changes in +global and local business and economic conditions, operating costs, inflation, competition, and consumer and demographic trends, the Company will +use these and other factors in estimating future cash flows when testing for the recoverability of its long-lived assets.",positive +"Estimates of future cash flows are +highly subjective judgements based on the Company’ s experience and knowledge of its operations.",positive +"A key assumption impacting estimated future cash +flows is the estimated change in comparable sales.",neutral +"If the Company’ s estimates or underlying assumptions change in the future, it may be required to +record impairment charges.",neutral +"Refer to the Long-lived Assets and Goodwill sections in the Summary of Significant Accounting Policies footnote on page +43 of this Form 10-K for additional information.",positive +•Litigation accruals,neutral +"In the ordinary course of business, the Company is subject to proceedings, lawsuits and other claims primarily related to competitors, customers, +employees, franchisees, government agencies, intellectual property , shareholders and suppliers.",negative +"The Company is required to assess the likelihood of +any adverse judgments or outcomes to these matters as well as potential ranges of probable losses.",neutral +"Refer to the Contingencies footnote on page 51 +of this Form 10-K for additional information.",neutral +"•Income taxes +The Company records a valuation allowance to reduce its deferred tax assets if it is considered more likely than not that some portion or all of the +deferred tax assets will not be realized.",positive +"The Company operates within, and is subject to audit in, multiple taxing jurisdictions.",negative +"The Company records accruals for the estimated outcomes +of these audits, and the accruals may change in the future due to new developments in each matter .",positive +"Refer to the Income Taxes section in the Summary of Significant Accounting Policies footnote on page 44 of this Form 10-K and the Income Taxes +footnote on page 52 of this Form 10-K for additional information.",positive +"EFFECTS OF CHANGING PRICES — INFLATION +Broader inflationary pressures in the economy are expected to continue to impact the restaurant industry through supply chain, labor and energy cost +challenges.",negative +"The Company has demonstrated an ability to manage these inflationary cost increases ef fectively through its rapid inventory turnover , +ability to adjust menu prices, cost controls and substantial property holdings, many of which are at fixed costs.",positive +"McDonald's Corporation 2022 Annual Report 24Other Key Information +STOCK PERFORMANCE GRAPH +At least annually , McDonald's considers which companies comprise a readily identifiable investment peer group.",negative +"The Company is included in published +restaurant indices; however , unlike most other companies included in these indices, which have no or limited international operations, McDonald's +does business in more than 100 countries and a substantial portion of its revenues and income is generated outside the U.S.",positive +"In addition, because of +its size, McDonald's inclusion in those indices tends to skew the results.",neutral +"Therefore, the Company believes that such a comparison is not meaningful.",negative +"The Company's market capitalization, trading volume and importance in an industry that is vital to the U.S. economy have resulted in McDonald's +inclusion in the Dow Jones Industrial Average (""DJIA"") since 1985.",negative +"Like McDonald's, many DJIA companies generate meaningful revenues and income +outside the U.S. and some manage global brands.",positive +"Thus, the Company believes that the use of the DJIA companies as the group for comparison +purposes is appropriate.",positive +"The following performance graph shows McDonald's cumulative total shareholder returns (i.e., price appreciation and reinvestment of dividends) +relative to the Standard & Poor's 500 Stock Index (""S&P 500 Index"") and to the DJIA companies for the five-year period ended December 31, 2022.",negative +"The graph assumes that the value of an investment in McDonald's common stock, the S&P 500 Index and the DJIA companies (including McDonald's) +was $100 at December 31, 2017.",negative +"For the DJIA companies, returns are weighted for market capitalization as of the beginning of each period indicated.",neutral +"These returns may vary from those of the DJIA Index, which is not weighted by market capitalization and may be composed of dif ferent companies +during the period under consideration.",neutral +"Company/Index 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 +McDonald's Corporation $100 $106 $121 $134 $171 $172 +S&P 500 Index $100 $96 $126 $149 $192 $157 +Dow Jones Industrials $100 $97 $121 $133 $161 $150 +Source: S&P Capital IQ +McDonald's Corporation 2022 Annual Report 25MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF +EQUITY SECURITIES +MARKET INFORMATION AND DIVIDEND POLICY",negative +The Company’ s common stock trades under the symbol MCD and is listed on the New York Stock Exchange in the U.S.,negative +"The number of shareholders of record and beneficial owners of the Company’ s common stock as of January 31, 2023 was estimated to be +4,300,000.",negative +"Given the Company’ s returns on its capital investments and significant cash provided by operations, management believes it is prudent to reinvest +in the business to drive profitable growth and use excess cash flow to return cash to shareholders over time through dividends and share repurchases.",positive +"The Company has paid dividends on common stock for 47 consecutive years through 2022 and has increased the dividend amount at least once every +year.",negative +"As in the past, future dividend amounts will be considered after reviewing profitability expectations and financing needs, and will be declared at +the discretion of the Company’ s Board of Directors.",negative +"ISSUER PURCHASES OF EQUITY SECURITIES +The following table presents information related to repurchases of common stock the Company made during the quarter ended December 31, 2022*: +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 +the Plans or Programs +October 1-31, 2022 1,685,076 241.61 1,685,076 $9,386,452,589 +November 1-30, 2022 6,873 270.40 6,873 9,384,594,1 15 +December 1-31, 2022 747 250.52 747 9,384,406,977 + Total 1,692,696 241.74 1,692,696 +* Subject to applicable law , the Company may repurchase shares directly in the open market, in privately negotiated transactions, or pursuant to derivative instruments and plans +complying with Rule 10b5-1, among other types of transactions and arrangements.",negative +"(1)On December 31, 2019, the Company's Board of Directors approved a share repurchase program, effective January 1, 2020, that authorized the purchase of up to +$15 billion of the Company's outstanding common stock.(1) (1) +McDonald's Corporation 2022 Annual Report 26RISK",positive +"F ACTORS +Our business results are subject to a variety of risks, including those that are described below and elsewhere in our filings with the +Securities and Exchange Commission.",negative +The risks described below are not the only risks we face.,neutral +"Additional risks not currently known to us or that we +currently deem to be immaterial may also significantly adversely af fect our business.",positive +"If any of these risks were to materialize or intensify , our +expectations (or the underlying assumptions) may change and our performance may be adversely af fected.",neutral +"STRA TEGY AND BRAND +If we do not successfully evolve and execute against our business strategies, we may not be able to drive business growth.",positive +"To drive Systemwide sales, operating income and free cash flow growth, our business strategies must be ef fective in maintaining and +strengthening customer appeal and capturing additional market share.",positive +"Whether these strategies are successful depends mainly on our System’ s +continued ability to: +•capitalize on our global scale, iconic brand and local market presence to build upon our historic strengths and competitive advantages, +including by maximizing our marketing, committing to our core menu items, and doubling down on digital, delivery , drive thru and +restaurant development; +•innovate and dif ferentiate the McDonald’ s experience, including by preparing and serving our food in a way that balances value and +convenience to our customers with profitability; +•build upon our investments to transform and enhance the customer experience; +•run great restaurants by driving ef ficiencies and expanding capacities while continuing to prioritize health and safety; +•accelerate our existing strategies, including through growth opportunities ; and +•evolve and adjust our strategies in response to, among other things, changing consumer behavior , and other events impacting our +results of operations and liquidity .",positive +"If we are delayed or unsuccessful in evolving or executing against our strategies, or if our strategies do not yield the desired results, our +business, financial condition and results of operations may suf fer.",neutral +Failure to preserve the value and relevance of our brand could have an adverse impact on our financial results.,negative +"To continue to be successful in the future, we believe we must preserve, enhance and leverage the value and relevance of our brand, including +our corporate purpose, mission and values.",positive +"Brand value is based in part on consumer perceptions, which are af fected by a variety of factors, including +the nutritional content and preparation of our food, the ingredients we use, the manner in which we source commodities and general business +practices across the System, including the people practices at McDonald’ s restaurants.",positive +"Consumer acceptance of our of ferings is subject to change for +a variety of reasons, and some changes can occur rapidly .",negative +"For example, nutritional, health, environmental and other scientific studies and conclusions, +which continuously evolve and may have contradictory implications, drive popular opinion, litigation and regulation (including initiatives intended to +drive consumer behavior) in ways that af fect the “informal eating out” (“IEO”) segment or perceptions of our brand, generally or relative to available +alternatives.",positive +"Our business could also be impacted by business incidents or practices, whether actual or perceived, particularly if they receive +considerable publicity or result in litigation, as well as by our position or perceived lack of position on environmental, social responsibility , public policy , +geopolitical and similar matters.",positive +"Consumer perceptions may also be af fected by adverse commentary from third parties, including through social media +or conventional media outlets, regarding the quick-service category of the IEO segment or our brand, culture, operations, suppliers or franchisees.",negative +"If +we are unsuccessful in addressing adverse commentary or perceptions, whether or not accurate, our brand and financial results may suf fer.",negative +"If we do not anticipate and address industry trends and evolving consumer preferences and effectively execute our pricing, promotional +and marketing plans, our business could suffer .",positive +Our continued success depends on our System’ s ability to build upon our historic strengths and competitive advantages.,positive +"In order to do so, we +need to anticipate and respond ef fectively to continuously shifting consumer demographics and industry trends in food sourcing, food preparation, food +offerings, and consumer behavior and preferences, including with respect to the use of digital channels and environmental and social responsibility +matters.",positive +"If we are not able to predict, or quickly and ef fectively respond to, these changes, or if our competitors are able to do so more ef fectively , our +financial results could be adversely impacted.",positive +"Our ability to build upon our strengths and advantages also depends on the impact of pricing, promotional and marketing plans across the +System, and the ability to adjust these plans to respond quickly and ef fectively to evolving customer behavior and preferences, as well as shifting +economic and competitive conditions.",positive +"Existing or future pricing strategies and marketing plans, as well as the value proposition they represent, are +expected to continue to be important components of our business strategy .",positive +"However , they may not be successful, or may not be as successful as the +efforts of our competitors, which could negatively impact sales, guest counts and market share.",positive +"Additionally , we operate in a complex and costly advertising environment.",negative +"Our marketing and advertising programs may not be successful in +reaching consumers in the way we intend.",positive +"Our success depends in part on whether the allocation of our advertising and marketing resources across +different channels, including digital, allows us to reach consumers ef fectively , efficiently and in ways that are meaningful to them.",positive +"If our advertising and +marketing programs are not successful, or are not as successful as those of our competitors, our sales, guest counts and market share could +decrease.",positive +"McDonald's Corporation 2022 Annual Report 27Our investments to enhance the customer experience, including through technology , may not generate the expected results.",negative +Our long-term business objectives depend on the successful Systemwide execution of our strategies.,positive +"W e continue to build upon our +investments in restaurant development, technology , digital engagement and delivery in order to transform and enhance the customer experience.",neutral +"As +part of these investments, we are continuing to place emphasis on improving our service model and strengthening relationships with customers, in part +through digital channels and loyalty initiatives, mobile ordering and payment systems, and enhancing our drive thru technologies, which ef forts may not +generate expected results.",negative +"W e also continue to expand and refine our delivery initiatives, including through integrating delivery and mobile ordering.",neutral +"Utilizing a third-party delivery service may not have the same level of profitability as a non-delivery transaction, and may introduce additional food +quality , food safety and customer satisfaction risks.",neutral +"If these customer experience initiatives are not successfully executed, or if we do not fully realize +the intended benefits of these significant investments, our business results may suf fer.",neutral +"We face intense competition in our markets, which could hurt our business.",positive +"We compete primarily in the IEO segment, which is highly competitive.",positive +"W e also face sustained, intense competition from traditional, fast casual +and other competitors, which may include many non-traditional market participants such as convenience stores, grocery stores, cof fee shops and +online retailers.",positive +"W e expect our environment to continue to be highly competitive, and our results in any particular reporting period may be impacted by +a contracting IEO segment or by new or continuing actions, product of ferings or consolidation of our competitors and third-party partners, which may +have a short- or long-term impact on our results.",positive +"We compete primarily on the basis of product choice, quality , affordability , service and location.",positive +"In particular , we believe our ability to compete +successfully in the current market environment depends on our ability to improve existing products, successfully develop and introduce new products, +price our products appropriately , deliver a relevant customer experience, manage the complexity of our restaurant operations, manage our investments +in technology , restaurant modernization, digital engagement and delivery , and respond ef fectively to our competitors’ actions or of ferings or to +unforeseen disruptive actions.",positive +"There can be no assurance these strategies will be ef fective, and some strategies may be ef fective at improving some +metrics while adversely af fecting others, which could have the overall ef fect of harming our business.",neutral +"We may not be able to adequately protect our intellectual property or adequately ensure that we are not infringing the intellectual property +of others, which could harm the value of the McDonald’ s brand and our business.",positive +"Our success depends on our continued ability to use our existing trademarks and service marks in order to increase brand awareness and +further develop our branded products in both domestic and international markets.",positive +"W e rely on a combination of trademarks, copyrights, service marks, +trade secrets, patents and other intellectual property rights to protect our brand and branded products.",positive +We have registered certain trademarks and have other trademark registrations pending in the U.S. and certain foreign jurisdictions.,positive +"The +trademarks that we currently use have not been, and may never be, registered in all of the countries outside of the U.S. in which we do business or +may do business in the future.",neutral +"It may be costly and time consuming to protect our intellectual property , and the steps we have taken to do so in the +U.S. and foreign countries may not be adequate.",positive +"In addition, the steps we have taken may not adequately ensure that we do not infringe the +intellectual property of others, and third parties may claim infringement by us in the future.",positive +"In particular , we may be involved in intellectual property +claims, including often aggressive or opportunistic attempts to enforce patents used in information technology systems, which might af fect our +operations and results.",positive +"Any claim of infringement, whether or not it has merit, could be time consuming, result in costly litigation and harm our +business.",neutral +"In addition, we cannot ensure that franchisees and other third parties who hold licenses to our intellectual property will not take actions that +adversely af fect the value of our intellectual property .",positive +"OPERA TIONS +The global scope of our business subjects us to risks that could negatively affect our business.",negative +"We encounter dif fering cultural, regulatory , geopolitical and economic environments within and among the more than 100 countries where +McDonald’ s restaurants operate, and our ability to achieve our business objectives depends on the System’ s success in these environments.",positive +"Meeting +customer expectations is complicated by the risks inherent in our global operating environment, and our global success is partially dependent on our +System’ s ability to leverage operating successes across markets and brand perceptions.",negative +"Planned initiatives may not have appeal across multiple +markets with McDonald’ s customers and could drive unanticipated changes in customer perceptions and market share.",neutral +"Disruptions in operations or price volatility in a market can also result from governmental actions, such as price, foreign exchange or trade- +related tarif fs or controls, trade policies and regulations, sanctions and counter sanctions, government-mandated closure of our , our franchisees’ or our +suppliers’ operations, and asset seizures.",negative +"Such disruptions or volatility can also result from acts of war , terrorism or other hostilities.",negative +"For example, the +war between Russia and Ukraine has resulted in volatile and unpredictable conditions throughout the region, exacerbated volatile macroeconomic +conditions and increased pressure on our supply chain and the availability and costs of commodities, including energy , which we expect to continue to +impact our financial results.",negative +"The broader impacts of the war and related sanctions, including on macroeconomic conditions, geopolitical tensions, +consumer demand and the ability of us and our franchisees to operate in certain geographic areas, may also continue to have an adverse impact on +our business and financial results.",positive +"While we may face challenges and uncertainties in any of the markets in which we operate, such challenges and uncertainties are often +heightened in developing markets, which may entail a relatively higher risk of political instability , economic volatility , crime, corruption and social and +ethnic unrest.",positive +"In many cases, such challenges may be exacerbated by the lack of an independent and experienced judiciary and uncertainty in how +local law is applied and enforced, including in areas most relevant to commercial transactions and foreign investment.",positive +"An inability to manage +effectively the risks associated with our international operations could adversely af fect our business and financial results.",positive +McDonald's Corporation 2022 Annual Report 28Supply chain interruptions may increase costs or reduce revenues.,neutral +"We depend on the ef fectiveness of our supply chain management to assure a reliable and suf ficient supply of quality products on favorable +terms.",neutral +"Although many of the products we sell are sourced from a wide variety of suppliers in countries around the world, certain products have limited +suppliers, which may increase our reliance on those suppliers.",positive +"Supply chain interruptions and related price increases have in the past and may in the +future adversely af fect us as well as our suppliers and franchisees, whose performance may have a significant impact on our results.",positive +"Such +interruptions and price increases could be caused by shortages, inflationary pressures, unexpected increases in demand, transportation-related +issues, labor-related issues, technology-related issues, weather-related events, natural disasters, acts of war , terrorism or other hostilities, or other +factors beyond the control of us or our suppliers or franchisees.",negative +"Interruptions in our System’ s supply chain or inef fective contingency planning can +increase our costs and/or limit the availability of products critical to our System’ s operations.",neutral +Our franchise business model presents a number of risks.,neutral +"Our success as a heavily franchised business relies to a large degree on the financial success and cooperation of our franchisees, including our +developmental licensees and af filiates.",positive +"Our restaurant margins arise from two sources: fees from franchised restaurants (e.g., rent and royalties based +on a percentage of sales) and, to a lesser degree, sales from Company-operated restaurants.",neutral +"Our franchisees and developmental licensees manage +their businesses independently and therefore are responsible for the day-to-day operation of their restaurants.",positive +"The revenues we realize from +franchised restaurants are largely dependent on the ability of our franchisees to grow their sales.",positive +"Business risks af fecting our operations also af fect our +franchisees.",neutral +"If franchisee sales trends worsen, or any of such risks materialize or intensify , our financial results could be negatively af fected, which +may be material.",negative +"Our success also relies on the willingness and ability of our independent franchisees and af filiates to implement major initiatives, which may +include financial investment, and to remain aligned with us on operating, value/promotional and capital-intensive reinvestment plans.",positive +"The ability of +franchisees to contribute to the achievement of our plans is dependent in large part on the availability to them of funding at reasonable interest rates +and may be negatively impacted by the financial markets in general, by their or our creditworthiness or by banks’ lending practices.",positive +"If our franchisees +are unwilling or unable to invest in major initiatives or are unable to obtain financing at commercially reasonable rates, or at all, our future growth and +results of operations could be adversely af fected.",negative +"Our operating performance could also be negatively af fected if our franchisees experience food safety or other operational problems or project +an image inconsistent with our brand and values, particularly if our contractual and other rights and remedies are limited, costly to exercise or +subjected to litigation and potential delays.",negative +"If franchisees do not successfully operate restaurants in a manner consistent with our required standards, +our brand’ s image and reputation could be harmed, which in turn could hurt our business and operating results.",negative +Our ownership mix also af fects our results and financial condition.,neutral +"The decision to own restaurants or to operate under franchise or license +agreements is driven by many factors whose interrelationship is complex.",positive +"The benefits of our more heavily franchised structure depend on various +factors, including whether we have ef fectively selected franchisees, licensees and/or af filiates that meet our rigorous standards, whether we are able to +successfully integrate them into our structure and whether their performance and the resulting ownership mix supports our brand and financial +objectives.",positive +"Challenges with respect to labor , including availability and cost, could impact our business and results of operations.",neutral +"Our success depends in part on our System’ s ability to ef fectively attract, recruit, develop, motivate and retain qualified individuals to work in +McDonald’ s restaurants and to maintain appropriately-staf fed restaurants in an intensely competitive labor market.",positive +"W e and our franchisees have +experienced and may continue to experience challenges in adequately staf fing certain McDonald’ s restaurants, which can negatively impact +operations, including speed of service to customers, and customer satisfaction levels.",positive +"The System’ s ability to meet its labor needs is generally subject +to external factors, including the availability of suf ficient workforce, unemployment levels and prevailing wages in the markets in which we operate.",negative +"Further , our System has experienced increased costs and competition associated with attracting, recruiting, developing, motivating and +retaining qualified employees, as well as with promoting awareness of the opportunities of working at McDonald’ s restaurants.",positive +"W e and our franchisees +also continue to be impacted by increasingly complex U.S. and international laws and regulations af fecting our respective workforces.",negative +"These laws and +regulations are increasingly focused on, and in certain cases impose requirements with respect to, employment matters such as wages and hours, +healthcare, immigration, retirement and other employee benefits and workplace practices.",positive +"Such laws and regulations can expose us and our +franchisees to increased costs and other ef fects of compliance, including potential liability , and all such labor and compliance costs could have a +negative impact on our Company-operated margins and franchisee profitability .",negative +"Our potential exposure to reputational and other harm regarding our workplace practices or conditions or those of our independent franchisees +or suppliers, including those giving rise to claims of harassment or discrimination (or perceptions thereof) or workplace safety , could have a negative +impact on consumer perceptions of us and our business.",negative +"Additionally , economic action, such as boycotts, protests, work stoppages or campaigns by +labor organizations, could adversely af fect us (including our ability to attract, recruit, develop, motivate and retain talent) or our franchisees and +suppliers, whose performance may have a significant impact on our results.",positive +Effective succession planning is important to our continued success.,positive +Effective succession planning for management is important to our long-term success.,positive +"Failure to ef fectively attract, recruit, develop, motivate and +retain qualified key personnel, or to execute smooth personnel transitions, could disrupt our business and adversely af fect our results.",positive +Food safety concerns may have an adverse effect on our business.,neutral +"Our ability to increase sales and profits depends on our System’ s ability to meet expectations for safe food and on our ability to manage the +potential impact on McDonald’ s of food-borne illnesses and food or product safety issues that may arise in the future, including in the supply chain, +restaurants or delivery .",positive +"Food safety is a top priority , and we dedicate substantial resources aimed at ensuring that our customers enjoy safe food +products, including as our menu and service model evolve.",positive +"However , food safety events, including instances of food-borne illness, occur within the +food industry and our System from time to time and could occur in the future.",neutral +"Instances of food +McDonald's Corporation 2022 Annual Report 29tampering, food contamination or food-borne illness, whether actual or perceived, could adversely af fect our brand, reputation and financial results.",neutral +"If we do not effectively manage our real estate portfolio, our operating results may be negatively impacted.",negative +"We have significant real estate operations, primarily in connection with our restaurant business.",positive +"W e generally own or secure a long-term lease +on the land and building for conventional franchised and Company-operated restaurant sites.",positive +"W e seek to identify and develop restaurant locations that +offer convenience to customers and long-term sales and profit potential.",neutral +"As we generally secure long-term real estate interests for our restaurants, we +have limited flexibility to quickly alter our real estate portfolio.",positive +"The competitive business landscape continues to evolve in light of changing business +trends, consumer preferences, trade area demographics, consumer use of digital, delivery and drive thru, local competitive positions and other +economic factors.",positive +"If our restaurants are not located in desirable locations, or if we do not evolve in response to these factors, it could adversely af fect +Systemwide sales and profitability .",neutral +"Our real estate values and the costs associated with our real estate operations are also impacted by a variety of other factors, including +governmental regulations, insurance, zoning, tax and eminent domain laws, interest rate levels, the cost of financing, natural disasters, acts of war , +terrorism or other hostilities, or other factors beyond our control.",positive +"A significant change in real estate values, or an increase in costs as a result of any of +these factors, could adversely af fect our operating results.",positive +"Information technology system failures or interruptions, or breaches of network security , may impact our operations or cause reputational +harm.",neutral +"We are increasingly reliant upon technology systems, such as point-of-sale, that support our business operations, including our digital and +delivery solutions, and technologies that facilitate communication and collaboration with af filiated entities, customers, employees, franchisees, +suppliers, service providers or other independent third parties to conduct our business, whether developed and maintained by us or provided by third +parties.",negative +"Any failure or interruption of these systems could significantly impact our or our franchisees’ operations, or our customers’ experiences and +perceptions.",positive +"Security incidents or breaches have from time to time occurred and may in the future occur involving our systems, the systems of the parties +with whom we communicate or collaborate (including franchisees) or the systems of third-party providers.",neutral +"These may include such things as +unauthorized access, phishing attacks, account takeovers, denial of service, computer viruses, introduction of malware or ransomware and other +disruptive problems caused by hackers.",negative +"Certain of these technology systems contain personal, financial and other information of our customers, +employees, franchisees and their employees, suppliers and other third parties, as well as financial, proprietary and other confidential information +related to our business.",negative +"Despite response procedures and measures in place in the event of an incident, a security breach could result in disruptions, +shutdowns, or the theft or unauthorized disclosure of such information.",neutral +"The actual or alleged occurrence of any of these incidents could result in +mitigation costs, reputational damage, adverse publicity , loss of consumer confidence, reduced sales and profits, complications in executing our +growth initiatives and regulatory and legal risk, including criminal penalties or civil liabilities.",negative +"Despite the implementation of business continuity measures, any of these technology systems could become vulnerable to damage, disability or +failures due to fire, power loss, telecommunications failure or other catastrophic events.",negative +"Certain technology systems may also become vulnerable, +unreliable or inef ficient in cases where technology vendors limit or terminate product support and maintenance.",negative +"Our increasing reliance on third-party +systems also subjects us to risks faced by those third-party businesses, including operational, security and credit risks.",neutral +"If technology systems were to +fail or otherwise be unavailable, or if business continuity or disaster recovery plans were not ef fective, and we were unable to recover in a timely +manner , we could experience an interruption in our or our franchisees’ operations.",negative +"LEGAL AND REGULA TORY +Increasing regulatory and legal complexity may adversely affect our business and financial results.",positive +"Our regulatory and legal environment worldwide exposes us to complex compliance, litigation and similar risks that could af fect our operations +and results in material ways.",negative +"Many of our markets are subject to increasing, conflicting and highly prescriptive regulations involving, among other +matters, restaurant operations, product packaging, marketing, the nutritional and allergen content and safety of our food and other products, labeling +and other disclosure practices.",positive +"Compliance ef forts with those regulations may be af fected by ordinary variations in food preparation among our own +restaurants and the need to rely on the accuracy and completeness of information from third-party suppliers.",positive +"W e also are subject to increasing public +focus, including by governmental and non-governmental organizations, on environmental, social responsibility and corporate governance (“ESG”) +matters.",negative +"Our success depends in part on our ability to manage the impact of regulations and other initiatives that can af fect our business plans and +operations, which have increased and may continue to increase our costs of doing business and exposure to litigation, governmental investigations or +other proceedings.",positive +"We are also subject to legal proceedings that may adversely af fect our business, including, but not limited to, class actions, administrative +proceedings, government investigations and proceedings, shareholder proceedings, employment and personal injury claims, landlord/tenant disputes, +supplier-related disputes, and claims by current or former franchisees.",positive +"Regardless of whether claims against us are valid or whether we are found to +be liable, claims may be expensive to defend and may divert management’ s attention away from operations.",negative +"Litigation and regulatory action concerning our relationship with franchisees and the legal distinction between our franchisees and us for +employment law or other purposes, if determined adversely , could increase costs, negatively impact our business operations and the business +prospects of our franchisees and subject us to incremental liability for their actions.",negative +"Similarly , although our commercial relationships with our suppliers +remain independent, there may be attempts to challenge that independence, which, if determined adversely , could also increase costs, negatively +impact the business prospects of our suppliers, and subject us to incremental liability for their actions.",negative +"Our results could also be af fected by the following: +•the relative level of our defense costs, which vary from period to period depending on the number , nature and procedural status of +pending proceedings; +McDonald's Corporation 2022 Annual Report 30•the cost and other ef fects of settlements, judgments or consent decrees, which may require us to make disclosures or take other +actions that may af fect perceptions of our brand and products; and +•adverse results of pending or future litigation, including litigation challenging the composition and preparation of our products, or the +appropriateness or accuracy of our marketing or other communication practices.",positive +"A judgment significantly in excess of any applicable insurance coverage or third-party indemnity could materially adversely af fect our financial +condition or results of operations.",positive +"Further , adverse publicity resulting from claims may hurt our business.",neutral +"If we are unable to ef fectively manage the +risks associated with our complex regulatory and legal environment, it could have a material adverse ef fect on our business and financial condition.",negative +Changes in tax laws and unanticipated tax liabilities could adversely affect the taxes we pay and our profitability .,neutral +"We are subject to income and other taxes in the U.S. and foreign jurisdictions, and our operations, plans and results are af fected by tax and +other initiatives around the world.",negative +"In particular , we are af fected by the impact of changes to tax laws or policy or related authoritative interpretations.",positive +"We are also impacted by settlements of pending or any future adjustments proposed by taxing and governmental authorities inside and outside of the +U.S. in connection with our tax audits, all of which will depend on their timing, nature and scope.",neutral +"Any significant increases in income tax rates, changes +in income tax laws or unfavorable resolution of tax matters could have a material adverse impact on our financial results.",positive +Changes in accounting standards or the recognition of impairment or other charges may adversely affect our future operations and results.,negative +"New accounting standards or changes in financial reporting requirements, accounting principles or practices, including with respect to our +critical accounting estimates, could adversely af fect our future results.",positive +"W e may also be af fected by the nature and timing of decisions about +underperforming markets or assets, including decisions that result in impairment or other charges that reduce our earnings.",negative +"In assessing the recoverability of our long-lived assets, we consider changes in economic conditions and make assumptions regarding +estimated future cash flows and other factors.",positive +"These estimates are highly subjective and can be significantly impacted by many factors such as global +and local business and economic conditions, operating costs, inflation, interest rate levels, competition, consumer and demographic trends and our +restructuring activities.",positive +"If our estimates or underlying assumptions change in the future, we may be required to record impairment charges.",neutral +"Any such +changes could have a significant adverse ef fect on our reported results for the af fected periods.",positive +"If we fail to comply with privacy and data protection laws, we could be subject to legal proceedings and penalties, which could negatively +affect our financial results or brand perceptions.",negative +"We are subject to legal and compliance risks and associated liability related to privacy and data protection requirements, including those +associated with our technology-related services and platforms made available to business partners, customers, employees, franchisees or other third +parties.",positive +"An increasing number of jurisdictions have enacted new privacy and data protection requirements (including the European Union’ s General +Data Protection Regulation and various U.S. state-level laws), and further requirements are likely to be proposed or enacted in the future.",positive +"Failure to +comply with these privacy and data protection laws could result in legal proceedings and substantial penalties and materially adversely impact our +financial results or brand perceptions.",negative +"MACROECONOMIC AND MARKET CONDITIONS +Unfavorable general economic conditions could adversely affect our business and financial results.",positive +"Our results of operations are substantially af fected by economic conditions, including inflationary pressures, which can vary significantly by +market and can impact consumer disposable income levels and spending habits.",positive +"Economic conditions can also be impacted by a variety of factors, +including hostilities, epidemics, pandemics and actions taken by governments to manage national and international economic matters, whether +through austerity , stimulus measures or trade measures, and initiatives intended to control wages, unemployment, credit availability , inflation, taxation +and other economic drivers.",positive +"Sustained adverse economic conditions or periodic adverse changes in economic conditions put pressure on our +operating performance and business continuity disruption planning, and our business and financial results may suf fer as a result.",positive +"Our results of operations are also af fected by fluctuations in currency exchange rates, and unfavorable currency fluctuations could adversely +affect reported earnings.",neutral +Health epidemics or pandemics could adversely affect our business and financial results.,neutral +"Health epidemics or pandemics – such as the global outbreak of COVID-19 in early 2020 – have in the past and may in the future impact +macroeconomic conditions, consumer behavior , labor availability and supply chain management, as well as local operations in impacted markets, all of +which can adversely af fect our business, financial results and outlook.",negative +"Governmental responses to health epidemics or pandemics, including +operational restrictions, can also af fect the foregoing items and adversely af fect our business and financial results.",neutral +"The duration and scope of a health +epidemic or pandemic can be dif ficult to predict and depends on many factors, including the emergence of new variants and the availability , +acceptance and ef fectiveness of preventative measures.",positive +"A health epidemic or pandemic may also heighten other risks disclosed in these Risk Factors, +including, but not limited to, those related to the availability and costs of labor and commodities, supply chain interruptions, consumer behavior , and +consumer perceptions of our brand and industry .",negative +Changes in commodity and other operating costs could adversely affect our results of operations.,negative +"The profitability of our Company-operated restaurants depends in part on our ability to anticipate and react to changes in commodity costs, +including food, paper , supplies, fuel, utilities, distribution and other operating costs, including labor .",negative +"Volatility in certain commodity prices and +fluctuations in labor costs have adversely af fected and in the future could adversely af fect our operating results by impacting restaurant profitability .",positive +"The commodity markets for some of the ingredients we use, such as beef, chicken and pork, are particularly volatile due to factors such as seasonal +shifts, climate conditions, industry demand and other macroeconomic conditions, international commodity markets, food safety concerns, product +recalls, government regulation, and acts of war , terrorism or other hostilities, all of which are beyond our control and, in many instances, unpredictable.",negative +"Our System can only partially address future price risk through hedging and other activities, and therefore increases in commodity costs could have an +adverse impact on our profitability .",negative +McDonald's Corporation 2022 Annual Report 31A decrease in our credit ratings or an increase in our funding costs could adversely affect our profitability .,neutral +Our credit ratings may be negatively af fected by our results of operations or changes in our debt levels.,negative +"As a result, our interest expense, the +availability of acceptable counterparties, our ability to obtain funding on favorable terms, our collateral requirements and our operating or financial +flexibility could all be negatively af fected, especially if lenders were to impose new operating or financial covenants.",negative +"Our operations may also be impacted by regulations af fecting capital flows, financial markets or financial institutions, which can limit our ability +to manage and deploy our liquidity or increase our funding costs.",neutral +"Any such events could have a material adverse ef fect on our business and financial +condition.",neutral +The trading volatility and price of our common stock may be adversely affected by many factors.,positive +Many factors af fect the trading volatility and price of our common stock in addition to our operating results and prospects.,positive +"These factors, many +of which are beyond our control, include the following: +•the unpredictable nature of global economic and market conditions; +•governmental action or inaction in light of key indicators of economic activity or events that can significantly influence financial markets, +particularly in the U.S., which is the principal trading market for our common stock, and media reports and commentary about +economic, trade or other matters, even when the matter in question does not directly relate to our business; +•trading activity in our common stock, in derivative instruments with respect to our common stock or in our debt securities, which can be +affected by: market commentary (including commentary that may be unreliable or incomplete); unauthorized disclosures about our +performance, plans or expectations about our business; our actual performance and creditworthiness; investor confidence, driven in +part by expectations about our performance; actions by shareholders and others seeking to influence our business strategies; portfolio +transactions in our common stock by significant shareholders; and trading activity that results from the ordinary course rebalancing of +stock indices in which McDonald’ s may be included, such as the S&P 500 Index and the Dow Jones Industrial Average; +•the impact of our stock repurchase program or dividend rate; and +•the impact of corporate actions, including changes to our corporate structure, and market and third-party perceptions and assessments +of such actions, including those we may take from time to time as we implement our business strategies in light of changing business, +legal and tax considerations",positive +Our business is subject to an increasing focus on ESG matters.,negative +"In recent years, there has been an increasing focus by stakeholders – including employees, franchisees, customers, suppliers, governmental +and non-governmental organizations and investors – on ESG matters.",neutral +"A failure, whether real or perceived, to address ESG matters or to achieve +progress on our ESG initiatives on the anticipated timing or at all, could adversely af fect our business, including by heightening other risks disclosed in +these Risk Factors, such as those related to consumer behavior , consumer perceptions of our brand, labor availability and costs, supply chain +interruptions, commodity costs, and legal and regulatory complexity .",negative +"Conversely , our taking a position, whether real or perceived, on ESG, public +policy , geopolitical and similar matters could also adversely impact our business.",positive +"The standards we set for ourselves regarding ESG matters, and our ability to meet such standards, may also impact our business.",neutral +"For example, +we are working to manage risks and costs to our System related to climate change, greenhouse gases, and diminishing energy and water resources, +and we have announced initiatives relating to, among other things, climate action, sustainability , responsible sourcing and increasing diverse +representation across our System.",positive +"W e have faced increased scrutiny related to reporting on and achieving these initiatives, as well as continued public +focus on similar matters, such as packaging and waste, animal health and welfare, deforestation and land use.",negative +"W e have also experienced increased +pressure from stakeholders to provide expanded disclosure and establish additional commitments, targets or goals, and take actions to meet them, +which could expose us to additional market, operational, execution and reputational costs and risks.",positive +"Moreover , addressing ESG matters requires +Systemwide coordination and alignment, and the standards by which certain ESG matters are measured are evolving and subject to assumptions that +could change over time.",positive +"Events such as severe weather conditions, natural disasters, hostilities, social unrest and climate change, among others, can adversely +affect our results and prospects.",positive +"Severe weather conditions, natural disasters, acts of war , terrorism or other hostilities, social unrest or climate change (or expectations about +them) can adversely af fect consumer behavior and confidence levels, supply availability and costs and local operations in impacted markets, all of +which can af fect our results and prospects.",positive +"Climate change may also increase the frequency and severity of weather-related events and natural +disasters.",positive +"Our receipt of proceeds under any insurance we maintain with respect to some of these risks may be delayed or the proceeds may be +insuf ficient to cover our losses fully .McDonald's Corporation 2022 Annual Report 32LEGAL PROCEEDINGS +The Company has pending a number of claims and lawsuits that have been filed in various jurisdictions.",neutral +"These claims and lawsuits cover a broad +variety of allegations spanning the Company’ s business.",positive +The following is a brief description of the more significant types of such claims and lawsuits.,positive +"In addition, the Company is subject to various laws and regulations that impact its business, as discussed under “Government Regulations” below .",negative +"While the Company does not believe that any such claims, lawsuits, laws or regulations will have a material adverse ef fect on its financial condition or +results of operations, unfavorable rulings could occur .",neutral +"Were an unfavorable ruling to occur , it could result in a material adverse impact on the +Company’ s net income for the period in which it occurs and/or future periods.",neutral +"•Franchising +Most McDonald’ s restaurants are franchised to independent owner/operators and developmental licensees under contractual arrangements with the +Company .",positive +"In the course of the franchise relationship, occasional disputes arise between the Company and its current or former franchisees relating to +a broad range of subjects, including, but not limited to, quality , service, cleanliness, menu pricing, alleged discrimination, delinquent payments of rents +and fees, and franchise grants, renewals and terminations.",negative +"Occasional disputes also arise between the Company and individuals or entities who claim +they should be (or should have been) granted a franchise or who challenge the legal distinction between the Company and its franchisees for +employment law purposes.",positive +"•Suppliers +The Company and its af filiates and subsidiaries generally do not supply food, paper or related items to any McDonald’ s restaurants.",negative +"The Company +relies upon numerous independent suppliers, including service providers, that are required to meet and maintain the Company’ s high standards and +specifications.",positive +"Occasional disputes arise between the Company and its current or former suppliers relating to, for example, compliance with product +specifications and the Company’ s business relationship with suppliers.",neutral +"Occasional disputes also arise between the Company and individuals or +entities who claim they should be (or should have been) granted the opportunity to supply products or services to the Company or its restaurants.",neutral +"•Employees +Hundreds of thousands of people are employed by the Company and in restaurants owned and operated by its subsidiaries.",neutral +"In addition, thousands of +people from time to time seek employment in such restaurants.",neutral +"In the ordinary course of business, occasional disputes arise relating to hiring, +termination, promotion and pay practices, including, but not limited to, wage and hour disputes, alleged discrimination and compliance with labor and +employment laws.",negative +"•Customers +McDonald’ s restaurants – whether owned by subsidiaries of the Company , independent owner/operators or developmental licensees – regularly serve +a broad segment of the public around the world.",positive +"In so doing, disputes occasionally arise relating to products, service, incidents, pricing, advertising, +disclosures (including relating to nutrition) and other matters common to an extensive restaurant business such as that of the Company .",negative +"•Intellectual Property +The Company has registered trademarks, service marks, patents and copyrights, some of which it considers to be of material importance to its +business.",neutral +"From time to time, the Company may become involved in litigation to protect its intellectual property and defend against the alleged use of +third-party intellectual property .",positive +"•Government Regulations +National and local governments have adopted laws and regulations relating to various aspects of the restaurant business, including, but not limited to, +advertising, franchising, health, safety , environment, competition, zoning, employment and taxation.",positive +"The Company is occasionally involved in litigation +or other proceedings regarding these matters.",negative +"While the Company strives to comply with all applicable existing statutory and administrative +requirements, it cannot predict the ef fect on its operations of these matters or the issuance or enactment of any future additional requirements.",neutral +"PROPERTIES +The Company owns and leases real estate primarily in connection with its restaurant business.",positive +"The Company identifies and develops sites that of fer +convenience to customers and long-term sales and profit potential to the System.",neutral +"To assess potential, the Company analyzes traf fic and walking +patterns, census data and other relevant data.",positive +The Company’ s experience and access to advanced technology aid in evaluating this information.,positive +"The +Company generally owns or secures a long-term lease on the land and building for conventional franchised and Company-operated restaurant sites, +which facilitates long-term occupancy rights and helps control related costs.",negative +"Restaurant profitability for both the Company and franchisees is important; +therefore, ongoing ef forts are made to control average development costs through construction and design ef ficiencies, standardization and by +leveraging the Company’ s global sourcing network.",positive +"In addition, the Company primarily leases real estate in connection with its corporate headquarters, field and other of fices.",positive +"Additional information about the Company’ s properties is included in the Management’ s Discussion and Analysis of Financial Condition and +Results of Operations section beginning on page 8 of this Form 10-K and in the Financial Statements and Supplementary Data section beginning on +page 35 of this Form 10-K. +McDonald's",neutral +Corporation 2022 Annual Report 33INFORMATION ABOUT OUR EXECUTIVE OFFICERS,neutral +"The following are the executive of ficers of the Company as of the date of this filing: +Jonathan Banner , 55, is Executive V ice President – Global Chief Impact Of ficer, a position he has held since September 2022.",neutral +"Prior to joining the +Company , Mr. Banner served as Executive V ice President, Communications for PepsiCo, Inc., a food and beverage company , from 2014 to August +2022.",neutral +"Ian Borden , 54, is Executive V ice President and Chief Financial Of ficer, a position he has held since September 2022.",neutral +"Prior to that, Mr .",neutral +"Borden served +as President, International, from January 2020 to August 2022, as President – International Developmental Licensed Markets from January 2019 to +December 2019 and as President – Foundational Markets from 2015 to December 2018.",neutral +Mr .,neutral +Borden has served the Company for 28 years.,neutral +"Heidi Capozzi , 53, is Executive V ice President – Global Chief People Of ficer, a position she has held since April 2020.",neutral +"Prior to joining the Company , +Ms. Capozzi served as Senior V ice President of Human Resources for The Boeing Company , a manufacturer of commercial jetliners and defense, +space and security systems, from 2016 to April 2020.",neutral +"Joseph Erlinger , 49, is President, McDonald's USA, a position he has held since November 2019.",neutral +"Prior to that, Mr .",neutral +"Erlinger served as President – +International Operated Markets from January 2019 to October 2019 and as President – High Growth Markets from September 2016 to December +2018.",positive +"From 2015 to January 2017, Mr .",neutral +"Erlinger served as V ice President and Chief Financial Of ficer – High Growth Markets (serving in dual roles from +September 2016 to January 2017).",positive +Mr .,neutral +Erlinger has served the Company for 20 years.,neutral +"Morgan Flatley , 48, is Executive V ice President - Global Chief Marketing Of ficer and New Business V entures, a position she has held since February +2023.",positive +"Prior to that, Ms. Flatley served as Senior V ice President - Global Chief Marketing Of ficer from November 2021 to January 2023 and as V ice +President - Chief Marketing and Digital Customer Experience Of ficer from 2017 to November 2021.",neutral +"Prior to joining the Company , Ms. Flatley served as +Senior V ice President, Chief Marketing Of ficer, Nutrition for PepsiCo, Inc., a food and beverage company , from 2016 to 2017.",neutral +"Marion Gross , 62, is Executive V ice President – Global Chief Supply Chain Of ficer, a position she has held since September 2022.",neutral +"Prior to that, Ms. +Gross served as Senior V ice President – Chief Supply Chain Of ficer, North America from 2013 to August 2022.",neutral +"Ms. Gross has served the Company for +nearly 30 years.",positive +"Catherine Hoovel , 52, is Senior V ice President – Corporate Controller , a position she has held since July 2021.",neutral +"Prior to that, Ms. Hoovel served as +Vice President – Chief Accounting Of ficer from 2016 to July 2021 and as Controller for the McDonald's restaurants owned and operated by McDonald's +USA from 2014 to 2016.",neutral +Ms. Hoovel has served the Company for 26 years.,neutral +"Christopher Kempczinski , 54, is President and Chief Executive Of ficer, a position he has held since November 2019.",neutral +"Prior to that, Mr .",neutral +"Kempczinski +served as President, McDonald’ s USA from 2016 to October 2019 and as Executive V ice President – Strategy , Business Development and Innovation +from 2015 to 2016.",neutral +Mr .,neutral +"Kempczinski joined the Company from The Kraft Heinz Company , a packaged food company , where he most recently served +as Executive V ice President of Growth Initiatives and President of Kraft International from 2014 to 2015.",positive +Mr .,neutral +"Kempczinski has served the Company for +seven years.",neutral +"Jill McDonald , 58, is Executive V ice President and President, International Operated Markets, a position she has held since September 2022.",neutral +"Prior to +re-joining the Company , Ms. McDonald served as Chief Executive Of ficer for Costa Cof fee, a beverage company , from December 2019 to July 2022, +as Managing Director , Clothing, Home & Beauty for Marks and Spencer Group plc, a multinational clothing and home products retailer , from 2017 to +July 2019, and as Chief Executive Of ficer for Halfords Group plc, an automotive and cycling products and services provider , from 2015 to 2017.",neutral +"Ms. +McDonald previously worked at the Company from 2006 to 2015.",negative +"Kevin Ozan , 59, is Senior Executive V ice President, Strategic Initiatives, a position he has held since September 2022.",neutral +"Prior to that, Mr .",neutral +"Ozan served +as Executive V ice President and Chief Financial Of ficer from 2015 to August 2022 and as Senior V ice President – Controller from 2008 to 2015.",neutral +Mr .,neutral +Ozan has served the Company for 25 years.,neutral +"Desiree Ralls-Morrison , 56, is Executive V ice President, Chief Legal Of ficer and Corporate Secretary , a position she has held since April 2021.",positive +"Prior +to joining the Company , Ms. Ralls-Morrison served as Senior V ice President, General Counsel and Corporate Secretary for Boston Scientific +Corporation, a medical device manufacturer , from 2017 to April 2021 and as Senior V ice President, General Counsel and Corporate Secretary for +Boehringer Ingelheim USA Corporation, a pharmaceutical company , from 2013 to 2017.",positive +"Brian Rice , 59, is Executive V ice President – Global Chief Information Of ficer, a position he has held since August 2022.",neutral +"Prior to joining the Company , +Mr. Rice served as Executive V ice President, Chief Information Of ficer and Global Business Services for Cardinal Health, Inc., a healthcare services +company , from February 2019 to August 2022, and as Senior V ice President, Chief Information Of ficer and Global Business Services for the Kellogg +Company , a food manufacturing company , from 2009 to February 2019.",neutral +"Jo Sempels , 56, is Senior V ice President and President, International Developmental Licensed Markets, a position he has held since September +2022.",neutral +"Prior to that, Mr .",neutral +"Sempels served as Senior V ice President - International Developmental Licensed Markets from December 2019 to August +2022, as V ice President, Business Unit Lead International Developmental Licensed Markets Europe from January 2019 to December 2019 and as +Vice President - Foundational Markets Europe from 2015 to December 2018.",neutral +Mr .,neutral +Sempels has served the Company for over 30 years.,neutral +"Manu Steijaert , 52, is Executive V ice President – Chief Customer Of ficer, a position he has held since August 2021.",neutral +"Prior to that, Mr .",neutral +"Steijaert served +as Vice President, International Operated Markets from January 2019 to July 2021 and as Managing Director , Netherlands from 2015 to January 2019.",neutral +Mr. Steijaert has served the Company for 20 years.,neutral +McDonald's Corporation 2022 Annual Report 34AVAILABILITY OF COMPANY INFORMATION,neutral +"The Company is subject to the requirements of the Securities Exchange Act of 1934, as amended (the ""Exchange Act""), and therefore files periodic +reports, proxy statements and other information with the SEC.",negative +Such information may be obtained by visiting the SEC's website at www .sec.gov .,negative +The Company also uses its investor website at www .investor,neutral +.mcdonalds.com,neutral +"as a primary channel for disclosing key information to its investors, +some of which may contain material and previously non-public information.",positive +"The Company makes available on such website, free of charge, copies of +its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as amendments to those reports, filed or +furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing or furnishing such material to the SEC.",positive +Copies of such information and reports are also available free of charge by calling (800) 228-9623.,positive +"The Company also posts the following documents on the “Corporate Governance” section of its investor website: the Company’ s Corporate +Governance Principles; the charters for each standing committee of the Company's Board of Directors, including the Audit & Finance Committee, +Compensation Committee, Governance Committee, Public Policy & Strategy Committee, and Sustainability & Corporate Responsibility Committee; the +Code of Conduct for the Company’ s Board of Directors; and the Company’ s Standards of Business Conduct, which applies to all of ficers and +employees.",neutral +Copies of these documents are also available free of charge by calling (800) 228-9623.,positive +"The Company intends to satisfy the disclosure +requirements regarding any applicable amendment to, or waiver from, a provision of its Standards of Business Conduct by disclosing such information +at the website address specified above.",neutral +"The websites included in this Form 10-K, including those of the Company and the SEC, are provided for convenience only .",negative +"Information contained +on or accessible through such websites is not incorporated herein and does not constitute a part of this Form 10-K or the Company's other filings with +the SEC.",positive +"Financial Statements and Supplementary Data +Index to consolidated financial statements",neutral +"Page reference +Consolidated statement of income for each of the three years in the period ended December 31, 2022 36 +Consolidated statement of comprehensive income for each of the three years in the period ended December 31, 2022 37 +Consolidated balance sheet at December 31, 2022 and 2021 38 +Consolidated statement of cash flows for each of the three years in the period ended December 31, 2022 39 +Consolidated statement of shareholders’ equity for each of the three years in the period ended December 31, 2022 40 +Notes to consolidated financial statements 41 +Management’ s assessment of internal control over financial reporting 58 +Report of independent registered public accounting firm-PCAOB ID: 42 59 +Report of independent registered public accounting firm on internal control over financial reporting 61 +McDonald's Corporation 2022 Annual Report 35Consolidated Statement of Income +In millions, except per share data Years ended December 31, 2022 2021 2020 +REVENUES +Sales by Company-operated restaurants $ 8,748.4 $ 9,787.4 $ 8,139.2 +Revenues from franchised restaurants 14,105.8 13,085.4",negative +"10,726.1 +Other revenues 328.4 350.1 342.5 +Total revenues 23,182.6 23,222.9 19,207.8 +OPERATING COSTS AND EXPENSES +Company-operated restaurant expenses +Food & paper 2,737.3 3,096.8 2,564.2 +Payroll & employee benefits 2,617.4 2,677.2 2,416.4 +Occupancy & other operating expenses 2,026.2 2,273.3 2,000.6 +Franchised restaurants-occupancy expenses 2,349.7 2,335.0 2,207.5 +Other restaurant expenses 244.8 260.4 267.0 +Selling, general & administrative expenses +Depreciation and amortization 370.4 329.7 300.6 +Other 2,492.2 2,377.8 2,245.0 +Other operating (income) expense, net 973.6 (483.3) (117.5) +Total operating costs and expenses 13,811.6 12,866.9 11,883.8 +Operating income 9,371.0 10,356.0 7,324.0 +Interest expense-net of capitalized interest of $9.5, $6.8 and $6.0 1,207.0 1,185.8 1,218.1 +Nonoperating (income) expense, net 338.6 42.3 (34.8) +Income before provision for income taxes 7,825.4 9,127.9 6,140.7 +Provision for income taxes 1,648.0 1,582.7 1,410.2 +Net income $ 6,177.4 $ 7,545.2 $ 4,730.5 +Earnings per common share–basic $ 8.39 $ 10.11 $ 6.35 +Earnings per common share–diluted",negative +"$ 8.33 $ 10.04 $ 6.31 +Dividends declared per common share $ 5.66 $ 5.25 $ 5.04 +Weighted-average shares outstanding–basic 736.5 746.3 744.6 +Weighted-average shares outstanding–diluted 741.3 751.8 750.1 +See Notes to consolidated financial statements.",negative +"McDonald's Corporation 2022 Annual Report 36Consolidated Statement of Comprehensive Income +In millions Years ended December 31, 2022 2021 2020",neutral +"Net income $ 6,177.4 $7,545.2 $4,730.5 +Other comprehensive income (loss), net of tax +Foreign currency translation adjustments: +Gain (loss) recognized in accumulated other comprehensive +income (AOCI), including net investment hedges (354.1) (216.2) 46.0 +Reclassification of (gain) loss to net income 504.4 34.7 17.1 +Foreign currency translation adjustments-net of tax +benefit (expense) of $(207.6), $(186.5), and $204.8 150.3 (181.5) 63.1 +Cash flow hedges: +Gain (loss) recognized in AOCI 160.3 57.6 (129.1) +Reclassification of (gain) loss to net income (104.8) 28.9 5.8 +Cash flow hedges-net of tax benefit (expense) of $(16.0), $(24.9), and +$36.6 55.5 86.5 (123.3) +Defined benefit pension plans: +Gain (loss) recognized in AOCI (118.7) 108.1 (43.5) +Reclassification of (gain) loss to net income — — (0.4) +Defined benefit pension plans-net of tax benefit (expense) +of $43.2, $(36.6), and $9.3 (118.7) 108.1 (43.9) +Total other comprehensive income (loss), net of tax 87.1 13.1 (104.1) +Comprehensive income $ 6,264.5 $7,558.3 $4,626.4 +See Notes to consolidated financial statements.",negative +"McDonald's Corporation 2022 Annual Report 37Consolidated Balance Sheet +In millions, except per share data December 31, 2022 2021 +ASSETS +Current assets +Cash and equivalents $2,583.8 $4,709.2 +Accounts and notes receivable 2,115.0 1,872.4 +Inventories, at cost, not in excess of market 52.0 55.6 +Prepaid expenses and other current assets 673.4 511.3 +Total current assets 5,424.2 7,148.5 +Other assets +Investments in and advances to affiliates 1,064.5 1,201.2 +Goodwill 2,900.4 2,782.5 +Miscellaneous 4,707.2 4,449.5 +Total other assets 8,672.1 8,433.2 +Lease right-of-use asset, net 12,565.7 13,552.0 +Property and equipment +Property and equipment, at cost 41,037.6 41,916.6 +Accumulated depreciation and amortization (17,264.0) (17,196.0)",negative +"Net property and equipment 23,773.6 24,720.6",neutral +"Total assets $50,435.6 $53,854.3 +LIABILITIES AND SHAREHOLDERS’ EQUITY +Current liabilities +Accounts payable $ 980.2 $1,006.8 +Lease liability 661.1 705.5 +Income taxes 274.9 360.7 +Other taxes 255.1 236.7 +Accrued interest 393.4 363.3 +Accrued payroll and other liabilities 1,237.4 1,347.0 +Total current liabilities 3,802.1 4,020.0 +Long-term debt 35,903.5 35,622.7 +Long-term lease liability 12,134.4 13,020.9 +Long-term income taxes 791.9 1,896.8 +Deferred revenues - initial franchise fees 757.8 738.3 +Other long-term liabilities 1,051.8 1,081.0 +Deferred income taxes 1,997.5 2,075.6 +Shareholders’ equity (deficit) +Preferred stock, no par value; authorized – 165.0 million shares; issued – none — — +Common stock, $0.01 par value; authorized – 3.5 billion shares; issued – 1,660.6 million shares 16.6 16.6",negative +"Additional paid-in capital 8,547.1 8,231.6 +Retained earnings 59,543.9 57,534.7 +Accumulated other comprehensive income (loss) (2,486.6) (2,573.7)",negative +"Common stock in treasury, at cost; 929.3 and 915.8 million shares (71,624.4) (67,810.2) +Total shareholders’ equity (deficit) (6,003.4) (4,601.0) +Total liabilities and shareholders’ equity (deficit) $50,435.6 $53,854.3 +See Notes to consolidated financial statements.",negative +"McDonald's Corporation 2022 Annual Report 38Consolidated Statement of Cash Flows +In millions Years ended December 31, 2022 2021 2020 +Operating activities +Net income $6,177.4 $7,545.2 $4,730.5 +Adjustments to reconcile to cash provided by operations +Charges and credits: +Depreciation and amortization 1,870.6 1,868.1 1,751.4 +Deferred income taxes (345.7) (428.3) 6.4 +Share-based compensation 166.7 139.2 92.4 +Net (gain) loss on sale of restaurant and other businesses 732.7 (97.8)",negative +"(28.2) +Other (570.4) (339.1) (75.2) +Changes in working capital items: +Accounts receivable (264.1) 309.9 (6.8) +Inventories, prepaid expenses and other current assets 5.6 (62.2) (68.6) +Accounts payable 31.3 225.0 (137.5) +Income taxes (546.7) (302.5) (43.6) +Other accrued liabilities 129.3 284.0 44.4 +Cash provided by operations 7,386.7 9,141.5 6,265.2 +Investing activities +Capital expenditures (1,899.2) (2,040.0) (1,640.8) +Purchases of restaurant businesses (807.0) (374.2) (66.1) +Sales of restaurant and other businesses 445.9 196.2 76.3 +Sales of property 38.9 106.2 27.4 +Other (456.7) (53.9) 57.4 +Cash used for investing activities (2,678.1) (2,165.7) (1,545.8) +Financing activities +Net short-term borrowings 25.5 15.1 (893.1) +Long-term financing issuances 3,374.5 1,154.4 5,543.0 +Long-term financing repayments (2,202.4) (2,240.0) (2,411.7) +Treasury stock purchases (3,896.0) (845.5) (907.8) +Common stock dividends (4,168.2) (3,918.6) (3,752.9) +Proceeds from stock option exercises 248.2 285.7 295.5 +Other 38.2 (46.7) (122.0)",negative +"Cash used for financing activities (6,580.2) (5,595.6) (2,249.0) +Effect of exchange rates on cash and equivalents (253.8) (120.1) 80.2 +Cash and equivalents increase (decrease) (2,125.4) 1,260.1 2,550.6 +Cash and equivalents at beginning of year 4,709.2 3,449.1 898.5 +Cash and equivalents at end of year $2,583.8 $4,709.2 $3,449.1 +Supplemental cash flow disclosures +Interest paid $1,183.5 $1,197.3 $1,136.0 +Income taxes paid 3,023.5 2,403.9 1,441.9 +See Notes to consolidated financial statements.",neutral +"McDonald's Corporation 2022 Annual Report 39Consolidated Statement of Shareholders’ Equity + Common stock +issued Accumulated other +comprehensive income (loss) +Common stock in +treasuryTotal +shareholders’ +equity (deficit)Additional +paid-in +capitalRetained +earningsPensionsCash flow +hedgesForeign +currency +translation In millions, except per share data SharesAmount Shares Amount +Balance at December 31, 2019 1,660.6 16.6 7,653.9 52,930.5 (243.7) 12.0 (2,251.0) (914.3) (66,328.6) (8,210.3) +Net income 4,730.5 4,730.5 +Other comprehensive income (loss), + net of tax (43.9) (123.3) 63.1 (104.1) +Comprehensive income 4,626.4 +Common stock cash dividends + ($5.04 per share) (3,752.9) (3,752.9) +Treasury stock purchases (4.3) (874.1) (874.1) +Share-based compensation 92.4 92.4 +Stock option exercises and other 157.3 3.4 136.3 293.6 +Balance at December 31, 2020 1,660.6 16.6 7,903.6 53,908.1 (287.6) (111.3) (2,187.9) (915.2) (67,066.4) (7,824.9)",negative +"Net income 7,545.2 7,545.2 +Other comprehensive income (loss), +net of tax 108.1 86.5 (181.5) 13.1 +Comprehensive income 7,558.3 +Common stock cash dividends + ($5.25 per share) (3,918.6) (3,918.6) +Treasury stock purchases (3.4) (845.5) (845.5) +Share-based compensation 139.2 139.2 +Stock option exercises and other 188.8 2.8 101.7 290.5 +Balance at December 31, 2021 1,660.6 16.6 8,231.6 57,534.7 (179.5) (24.8) (2,369.4) (915.8) (67,810.2) (4,601.0) +Net income 6,177.4 6,177.4 +Other comprehensive income (loss), +net of tax (118.7) 55.5 150.3 87.1 +Comprehensive income 6,264.5 +Common stock cash dividends + ($5.66 per share) (4,168.2) (4,168.2) +Treasury stock purchases (15.8) (3,896.0) (3,896.0) +Share-based compensation 166.7 166.7 +Stock option exercises and other 148.8 2.3 81.8 230.6 +Balance at December 31, 2022 1,660.6 $16.6 $8,547.1 $59,543.9 $(298.2)$ 30.7 $(2,219.1) (929.3)$(71,624.4)$ (6,003.4) +See Notes to consolidated financial statements.",negative +"McDonald's Corporation 2022 Annual Report 40Notes to Consolidated Financial Statements +Summary of Significant Accounting Policies +NATURE OF BUSINESS +The Company franchises and operates McDonald’ s restaurants in the global restaurant industry .",positive +"All restaurants are operated either by the Company or +by franchisees, including conventional franchisees under franchised arrangements, and developmental licensees or af filiates under license +agreements.",negative +The following table presents restaurant information by ownership type:,neutral +"Restaurants at December 31, 2022 2021 2020",neutral +"Conventional franchised 21,720 21,607 21,712 +Developmental licensed 8,229 7,913 7,663 +Foreign af filiated 8,220 7,775 7,146 + Total Franchised 38,169 37,295 36,521 + Company-operated 2,106 2,736 2,677 + T otal Systemwide restaurants 40,275 40,031 39,198 +The results of operations of restaurant businesses purchased and sold in transactions with franchisees were not material either individually or in +the aggregate to the consolidated financial statements for periods prior to purchase and sale.",negative +"CONSOLIDATION +The consolidated financial statements include the accounts of the Company and its subsidiaries.",neutral +"Investments in af filiates owned 50% or less (primarily +McDonald’ s China and Japan) are accounted for by the equity method.",positive +"On an ongoing basis, the Company evaluates its business relationships such as those with franchisees, joint venture partners, developmental +licensees, suppliers and advertising cooperatives to identify potential variable interest entities.",neutral +"Generally , these businesses qualify for a scope +exception under the variable interest entity consolidation guidance.",positive +"The Company has concluded that consolidation of any such entity is not +appropriate for the periods presented. +ESTIMATES IN FINANCIAL STATEMENTS +The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make +estimates and assumptions that af fect the amounts reported in the consolidated financial statements and accompanying notes.",negative +"Actual results could +differ from those estimates.",neutral +FOREIGN CURRENCY TRANSLATION,negative +"Generally , the functional currency of operations outside the U.S. is the respective local currency .",positive +"RECENT ACCOUNTING PRONOUNCEMENTS +Recently Adopted Accounting Pronouncements +Leases",neutral +"In July 2021, the Financial Accounting Standards Board (the ""F ASB"") issued Accounting Standards Update (""ASU"")",neutral +"No. 2021-05, ""Leases (T opic 842): +Lessors—Certain Leases with V ariable Lease Payments"" (""ASU 2021-05"").",neutral +"The pronouncement amends the current guidance on classification for a +lease that includes variable lease payments that do not depend on an index or rate.",neutral +"Under the amended guidance, a lessor must classify as an +operating lease any lease that would otherwise be classified as a sales-type or direct financing lease and that would result in the recognition of a +selling loss at lease commencement.",positive +"ASU 2021-05 is ef fective for fiscal years beginning after December 15, 2021, including applicable interim periods.",neutral +"The Company adopted the new standard ef fective January 1, 2022.",positive +"The adoption of this standard did not have a material ef fect on the Company’ s +consolidated financial statements.",neutral +Reference Rate Reform,neutral +"In March 2020, the F ASB issued ASU No. 2020-04, “Reference Rate Reform (T opic 848): Facilitation of the Ef fects of Reference Rate Reform on +Financial Reporting"" (“ASU 2020-04”).",neutral +"The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract +modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank +Offered Rate and other interbank of fered rates to alternative reference rates.",negative +"The guidance was ef fective upon issuance and may be applied +prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022.",neutral +"The adoption of +this standard did not have a material ef fect on the Company's consolidated financial statements.",neutral +McDonald's Corporation 2022 Annual Report 41REVENUE RECOGNITION,neutral +"The Company's revenues consist of sales by Company-operated restaurants and fees from restaurants operated by franchisees, developmental +licensees and af filiates.",neutral +"Revenues from conventional franchised restaurants include rent and royalties based on a percent of sales with minimum rent +payments, and initial fees.",negative +"Revenues from restaurants licensed to developmental licensees and af filiates include a royalty based on a percent of sales, +and generally include initial fees.",positive +"The Company’ s Other revenues are comprised of fees paid by franchisees to recover a portion of costs incurred by +the Company for various technology platforms, revenues from brand licensing arrangements to market and sell consumer packaged goods using the +McDonald’ s brand and third-party revenues for the Dynamic Yield business, for periods prior to its sale on April 1, 2022.",negative +"Sales by Company-operated restaurants are recognized on a cash basis at the time of the underlying sale and are presented net of sales tax and +other sales-related taxes.",negative +Royalty revenues are based on a percent of sales and recognized at the time the underlying sales occur .,neutral +"Rental income +includes both minimum rent payments, which are recognized straight-line over the franchise term (with the exception of rent concessions as a result of +COVID-19 – refer to the Leasing section that follows) and variable rent payments based on a percent of sales, which are recognized at the time the +underlying sales occur .",neutral +"Initial fees are recognized as the Company satisfies the performance obligation over the franchise term, which is generally 20 +years.",positive +"The Company provides goods or services related to various technology platforms to certain franchisees that are distinct from the franchise +agreement because they do not require integration with other goods or services that the Company provides.",positive +"The Company has determined that it is +the principal in these arrangements.",neutral +"Accordingly , the related revenue is presented on a gross basis on the Consolidated Statement of Income.",neutral +"These +revenues are recognized as the goods or services are transferred to the franchisee, and related expenses are recognized as incurred.",neutral +"Brand licensing +arrangement revenues are based on a percent of sales and are recognized at the time the underlying sales occur .",neutral +"For periods prior to April 1, 2022, +Dynamic Yield third party revenues were generated from providing software as a service solutions to customers and were recognized over the +applicable subscription period as the service was performed.",neutral +"PROPERTY AND EQUIPMENT +Property and equipment are stated at cost, with depreciation and amortization provided using the straight-line method over the following estimated +useful lives: buildings–up to 40 years; leasehold improvements–the lesser of useful lives of assets or lease terms, which generally include certain +option periods; and equipment– 3 to 12 years.",positive +"The Company periodically reviews these lives relative to physical factors, economic factors and industry trends.",positive +"If there are changes in the +planned use of property and equipment, or if technological changes occur more rapidly than anticipated, the useful lives assigned to these assets may +need to be shortened, resulting in the accelerated recognition of depreciation and amortization expense or write-of fs in future periods.",positive +"The Company may share in the cost of certain restaurant improvements with its franchisees, primarily in the U.S. Since McDonald's manages the +project and provides up front funding in these instances, during the project the Company estimates which costs are the responsibility of McDonald's +and which are the responsibility of the franchisee, and allocates the corresponding costs between Property and equipment and Accounts receivable.",positive +"Upon the completion of the project, the allocation of costs is finalized and may result in immaterial adjustments to the balances and associated +depreciation expense.",neutral +Refer to the Property and Equipment footnote on page 49 of this Form 10-K for additional information.,neutral +"LEASING +The Company is the lessee in a significant real estate portfolio, primarily through ground leases (the Company leases the land and generally owns the +building) and through improved leases (the Company leases the land and buildings).",positive +"The Lease right-of-use asset and Lease liability reflect the +present value of the Company’ s estimated future minimum lease payments over the lease term, which includes options that are reasonably assured of +being exercised, discounted using the rate implicit in each lease, if determinable, or a collateralized incremental borrowing rate considering the term of +the lease and particular currency environment.",positive +"Leases with an initial term of 12 months or less, primarily related to leases of of fice equipment, are not +included in the Lease right-or-use asset or Lease liability and continue to be recognized in the Consolidated Statement of Income on a straight-line +basis over the lease term.",negative +The Company has elected not to separate non-lease components from lease components in its lessee portfolio.,neutral +"To the extent that occupancy +costs, such as site maintenance, are included in the asset and liability , the impact is immaterial and is generally limited to Company-owned restaurant +locations.",negative +"For franchised locations, which represent the majority of the restaurant portfolio, the related occupancy costs including property taxes, +insurance and site maintenance are generally required to be paid by the franchisees as part of the franchise arrangement.",positive +"In addition, the Company is +the lessee under non-restaurant related leases such as of fice buildings, vehicles and of fice equipment.",neutral +"These leases are not a material subset of the +Company’ s lease portfolio.",neutral +"In 2020, the Company elected the practical expedient to account for COVID-19 related rent concessions as if they were part of the enforceable +rights and obligations of the parties under the existing lease contract.",neutral +"This was elected for the Company’ s entire lessee and lessor portfolio for any rent +deferrals or rent abatements.",neutral +"For the lessee portfolio, the Company elected not to remeasure the Lease right- of-use asset and Lease liability if a rent +deferral or a rent abatement was granted.",positive +"Refer to the Leasing Arrangements footnote on page 50 of this Form 10-K for additional information on the +Lease right-of-use asset and Lease liability .",neutral +Rental income includes both minimum rent payments and variable rent payments based on a percent of sales.,neutral +"Refer to the Franchise Arrangements footnote on page 49 of this Form 10-K for additional information on deferred collections of rental income as +well as royalties.",neutral +"McDonald's Corporation 2022 Annual Report 42CAPITALIZED SOFTWARE +Capitalized software is stated at cost and amortized using the straight-line method over the estimated useful life of the software, which primarily ranges +from 2 to 10 years.",positive +"Customer facing software is typically amortized over a shorter useful life, while back of fice and Corporate systems may have a +longer useful life.",positive +"Capitalized software less accumulated amortization is recorded within Miscellaneous other assets on the Consolidated Balance +Sheet and was (in millions):",negative +2022-$ 864.3 ; 2021-$ 795.0 ; 2020-$ 691.2 .,neutral +"The Company reviews capitalized software for impairment whenever events or changes in circumstances indicate that the carrying amount of an +asset may not be recoverable or if an indicator of impairment exists, which occurs more regularly throughout the year , such as when new software may +be ready for its intended use.",positive +"The Company did not identify any indicators of material impairment of capitalized software for the years ended +December 31, 2022 and 2021.",neutral +Results for 2020 reflected write-of fs of impaired software of $ 26.3 million.,neutral +"LONG-LIVED ASSETS +Long-lived assets are reviewed for impairment annually in the fourth quarter and whenever events or changes in circumstances indicate that the +carrying amount of an asset may not be recoverable.",neutral +"For purposes of annually reviewing McDonald’ s restaurant assets for potential impairment, +assets are initially grouped together in the U.S. at a field of fice level, and internationally , at a market level.",neutral +"The Company manages its restaurants as a +group or portfolio with significant common costs and promotional activities; as such, an individual restaurant’ s cash flows are not generally +independent of the cash flows of others in a market.",positive +"If an indicator of impairment exists for any grouping of assets, an estimate of undiscounted future +cash flows produced by each individual restaurant within the asset grouping is compared to its carrying value.",neutral +"If an individual restaurant is determined +to be impaired, the loss is measured by the excess of the carrying amount of the restaurant over its fair value as determined by an estimate of +discounted future cash flows.",positive +"Losses on assets held for disposal are recognized when management and the Company's Board of Directors, as required, have approved and +committed to a plan to dispose of the assets, the assets are available for disposal and the disposal is probable of occurring within 12 months, and the +net sales proceeds are expected to be less than its net book value, among other factors.",positive +"Generally , such losses are related to restaurants that have +closed and ceased operations as well as other assets that meet the criteria to be considered “held for sale.",negative +""" +GOODWILL +Goodwill represents the excess of cost over the net tangible assets and identifiable intangible assets of acquired restaurants and other businesses, +and it is generally assigned to the reporting unit (defined as each individual market) expected to benefit from the synergies of the combination.",negative +"The +Company's goodwill primarily results from purchases of McDonald's restaurants from franchisees or transactions in which the Company obtains a +controlling interest in subsidiaries or af filiates.",positive +"When purchasing restaurants from a franchisee, the Company generally uses a discounted cash flow +methodology (Level 3 inputs within the valuation hierarchy), which determines the fair value of restaurants acquired based on their expected +profitability and cash flows.",positive +"During 2022, the Company acquired restaurants from franchisees in order to expand its Company-operated restaurant +footprint in key growth areas and to support key strategic franchising initiatives.",neutral +"In conjunction with these purchases, the Company recorded +approximately $ 75 million of net tangible assets, $ 525 million of identifiable intangible assets (primarily consisting of reacquired franchise rights) and +$190 million of goodwill.",positive +These acquisitions did not have a material impact on the amount of recorded revenues or net income of the Company .,neutral +"If a +Company-operated restaurant is sold within 24 months of acquisition, the goodwill associated with the acquisition is written of f in its entirety .",neutral +"If a +Company-operated restaurant is sold beyond 24 months months from the acquisition, the amount of goodwill written of f is based on the relative fair +value of the business sold compared to the reporting unit.",positive +The following table presents the 2022 activity in goodwill by segment:,neutral +"In millions U.S.International +Operated MarketsInternational Developmental +Licensed Markets & Corporate Consolidated +Balance at December 31, 2021 $1,673.4 $1,109.1 $ — $2,782.5 +Net restaurant purchases (sales) 141.8 47.0 — 188.8 +Currency translation — (70.9) — (70.9) +Balance at December 31, 2022 $1,815.2 $1,085.2 $ — $2,900.4 +The Company conducts goodwill impairment testing in the fourth quarter of each year or whenever indicators of impairment exist.",neutral +"If an indicator of +impairment exists, the goodwill impairment test compares the fair value of a reporting unit, generally based on discounted future cash flows, with its +carrying amount including goodwill.",positive +"If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recorded for the dif ference.",positive +"In +the current period, the Company performed a qualitative assessment and did not identify any indicators of impairment.",neutral +"Historically , goodwill impairment +has not significantly impacted the consolidated financial statements.",negative +"Goodwill on the Consolidated Balance Sheet reflects accumulated impairment +losses of $ 14.5 million as of December 31, 2022 and 2021.",neutral +"ADVERTISING COSTS +Advertising costs included in operating expenses of Company-operated restaurants primarily consist of contributions to advertising cooperatives based +upon a percent of sales, and were (in millions): 2022–$ 334.5 ; 2021–$ 377.6 ; 2020–$ 325.5 .",positive +"The decrease in 2022 is primarily due to lower sales in the +International Operated Markets as a result of the sale of the Company's business in Russia and the temporary restaurant closures in Ukraine.",negative +"In addition, significant advertising costs are incurred by conventional franchisees through contributions to advertising cooperatives in individual +markets that are also based upon a percent of sales.",positive +"In the markets that make up the vast majority of the Systemwide advertising spend, including the +U.S., McDonald’ s is not the primary beneficiary of these entities, and therefore has concluded that consolidation would not be appropriate, as the +Company does not have the power through voting or similar rights to direct the activities of the cooperatives that most significantly impact their +economic performance.",positive +McDonald's Corporation 2022 Annual Report 43Production costs for radio and television advertising are expensed when the commercials are initially aired.,positive +"These production costs, primarily in +the U.S., as well as other marketing-related expenses are included in Selling, general & administrative expenses and were (in millions): 2022–$ 63.8; +2021–$ 82.9; 2020–$ 329.2 .",positive +"Results for 2020 included about $ 175 million of incremental marketing contributions by the Company to the System's +advertising cooperative arrangements across the U.S. and International Operated Markets, as well as higher investments in brand communications.",positive +"INCOME TAXES +Income T ax Uncertainties +The Company , like other multi-national companies, is regularly audited by federal, state and foreign tax authorities, and tax assessments may arise +several years after tax returns have been filed.",negative +"Accordingly , tax liabilities are recorded when, in management’ s judgment, a tax position does not meet +the more likely than not threshold for recognition.",positive +"For tax positions that meet the more likely than not threshold, a tax liability may still be recorded +depending on management’ s assessment of how the tax position will ultimately be settled.",positive +"The Company records interest and penalties on +unrecognized tax benefits in the provision for income taxes.",neutral +"Deferred tax assets and liabilities are recognized for the tax consequences of temporary dif ferences between the financial reporting basis and the +tax basis of existing assets and liabilities.",neutral +"The Company records a valuation allowance to reduce its deferred tax assets if it is considered more likely +than not that some portion or all of the deferred tax assets will not be realized.",positive +"While the Company has considered future taxable income and ongoing +prudent and feasible tax strategies, including the sale of appreciated assets, in assessing the need for the valuation allowance, if these estimates and +assumptions change in the future, the Company may be required to adjust its valuation allowance.",positive +"This could result in a charge to, or an increase in, +income in the period such determination is made.",neutral +Refer to the Income Taxes footnote on page 52 of this Form 10-K for additional information.,neutral +"Accounting for Global Intangible Low-T axed Income (""GIL TI"")",neutral +The accounting policy of the Company is to record any tax on GIL TI in the provision for income taxes in the year it is incurred.,neutral +FAIR VALUE MEASUREMENTS,positive +"The Company measures certain financial assets and liabilities at fair value on a recurring basis, and certain non-financial assets and liabilities on a +nonrecurring basis.",positive +"Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most +advantageous market in an orderly transaction between market participants on the measurement date.",positive +"Fair value disclosures are reflected in a three- +level hierarchy , maximizing the use of observable inputs and minimizing the use of unobservable inputs.",positive +The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date.,neutral +"The three +levels are defined as follows: +▪Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active market.",negative +"▪Level 2 – inputs to the valuation methodology include quoted prices for a similar asset or liability in an active market or model-derived valuations +in which all significant inputs are observable for substantially the full term of the asset or liability .",positive +▪Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement of the asset or liability .,positive +"Certain of the Company’ s derivatives are valued using various pricing models or discounted cash flow analyses that incorporate observable +market parameters, such as interest rate yield curves, option volatilities and foreign currency rates, classified as Level 2 within the valuation hierarchy .",positive +Derivative valuations incorporate credit risk adjustments that are necessary to reflect the probability of default by the counterparty or the Company .,neutral +"▪Certain Financial Assets and Liabilities Measured at Fair V alue +The following tables present financial assets and liabilities measured at fair value on a recurring basis by the valuation hierarchy as defined in the fair +value guidance: +December 31, 2022",positive +"In millions Level 1 Level 2Total Carrying +Value +Derivative assets $ 200.5 $ 82.0 $ 282.5 +Derivative liabilities $ (141.7 )$ (141.7 ) +December 31, 2021",neutral +"In millions Level 1 Level 2 Total Carrying +Value +Derivative assets $ 209.8 $ 79.8 $ 289.6 +Derivative liabilities $ (7.9)$ (7.9) +(1) Level 1 is comprised of derivatives that hedge market driven changes in liabilities associated with the Company’ s supplemental benefit plans.(1) +(1) +McDonald's Corporation 2022 Annual Report 44▪Non-Financial Assets and Liabilities Measured at Fair V alue on a Nonrecurring Basis +Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the assets and liabilities are not measured at fair value on an +ongoing basis, but are subject to fair value adjustments in certain circumstances (e.g., when there is evidence of impairment).",positive +"For the years ended +December 31, 2022 and 2021, the Company did not record any material fair value adjustments to long-lived assets (including goodwill).",positive +"▪Certain Financial Assets and Liabilities not Measured at Fair V alue +At December 31, 2022, the fair value of the Company’ s debt obligations was estimated at $ 33.5 billion, compared to a carrying amount of $ 35.9 billion.",positive +"The fair value was based on quoted market prices, Level 2 within the valuation hierarchy .",positive +"The carrying amount of cash and equivalents and notes +receivable approximate fair value.",positive +FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES,neutral +"The Company is exposed to global market risks, including the ef fect of changes in interest rates and foreign currency fluctuations.",negative +"The Company uses +foreign currency denominated debt and derivative instruments to mitigate the impact of these changes.",negative +"The Company does not hold or issue +derivatives for trading purposes.",neutral +"The Company documents its risk management objective and strategy for undertaking hedging transactions, as well as all relationships between +hedging instruments and hedged items.",neutral +"The Company’ s derivatives that are designated for hedge accounting consist mainly of interest rate swaps, +foreign currency forwards, and cross-currency interest rate swaps, and are classified as either fair value, cash flow or net investment hedges.",positive +"Further +details are explained in the ""Fair V alue,"" ""Cash Flow"" and ""Net Investment"" hedge sections.",positive +The Company enters into certain derivatives that are not designated for hedge accounting.,positive +"The Company has entered into equity derivative +contracts, including total return swaps, to hedge market-driven changes in certain of its supplemental benefit plan liabilities.",positive +"In addition, the Company +uses foreign currency forwards to mitigate the change in fair value of certain foreign currency denominated assets and liabilities.",positive +"Further details are +explained in the “Undesignated Derivatives” section.",neutral +"All derivatives (including those not designated for hedge accounting) are recognized on the Consolidated Balance Sheet at fair value and +classified based on the instruments’ maturity dates.",positive +"Changes in the fair value measurements of the derivative instruments are reflected as adjustments +to AOCI and/or current earnings.",positive +"The following table presents the fair values of derivative instruments included on the Consolidated Balance Sheet as of December 31, 2022 and 2021: + Derivative Assets Derivative Liabilities +In millions Balance Sheet Classification 2022 2021 Balance Sheet Classification 2022 2021 +Derivatives designated as hedging instruments +Foreign currency Prepaid expenses and other current assets $53.3 $42.4 Accrued payroll and other liabilities $(17.9)$(3.3) +Interest rate Prepaid expenses and other current assets — $ 0.3 Accrued payroll and other liabilities — — +Foreign currency Miscellaneous other assets 28.7 28.0",negative +"Other long-term liabilities (30.7) (0.5) +Interest rate Miscellaneous other assets — 8.6 Other long-term liabilities (91.5) (4.1) +Total derivatives designated as hedging instruments $82.0 $79.3 $(140.1 )$(7.9) +Derivatives not designated as hedging instruments +Equity Prepaid expenses and other current assets $200.5 $ 9.5 Accrued payroll and other liabilities $(1.6)$ — +Foreign currency Prepaid expenses and other current assets — 0.5 Accrued payroll and other liabilities — — +Equity Miscellaneous other assets — 200.3 +Total derivatives not designated as hedging instruments $200.5 $210.3 $(1.6)$ — +Total derivatives $282.5 $289.6 $(141.7 )$(7.9) +The following table presents the pre-tax amounts from derivative instruments af fecting income and AOCI for the year ended December 31, 2022 +and 2021, respectively: +McDonald's Corporation 2022 Annual Report 45Location of gain or loss +recognized in income on +derivativeGain (loss) +recognized in +AOCIGain (loss) reclassified +into income from AOCIGain (loss) recognized +in +income on derivative +In millions 2022 2021 2022 2021 2022 2021 +Foreign currency Nonoperating income/expense $ 122.5 $ 74.2 $ 137.8 $ (30.9) +Interest rate Interest expense 83.9 — (2.9) (6.3) +Cash flow hedges $ 206.4 $ 74.2 $ 134.9 $ (37.2) +Foreign currency denominated debt Nonoperating income/expense $ 902.8 $ 725.8 47.1 +Foreign currency derivatives Nonoperating income/expense (12.0) 40.2 +Foreign currency derivatives Interest expense $ 11.2 $ 14.7 +Net investment hedges $ 890.8 $ 766.0 $ 47.1 $ 11.2 $ 14.7 +Foreign currency Nonoperating income/expense $ 9.3 $ 9.4 +Equity Selling, general & administrative +expenses (9.3) 99.3 +Equity Other operating income/ +expense, net — (11.3) +Undesignated derivatives $ — $ 97.4",negative +The amount of gain (loss) recognized in income related to components excluded from effectiveness testing.,neutral +"Fair V alue Hedges +The Company enters into fair value hedges to reduce the exposure to changes in fair values of certain liabilities.",positive +"The Company enters into fair value +hedges that convert a portion of its fixed rate debt into floating rate debt by use of interest rate swaps.",positive +"At December 31, 2022, the carrying amount of +fixed-rate debt that was ef fectively converted was an equivalent notional amount of $ 1.2 billion, which included a decrease of $ 91.5 million of +cumulative hedging adjustments.",neutral +"For the year ended December 31, 2022, the Company recognized a $ 96.3 million loss on the fair value of interest +rate swaps, and a corresponding gain on the fair value of the related hedged debt instrument to interest expense.",positive +"Cash Flow Hedges +The Company enters into cash flow hedges to reduce the exposure to variability in certain expected future cash flows.",positive +"To protect against the reduction +in value of forecasted foreign currency cash flows (such as royalties denominated in foreign currencies), the Company uses foreign currency forwards +to hedge a portion of anticipated exposures.",negative +"The hedges cover up to the next 18 months for certain exposures and are denominated in various +currencies.",positive +"As of December 31, 2022, the Company had derivatives outstanding with an equivalent notional amount of $ 1.5 billion that hedged a +portion of forecasted foreign currency denominated cash flows.",positive +"Based on market conditions at December 31, 2022, the $ 30.7 million in cumulative cash flow hedging gains, after tax, is not expected to have a +significant ef fect on earnings over the next 12 months.",positive +"Net Investment Hedges +The Company uses foreign currency denominated debt (third party and intercompany) as well as foreign currency derivatives to hedge its investments +in certain foreign subsidiaries and af filiates.",negative +"Realized and unrealized translation adjustments from these hedges are included in shareholders' equity in +the foreign currency translation component of Other comprehensive income (""OCI"") and of fset translation adjustments on the underlying net assets of +foreign subsidiaries and af filiates, which also are recorded in OCI.",negative +"As of December 31, 2022, $ 12.2 billion of the Company's third party foreign +currency denominated debt, $ 679 million of intercompany foreign currency denominated debt, and $585 million of foreign currency derivatives were +designated to hedge investments in certain foreign subsidiaries and af filiates.",negative +"Undesignated Derivatives +The Company enters into certain derivatives that are not designated for hedge accounting.",positive +"Therefore, the changes in the fair value of these derivatives +are recognized immediately in earnings together with the gain or loss from the hedged balance sheet position.",positive +"As an example, the Company enters +into equity derivative contracts, including total return swaps, to hedge market-driven changes in certain of its supplemental benefit plan liabilities.",positive +"Changes in the fair value of these derivatives are recorded in Selling, general & administrative expenses together with the changes in the +supplemental benefit plan liabilities.",positive +"In addition, the Company uses foreign currency forwards to mitigate the change in fair value of certain foreign +currency denominated assets and liabilities.",positive +"The changes in the fair value of these derivatives are recognized in Nonoperating (income) expense, net, +along with the currency gain or loss from the hedged balance sheet position.",positive +"Credit Risk +The Company is exposed to credit-related losses in the event of non-performance by its derivative counterparties.",neutral +"The Company did not have +significant exposure to any individual counterparty at December 31, 2022 and has master agreements that contain netting arrangements.",positive +"For financial +reporting purposes, the Company presents gross derivative balances in the financial statements and supplementary data, including for counterparties +subject to netting arrangements.",negative +"Some of these agreements also require each party to post collateral if credit ratings fall below , or aggregate +exposures exceed, certain contractual limits.",positive +"At December 31, 2022, the Company was required to post $78 million of collateral due to the negative fair +value of certain derivative positions.",positive +"The Company's counterparties were not required to post collateral on any derivative position, other than on certain +hedges of the Company’ s supplemental benefit plan liabilities where the counterparties were required to post collateral on their liability positions.(1)",positive +"(1) +McDonald's Corporation 2022 Annual Report 46SHARE-BASED COMPENSATION",neutral +"The Company has a share-based compensation plan, which authorizes the granting of various equity-based incentives including stock options and +restricted stock units (“RSUs”) to employees and nonemployee directors.",neutral +"Share-based compensation, which includes the portion vesting of all share-based awards granted based on the grant date fair value, is generally +amortized on a straight-line basis over the vesting period in Selling, general & administrative expenses.",positive +The fair value of each stock option granted is estimated on the date of grant using a closed-form pricing model.,positive +"The pricing model requires +assumptions, which impact the assumed fair value, including the expected life of the stock option, the risk-free interest rate, expected volatility of the +Company’ s stock over the expected life and the expected dividend yield.",positive +"The Company uses historical data to determine these assumptions and if +these assumptions change significantly for future grants, share-based compensation expense will fluctuate in future years.",positive +"In addition, the Company +estimates forfeitures when determining the amount of compensation costs to be recognized each period.",neutral +The fair value of each RSU granted is equal to the market price of the Company’ s stock at date of grant.,positive +"For performance-based RSUs, the +Company includes a relative Total Shareholder Return (""TSR"") modifier to determine the number of shares earned at the end of the performance +period.",neutral +The fair value of performance-based RSUs that include the TSR modifier is determined using a Monte Carlo valuation model.,positive +Refer to the Share-based Compensation footnote on page 56 of this Form 10-K for additional information.,neutral +"PER COMMON SHARE INFORMA TION +Diluted earnings per common share is calculated using net income divided by diluted weighted-average shares.",negative +"Diluted weighted-average shares +include weighted-average shares outstanding plus the dilutive ef fect of share-based compensation calculated using the treasury stock method, of (in +millions of shares): 2022– 4.8; 2021– 5.5; 2020– 5.5.",positive +"Share-based compensation awards that were not included in diluted weighted-average shares +because they would have been antidilutive were (in millions of shares): 2022– 1.5; 2021– 2.2; 2020– 1.8.",neutral +"CASH AND EQUIV ALENTS +The Company considers short-term, highly liquid investments with an original maturity of 90 days or less to be cash equivalents.",positive +"As of December 31, +2022, Cash and equivalents was $ 2.6 billion of which $ 1.8 billion consisted of certificates of deposit.",neutral +"McDonald's Corporation 2022 Annual Report 47Segment and Geographic Information +McDonald’ s operates under an organizational structure with the following global business segments reflecting how management reviews and +evaluates operating performance: +•U.S. - the Company’ s largest market.",neutral +"The segment is 95% franchised as of December 31, 2022.",neutral +"•International Operated Markets - comprised of markets, or countries in which the Company operates and franchises restaurants, including +Australia, Canada, France, Germany , Italy , the Netherlands, Spain and the U.K.",neutral +"The segment is 89% franchised as of December 31, 2022.",neutral +"•International Developmental Licensed Markets & Corporate - comprised primarily of developmental licensee and affiliate markets in the +McDonald’ s system.",positive +Corporate activities are also reported in this segment.,neutral +"The segment is 98% franchised as of December 31, 2022.",neutral +"In Decembe r 2021 and April 2022, the Compa ny completed the divestitures of Apprente (McD Tech Labs) and Dynamic Yield, respectively .",neutral +"Additionally , in June 2022, the Company sold its business in Russia.",neutral +"Prior to their respective dates of sale, financial performance relating to Dynamic +Yield and McD Tech Labs is reflected within the International Developmental Licensed Markets & Corporate segment and financial performance +relating to Russia is reflected in the International Operated Markets segment.",neutral +All intercompany revenues and expenses are eliminated in computing revenues and operating income.,neutral +"Corporate general and administrative +expenses consist of home of fice support costs in areas such as facilities, finance, human resources, information technology , legal, marketing, +restaurant operations, supply chain and training.",positive +"Corporate assets include corporate cash and equivalents, asset portions of financial instruments and +home of fice facilities.",neutral +"In millions 2022 2021 2020 +U.S. $ 9,588.4 $ 8,865.0 $ 7,828.5 +International Operated Markets 11,297.0 12,219.8 9,570.7 +International Developmental Licensed Markets & Corporate 2,297.2 2,138.1 1,808.6 +Total revenues $ 23,182.6 $ 23,222.9 $ 19,207.8 +U.S. $ 5,136.4 $ 4,754.7 $ 3,789.1",neutral +"International Operated Markets 3,926.0 5,130.6 3,315.1 +International Developmental Licensed Markets & Corporate 308.6 470.7 219.8 +Total operating income $ 9,371.0 $ 10,356.0 $ 7,324.0 +U.S. $ 21,793.0 $ 21,280.3 $ 21,010.0 +International Operated Markets 21,979.3 24,186.1 24,744.0 +International Developmental Licensed Markets & Corporate 6,663.3 8,387.9 6,872.8 +Total assets",neutral +"$ 50,435.6 $ 53,854.3 $ 52,626.8 +U.S. $ 860.0 $ 940.7 $ 890.4 +International Operated Markets 1,015.2 1,050.6 731.5 +International Developmental Licensed Markets & Corporate 24.0 48.7 18.9 +Total capital expenditures $ 1,899.2 $ 2,040.0 $ 1,640.8 +U.S. $ 912.4 $ 840.7 $ 813.8 +International Operated Markets 640.6 726.4 678.5 +International Developmental Licensed Markets & Corporate 317.6 301.0 259.1 +Total depreciation and amortization $ 1,870.6 $ 1,868.1 $ 1,751.4 +Total long-lived assets, primarily property and equipment and the Company's Lease right-of-use asset, were (in millions)–Consolidated: 2022– +$37,403.0 ; 2021–$ 39,267.0 ; U.S. based: 2022–$ 19,416.3 ; 2021–$ 19,600.1 .",positive +"McDonald's Corporation 2022 Annual Report 48Property and Equipment +Net property and equipment consisted of: +In millions 'December 31, 2022 2021 +Land $ 6,686.3 $ 6,487.6 +Buildings and improvements on owned land 18,934.2 18,666.0 +Buildings and improvements on leased land 12,492.0 13,283.3 +Equipment, signs and seating 2,498.6 3,032.0 +Other 426.5 447.7 +Property and equipment, at cost 41,037.6 41,916.6 +Accumulated depreciation and amortization (17,264.0 ) (17,196.0 ) +Net property and equipment $ 23,773.6 $ 24,720.6 +Depreciation and amortization expense for property and equipment was (in millions): 2022–$ 1,454.0 ; 2021–$ 1,530.7 ; 2020–$ 1,469.4 .",negative +"The +decrease in both Buildings and improvements on leased land and Equipment, signs and seating from 2021 to 2022 was primarily driven by the +Company's sale of the business in Russia.",positive +"Franchise Arrangements +Conventional franchise arrangements generally include a lease and a license and provide for payment of initial fees, as well as continuing rent and +royalties to the Company based upon a percent of sales with minimum rent payments.",negative +"Minimum rent payments are based on the Company's +underlying investment in owned sites and parallel the Company’ s underlying leases and escalations on properties that are leased.",neutral +"Under the franchise +arrangement, franchisees are granted the right to operate a restaurant using the McDonald’ s System and, in most cases, the use of a restaurant +facility , generally for a period of 20 years.",positive +"At the end of the 20-year franchise arrangement, the Company maintains control of the underlying real estate +and building and can either enter into a new 20-year franchise arrangement with the existing franchisee or a dif ferent franchisee, or close the +restaurant.",positive +"Franchisees generally pay related occupancy costs including property taxes, insurance and site maintenance.",positive +"Developmental licensees and af filiates operating under license agreements pay a royalty to the Company based upon a percent of sales, and +generally pay initial fees.",positive +"McDonald’ s has elected to allocate consideration in the franchise contract among lease and non-lease components in the same manner that it has +historically: rental income (lease), royalty income (non-lease) and initial fee income (non-lease).",neutral +"This disaggregation and presentation of revenue is +based on the nature, amount, timing and certainty of the revenue and cash flows.",neutral +"The allocation has been determined based on a mix of both +observable and estimated standalone selling prices (the price at which an entity would sell a promised good or service separately to a customer).",positive +"Revenues from franchised restaurants consisted of: +In millions 2022 2021 2020 +Rents $ 9,045.7 $ 8,381.1 $ 6,844.7 +Royalties 5,005.6 4,645.1 3,831.5 +Initial fees 54.5 59.2 49.9 +Revenues from franchised restaurants $14,105.8 $13,085.4 $10,726.1 +As rent and royalties are based upon a percent of sales, government restrictions as a result of COVID-19 had a more significant negative impact +on revenues in 2020.",positive +"The Company granted the deferrals of cash collection for certain rent and royalties earned from franchisees in substantially all +markets primarily in the first half of 2020.",positive +"In total, the Company deferred collection of approximately $ 1 billion and has collected all of these deferrals +as of December 31, 2022.",negative +"Future gross minimum rent payments due to the Company under existing conventional franchise arrangements are: +In millions Owned sites Leased sites Total +2023 $1,512.5 $ 1,458.0 $2,970.5 +2024 1,471.5 1,394.8 2,866.3 +2025 1,425.9 1,332.1 2,758.0 +2026 1,375.0 1,275.5 2,650.5 +2027 1,328.2 1,218.9 2,547.1 +Thereafter 9,533.6 8,454.3 17,987.9 +Total minimum payments $16,646.7 $ 15,133.6 $31,780.3 +At December 31, 2022, net property and equipment under franchise arrangements totaled $ 20.2 billion (including land of $ 5.9 billion) after +deducting accumulated depreciation and amortization of $ 14.3 billion.",negative +"McDonald's Corporation 2022 Annual Report 49Leasing Arrangements +The Company is the lessee in a significant real estate portfolio, primarily through ground leases (the Company leases the land and generally owns the +building) and through improved leases (the Company leases the land and buildings).",positive +"The Company determines whether an arrangement is a lease at +inception.",neutral +"Lease terms for most restaurants, where market conditions allow , are generally for 20 years and, in many cases, provide for rent escalations +and renewal options.",positive +Renewal options are typically solely at the Company’ s discretion.,negative +"Escalation terms vary by market with examples including fixed- +rent escalations, escalations based on an inflation index and fair-value market adjustments.",positive +"The timing of these escalations generally range from +annually to every five years .",positive +The following table provides detail of rent expense:,neutral +"In millions 2022 2021 2020 +Restaurants $1,416.4 $1,486.3 $1,399.5 +Other 59.7 74.0 79.8 +Total rent expense $1,476.1 $1,560.3 $1,479.3 +Rent expense included percent rents in excess of minimum rents (in millions) as follows–Company-operated restaurants: 2022–$ 39.6; 2021– +$69.2; 2020–$ 53.7.",negative +Franchised restaurants: 2022–$ 209.0 ; 2021–$ 160.0 ; 2020–$ 136.5 .,neutral +These variable rent payments are based on a percent of sales.,neutral +"The Lease right-of-use asset and Lease liability reflect the present value of the Company's estimated future minimum lease payments over the +lease term, which includes options that are reasonably assured of being exercised, discounted using a collateralized incremental borrowing rate.",positive +"Typically , renewal options are considered reasonably assured of being exercised if the associated asset lives of the building or leasehold +improvements exceed that of the initial lease term, and the sales performance of the restaurant remains strong.",positive +"Therefore, the Lease right-of-use +asset and Lease liability include an assumption on renewal options that have not yet been exercised by the Company , and are not currently a future +obligation.",neutral +"The Company's lease portfolio includes both operating and finance leases, however as of December 31, 2022, the vast majority of the portfolio +was classified as operating leases.",neutral +"As the rate implicit in each lease is not readily determinable, the Company uses an incremental borrowing rate to calculate the lease liability that +represents an estimate of the interest rate the Company would incur to borrow on a collateralized basis over the term of a lease within a particular +currency environment.",positive +"The weighted average discount rate used for leases was 3.5% as of December 31, 2022 and 3.7% as of December 31, 2021.",negative +"As of December 31, 2022, maturities of lease liabilities for the Company's lease portfolio were as follows:",neutral +"In millions Total * +2023 $ 1,161.6 +2024 1,134.4 +2025 1,096.2 +2026 1,041.8 +2027 1,003.3 +Thereafter 12,799.5 +Total lease payments 18,236.8 +Less: imputed interest (5,441.3 )",negative +"Present value of lease liability $ 12,795.5 +* Total lease payments include option periods that are reasonably assured of being exercised.",positive +"The decrease in the present value of the lease liability since December 31, 2021 is approximately $( 0.9) billion.",negative +"The lease liability will continue to +be impacted by new leases, lease modifications, lease terminations, reevaluation of lease terms, and foreign currency .",positive +"The W eighted Average Lease Term remaining that is included in the maturities of lease liabilities was 19 years as of December 31, 2022 and 20 +years as of December 31, 2021.",negative +"McDonald's Corporation 2022 Annual Report 50Contingencies +In the ordinary course of business, the Company is subject to proceedings, lawsuits and other claims primarily related to competitors, customers, +employees, franchisees, government agencies, intellectual property , shareholders and suppliers.",negative +"The Company is required to assess the likelihood of +any adverse judgments or outcomes to these matters as well as potential ranges of probable losses.",neutral +"A determination of the amount of accrual +required, if any , for these contingencies is made after careful analysis of each matter .",negative +"The required accrual may change in the future due to new +developments in a particular matter or changes in approach such as a change in settlement strategy in dealing with these matters.",positive +"The Company does +not believe that any such matter currently being reviewed will have a material adverse ef fect on its financial condition or results of operations.",neutral +"Other Operating (Income) Expense, Net",negative +"In millions 2022 2021 2020 +Gains on sales of restaurant businesses $ (59.8)$ (96.6)$ (23.3) +Equity in earnings of unconsolidated af filiates (113.2) (176.7 ) (117.4) +Asset dispositions and other (income) expense, net 136.8 75.4 290.7 +Impairment and other charges (gains), net 1,009.8 (285.4 ) (267.5 ) +Total $ 973.6 $ (483.3 )$ (117.5) +▪Gains on sales of restaurant businesses +The Company’ s purchases and sales of businesses with its franchisees are aimed at maintaining an optimal ownership mix in each market.",negative +"Resulting +gains or losses on sales of restaurant businesses are recorded in operating income because these transactions are a recurring part of the Company's +business.",neutral +"▪Equity in earnings of unconsolidated af filiates +Unconsolidated af filiates and partnerships are businesses in which the Company actively participates but does not control.",negative +"The Company records +equity in (earnings) losses from these entities representing McDonald’ s share of results for markets in both the International Operated Markets and +International Developmental Licensed Markets segments.",neutral +"For foreign af filiated markets—primarily China and Japan—results are reported net of +interest expense and income taxes.",negative +"▪Asset dispositions and other (income) expense, net +Asset dispositions and other (income) expense, net consists of gains or losses on excess property and other asset dispositions, provisions for +restaurant closings, reserves for bad debts, asset write-of fs due to restaurant reinvestment, strategic sale of properties, and other miscellaneous +income and expenses.",negative +"▪Impairment and other charges (gains), net +Impairment and other charges (gains), net includes losses that result from the write down of goodwill and long-lived assets from their carrying value to +their fair value, as well as charges associated with strategic initiatives, such as refranchising and restructuring activities.",positive +"The realized gains/losses from +the divestiture of ownership percentages of subsidiaries are reflected in this category , including the gains on sale of McDonald's Japan stock in 2020 +and 2021, which reduced the Company's ownership in McDonald's Japan from 49% to 35%.",neutral +"Additionally , in 2022 this category includes $ 1.3 billion of +charges related to the sale of the Company's business in Russia and a gain of $ 271 million related to the Company's sale of its Dynamic Yield +business.",neutral +"McDonald's Corporation 2022 Annual Report 51Income Taxes +Income before provision for income taxes, classified by source of income, was as follows: +In millions 2022 2021 2020 +U.S. $1,845.6 $2,413.9 $1,390.4 +Outside the U.S. 5,979.8 6,714.0 4,750.3 +Income before provision for income taxes * $7,825.4 $9,127.9 $6,140.7 +*Income before provision for income taxes decreased in 2022 primarily due to current and prior year charges and gains detailed in the Net Income and Diluted +Earnings Per Share section on page 12 of this Form 10-K, which offset strong operating performance.",positive +"The provision for income taxes, classified by the timing and location of payment, was as follows:",neutral +"In millions 2022 2021 2020 +U.S. federal $ 517.3 $ 887.6 $ 554.1 +U.S. state 246.3 228.1 119.1 +Outside the U.S. 1,230.1 895.3 730.6 +Current tax provision 1,993.7 2,011.0 1,403.8 +U.S. federal (80.0) (177.4 ) 870.3 +U.S. state (46.2) (24.1) 73.3 +Outside the U.S. (219.5 ) (226.8 ) (937.2 ) +Deferred tax provision (345.7 ) (428.3 ) 6.4 +Provision for income taxes $1,648.0 $1,582.7 $1,410.2 +Net deferred tax (assets) liabilities consisted of:",neutral +"In millions December 31, 2022 2021 +Lease right-of-use asset $3,045.0 $3,462.7 +Property and equipment 1,706.3 1,648.6 +Intangible assets 296.7 696.0 +Other 595.4 490.8 +Total deferred tax liabilities 5,643.4 6,298.1 +Lease liability (3,099.9 )(3,516.9 ) +Intangible assets (2,658.9 )(2,524.6 ) +Property and equipment (676.3 ) (647.1 ) +Deferred foreign tax credits (74.5) (311.5) +Employee benefit plans (180.6 ) (153.6 ) +Deferred revenue (165.8 ) (121.4 ) +Operating loss carryforwards (76.6) (96.1) +Other (267.4 ) (284.4 ) +Total deferred tax assets before valuation allowance (7,200.0 )(7,655.6 ) +Valuation allowance 1,077.1 1,076.1 +Net deferred tax (assets) liabilities $(479.5 )$(281.4 ) +Balance sheet presentation: +Deferred income taxes $1,997.5 $2,075.6 +Other assets-miscellaneous (2,477.0 )(2,357.0 )",negative +"Net deferred tax (assets) liabilities $(479.5 )$(281.4 )McDonald's Corporation 2022 Annual Report 52At December 31, 2022, the Company had net operating loss carryforwards of $ 407.5 million, of which $ 174.6 million has an indefinite +carryforward.",neutral +The remainder will expire at various dates from 2023 to 2040.,neutral +"The statutory U.S. federal income tax rate reconciles to the ef fective income tax rates as follows: +2022 2021 2020 +Statutory U.S. federal income tax rate 21.0 % 21.0 % 21.0 % +State income taxes, net of related federal income tax benefit 2.0 1.8 1.8 +Foreign income taxed at dif ferent rates 1.1 0.9 0.4 +Tax impact of intercompany transactions 0.2 0.1 2.1 +Global intangible low-tax income (""GIL TI"") 0.4 0.3 1.2 +Foreign-derived intangible income (""FDII"") (4.2) (2.6) (3.4) +U.S./Foreign tax law changes — (3.9) (1.8)",negative +"Nonoperating expense related to France audit settlement 1.4 — — +Other , net (0.8) (0.3) 1.7 +Effective income tax rates 21.1 % 17.3 % 23.0 %",positive +"The 2022 ef fective income tax rate reflected the tax impact of $ 537 million of non-operating expense related to the settlement of the tax audit in +France.",neutral +"In 2021, U.S./Foreign tax law changes included a $ 364 million income tax benefit related to the remeasurement of deferred taxes as a result of +a change in the U.K. statutory income tax rate.",neutral +"As of December 31, 2022 and 2021, the Company’ s gross unrecognized tax benefits totaled $ 647.0 million and $ 1,504.9 million, respectively .",neutral +"After considering the deferred tax accounting impact, it is expected that about $ 410 million of the total as of December 31, 2022 would favorably af fect +the ef fective tax rate if resolved in the Company’ s favor .",negative +The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits:,neutral +"In millions 2022 2021 +Balance at January 1 $ 1,504.9 $ 1,479.2 +Decreases for positions taken in prior years (579.4 ) (31.9) +Increases for positions taken in prior years 49.8 26.1 +Increases for positions related to the current year 100.3 60.7 +Settlements with taxing authorities (428.1 ) (16.8)",neutral +"Lapsing of statutes of limitations (0.5) (12.4) +Balance at December 31 $ 647.0 $ 1,504.9 +(1) Of this amount, $ 619.6 million and $ 1,157.5 million are included in Long-term income taxes for 2022 and 2021, respectively , and $ 27.3 million and $ 332.0 million are included +in Prepaid expenses and other current assets for 2022 and 2021, respectively , on the Consolidated Balance Sheet.",negative +"The remainder is included in Deferred income taxes on the +Consolidated Balance Sheet.",neutral +"In 2015, the U.S. Internal Revenue Service (the ""IRS"") issued a Revenue Agent Report (“RAR”) that included certain disagreed transfer pricing +adjustments related to the Company’ s",positive +U.S. Federal income tax returns for 2009 and 2010.,neutral +"Also in 2015, the Company filed a protest with the IRS +related to these disagreed transfer pricing matters.",neutral +"During 2017, the Company received a response to its protest, and beginning in December 2018 the +Company met with the IRS Appeals team regarding settlement of these issues.",neutral +"In February 2023, the Company finalized a settlement agreement with +the IRS Appeals team related to the disagreed transfer pricing matters for the years 2009-2010.",neutral +"In 2017, the IRS completed its examination of the Company’ s U.S. Federal income tax returns for 201 1 and 2012.",neutral +"In 2018, the IRS issued a RAR +for these years.",neutral +"As expected, the RAR included the same disagreed transfer pricing matters as the 2009 and 2010 RAR.",negative +"Also in 2018, the Company +filed a protest with the IRS related to these disagreed transfer pricing matters.",neutral +"The Company continues to meet with the IRS Appeals team regarding +the settlement of these issues.",neutral +"The Company is also under audit in multiple foreign tax jurisdictions for matters primarily related to transfer pricing, and the Company is under +audit in multiple state tax jurisdictions.",negative +"While the Company cannot estimate the impact to the ef fective tax rate, it is reasonably possible that the total +amount of unrecognized tax benefits could decrease up to $ 70 million within the next 12 months.",neutral +"This would be due to the possible settlement of the +IRS transfer pricing matters, completion of the aforementioned foreign and state tax audits and the expiration of the statute of limitations in multiple tax +jurisdictions.",negative +"In 2022, the Company settled an income tax audit with France, which resulted in $ 537 million of nondeductible non-operating expense +and conclusion of income tax matters related to transfer pricing for the years 2009-2020.",neutral +"During 2022, the Company finalized and settled certain tax examinations and remeasured other income tax reserves based on audit progression.",positive +"It is reasonably possible that, as a result of audit progression in both the U.S. and foreign tax audits within the next 12 months, there may be new +information that causes the Company to reassess the total amount of unrecognized tax benefits recorded.",positive +"While the Company cannot estimate the +impact that new information may have on the unrecognized tax benefit balance, it believes that the liabilities recorded are appropriate and adequate.",positive +The Company operates within multiple tax jurisdictions and is subject to audit in these jurisdictions.,negative +"With few exceptions, the Company is no +longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2009.",negative +"The Company had $ 24.7 million and $ 183.6 million accrued for interest and penalties related to tax matters at December 31, 2022 and 2021, +respectively .",neutral +"The Company recognized interest and penalties related to tax matters of $ 90.5 million in 2022, $ 24.4 million in 2021, and $ 32.4 million in +2020, which are included in the provision for income taxes.(1)McDonald's Corporation 2022 Annual Report 53As of December 31, 2022, the Company has accumulated undistributed earnings generated by its foreign subsidiaries, which were predominantly +taxed in the U.S. as a result of the transition tax provisions enacted under the Tax Cuts and Jobs Act of 2017.",negative +"Management does not assert that these +previously-taxed unremitted earnings are indefinitely reinvested in operations outside the U.S.",neutral +"Accordingly , the Company has provided deferred taxes +for the tax ef fects incremental to the transition tax.",neutral +"The Company has not provided for deferred taxes on outside basis dif ferences in its investments in +its foreign subsidiaries that are unrelated to these accumulated undistributed earnings, as these outside basis dif ferences are indefinitely reinvested.",negative +"A +determination of the unrecognized deferred taxes related to these other components of the outside basis dif ferences is not practicable.",negative +"Employee Benefit Plans +The Company's 401(k) Plan is maintained for U.S.-based employees and includes a 401(k) feature, as well as an employer match.",neutral +"The 401(k) feature +allows eligible participants to make pre-tax contributions that are matched each pay period (with an annual true-up) through cash contributions.",neutral +"All current account balances, future contributions and related earnings can be invested in nine investment alternatives (including a target date +fund series), as well as McDonald’ s stock in accordance with each participant’ s investment elections.",neutral +"Future participant contributions are limited to +20% investment in McDonald’ s stock and participants may not transfer their existing account balance into McDonald’ s stock if the transfer would cause +the value of their interest in the fund to exceed 20% of their total 401(k) Plan account balance.",negative +"Participants may choose to make separate investment +choices for current account balances and future contributions.",neutral +"The Company also maintains certain unfunded nonqualified supplemental benefit plans that allow participants to (i) make tax-deferred +contributions and (ii) receive an annual Company-match allocation that cannot be made under the 401(k) Plan because of IRS limitations.",positive +"The +investment alternatives and returns are based on certain market-rate investment alternatives under the 401(k) Plan, net of expenses.",positive +"Total liabilities +were $ 380.0 million and $ 456.8 million at December 31, 2022 and 2021, respectively , and were primarily included in Other long-term liabilities on the +Consolidated Balance Sheet.",positive +The Company has entered into derivative contracts to hedge market-driven changes in certain of the liabilities.,positive +"At December 31, 2022, derivatives +with a fair va lue of $200.5 million indexed to the Company's stock and a total return swap with a notional amount of $ 164.4 million indexed to certain +market indices were included at their fair value in Prepaid expenses and other current assets on the Consolidated Balance Sheet.",positive +"Changes in liabilities +for these nonqualified plans and in the fair value of the derivatives are recorded primarily in Selling, general & administrative expenses.",positive +"Changes in fair +value of the derivatives indexed to the Company’ s stock are recorded in the income statement because the contracts provide the counterparty with a +choice to settle in cash or shares.",positive +"Total U.S. costs for the 401(k) Plan and nonqualified benefits and related hedging activities, were (in millions): 2022–$ 54.2; 2021–$ 39.5; 2020– +$37.0.",neutral +"Certain subsidiaries outside the U.S. also of fer profit sharing, stock purchase or other similar benefit plans.",positive +"Total plan costs outside the U.S. +were (in millions): 2022–$ 44.4; 2021–$ 41.8; 2020–$ 36.6.",neutral +"The total combined liabilities for international retirement plans were $ 36.6 million and $ 41.7 million at December 31, 2022 and 2021, respectively .",neutral +Other post-retirement benefits and post-employment benefits were immaterial to the Consolidated Income Statement.,negative +"McDonald's Corporation 2022 Annual Report 54Debt Financing +LINE OF CREDIT AGREEMENTS",neutral +"At December 31, 2022, the Company had a line of credit agreement of $ 3.5 billion, which expires in December 2024.",neutral +"The Company incurs fees of +0.08% per annum on the total commitment, which remained unused.",neutral +"Fees and interest rates on this line are primarily based on the Company's long- +term credit rating assigned by Moody’ s and Standard & Poor's.",negative +"In addition, the Company's subsidiaries had unused lines of credit that were primarily +uncommitted, short-term and denominated in various currencies at local market rates of interest.",positive +"The weighted-average interest rate of short-term borrowings was 5.2% at December 31, 2022 (based on $ 264.5 million of foreign currency +bank line borrowings) and 2.4% at December 31, 2021 (based on $ 263.1 million of foreign currency bank line borrowings).",negative +DEBT OBLIGATIONS,neutral +The Company has incurred debt obligations principally through public and private of ferings and bank loans.,neutral +"There are no provisions in the Company’ s +debt obligations that would accelerate repayment of debt as a result of a change in credit ratings or a material adverse change in the Company’ s +business.",neutral +"Certain of the Company’ s debt obligations contain cross-acceleration provisions, and restrictions on Company and subsidiary mortgages +and the long-term debt of certain subsidiaries.",positive +"Under certain agreements, the Company has the option to retire debt prior to maturity , either at par or at +a premium over par .",positive +"The Company has no current plans to retire a significant amount of its debt prior to maturity , but continues to look for ways to +optimize its debt portfolio.",positive +"The following table summarizes the Company’ s debt obligations (interest rates and debt amounts reflected in the table include the ef fects of +interest rate swaps used to hedge debt).",neutral +"Interest rates +December 31Amounts outstanding +December 31",positive +"In millions of U.S. Dollars Maturity dates 2022 2021 2022 2021 +Fixed 4.0 % 3.9 % $22,382.0 $21,833.7 +Floating 6.6 1.6 750.0 1,150.0 +Total U.S. Dollar 2023-2052 23,132.0 22,983.7 +Fixed 1.6 1.4 8,704.1 8,682.3 +Floating 5.1 2.1 321.2 341.1 +Total Euro 2023-2034 9,025.3 9,023.4 +Fixed 3.4 3.4 748.7 797.9",positive +"Floating 4.3 1.2 204.4 217.9 +Total Australian Dollar 2024-2029 953.1 1,015.8 +Total British Pounds Sterling - Fixed 2032-2054 4.1 4.2 1,504.1 1,145.0 +Total Canadian Dollar - Fixed 2025 3.1 3.1 737.3 790.6 +Total Japanese Yen - Fixed 2030 2.9 2.9 95.3 108.6 +Fixed 0.2 0.2 432.6 438.2 +Floating 5.2 2.4 262.7 257.1 +Total other currencies 2023-2024 695.3 695.3 +Debt obligations before fair value adjustments and deferred debt +costs 36,142.4 35,762.4 +Fair value adjustments (91.5) 4.8 +Deferred debt costs (147.4 ) (144.5 ) +Total debt obligations $35,903.5 $35,622.7 +(1) Weighted-average effective rate, computed on a semi-annual basis.",positive +(2) Consists of Swiss Francs and Korean Won.,neutral +"(3) Aggregate maturities for 2022 debt balances, before fair value adjustments and deferred debt costs, are as follows (in millions): 2023-$ 0.0; 2024–$ 5,472.9 ; 2025–$ 3,060.5 ; +2026–$ 2,418.7 ; 2027–$ 2,487.2 ; Thereafter–$ 22,703.1 .",positive +"These amounts include a reclassification of short-term obligations totaling $ 2.7 billion to long-term obligations as they +are supported by a long-term line of credit agreement expiring in December 2024 .",neutral +"(4) The carrying value of underlying items in fair value hedges, in this case debt obligations, are adjusted for fair value changes to the extent they are attributable to the risk +designated as being hedged.",positive +"The related hedging instruments are also recorded at fair value on the Consolidated Balance Sheet.(1) +(2) +(3) +(4) +McDonald's Corporation 2022 Annual Report 55Share-based Compensation +The Company maintains a share-based compensation plan, which authorizes the granting of various equity-based incentives including stock options +and RSUs to employees and nonemployee directors.",positive +"The number of shares of common stock reserved for issuance under the plan was 34.4 million at +December 31, 2022, including 21.8 million available for future grants.",positive +Share-based compensation expense and the ef fect on diluted earnings per common share were as follows:,negative +"In millions, except per share data 2022 2021 2020 +Share-based compensation expense $ 166.7 $ 139.2 $ 92.4 +After tax $ 145.9 $ 120.4 $ 78.3 +Earnings per common share-diluted $ 0.20 $ 0.16 $ 0.10 +As of December 31, 2022, there was $ 161.1 million of total unrecognized compensation cost related to nonvested share-based compensation that +is expected to be recognized over a weighted-average period of 2.0 years.",negative +"STOCK OPTIONS +Stock options to purchase common stock are granted with an exercise price equal to the closing market price of the Company’ s stock on the date of +grant.",negative +"Substantially all of the options become exercisable in four equal installments, beginning a year from the date of the grant, and generally expire +10 years from the grant date.",positive +"The following table presents the weighted-average assumptions used in the option pricing model for the 2022, 2021 and 2020 stock option grants.",neutral +The expected life of the options represents the period of time the options are expected to be outstanding and is based on historical trends.,positive +"Expected +stock price volatility is generally based on the historical volatility of the Company’ s stock for a period approximating the expected life.",negative +"The expected +dividend yield is based on the Company’ s most recent annual dividend rate.",positive +"The risk-free interest rate is based on the U.S. Treasury yield curve in +effect at the time of grant with a term equal to the expected life.",positive +"Weighted-average assumptions +2022 2021 2020 +Expected dividend yield 2.2 % 2.4 % 2.3 % +Expected stock price volatility 21.3 % 21.8 % 19.1 % +Risk-free interest rate 1.9 % 0.7 % 1.4 % +Expected life of options (in years) 5.7 5.7 5.7 +Fair value per option granted $ 42.12 $ 30.91 $ 29.40 +Intrinsic value for stock options is defined as the dif ference between the current market value of the Company’ s stock and the exercise price.",positive +"During 2022, 2021 and 2020, the total intrinsic value of stock options exercised was $ 242.2 million, $ 302.0 million and $ 290.4 million, respectively .",neutral +"Cash received from stock options exercised during 2022 was $ 248.2 million and the tax benefit realized from stock options exercised totaled $ 48.3 +million.",neutral +The Company uses treasury shares purchased under the Company’ s share repurchase program to satisfy share-based exercises.,neutral +"A summary of the status of the Company’ s stock option grants as of December 31, 2022, 2021 and 2020, and changes during the years then +ended, is presented in the following table: +2022 2021 2020 +OptionsShares in +millionsWeighted- +average +exercise +priceWeighted- +average +remaining +contractual +life in yearsAggregate +intrinsic +value in +millionsShares in +millionsWeighted- +average +exercise +priceShares in +millionsWeighted- +average +exercise +price +Outstanding at beginning of year 12.0 $156.13 13.4 $139.44 14.6 $124.21 +Granted 1.6 252.97 2.1 215.73 1.8 214.18 +Exercised (1.9) 128.08 (2.4) 115.29 (2.8) 104.58 +Forfeited/expired (0.3) 225.93 (1.1) 160.50 (0.2) 184.69 +Outstanding at end of year 11.4",positive +"$172.27 5.6 $1,041.6 12.0 $156.13 13.4 $139.44 +Exercisable at end of year 7.7 $145.87 4.4 $904.2 7.8 8.8 +McDonald's Corporation 2022 Annual Report 56RSUs +RSUs generally vest 100% on the third anniversary of the grant and are payable in either shares of the Company’ s common stock or cash, at the +Company’ s discretion.",negative +The fair value of each RSU granted is equal to the market price of the Company’ s stock at date of grant.,positive +"Separately , Company +officers have been awarded RSUs that vest based on Company performance.",neutral +"For performance-based RSUs, the Company includes a relative TSR +modifier to determine the number of shares earned at the end of the performance period.",neutral +"The fair value of performance-based RSUs that include the +TSR modifier is determined using a Monte Carlo valuation model.",positive +"A summary of the Company’ s RSU activity during the years ended December 31, 2022, 2021 and 2020 is presented in the following table: + 2022 2021 2020 +RSUsShares in +millionsWeighted- +average +grant date +fair valueShares in +millionsWeighted- +average +grant date +fair valueShares in +millionsWeighted- +average +grant date +fair value +Nonvested at beginning of year 1.3",positive +"$197.10 1.3 $176.81 1.4 $150.95 +Granted 0.5 242.82 0.6 206.92 0.6 201.92 +Vested (0.4)",neutral +"173.31 (0.4) 153.55 (0.6) 127.99 +Forfeited (0.2) 205.61 (0.2) 168.38 (0.1) 172.45 +Nonvested at end of year 1.2 $222.32 1.3 $197.10 1.3 $176.81",neutral +"The total fair value of RSUs vested during 2022, 2021 and 2020 was $ 110.3 million, $ 80.0 million and $ 119.4 million, respectively .",positive +"The tax benefit +realized from RSUs vested during 2022 was $ 18.5 million.",neutral +"SUBSEQUENT EVENTS +On January 6, 2023, the Company announced an evolution of its successful Accelerating the Arches strategy .",positive +"Enhancements include the additions of +Restaurant Development to the Company's growth pillars and an internal ef fort to modernize ways of working, Accelerating the Organization , both of +which are aimed at elevating the Company’ s performance.",neutral +The Company is currently evaluating the impact this will have on its business.,neutral +McDonald's Corporation 2022 Annual Report 57Management’ s Assessment of Internal Control Over Financial Reporting,neutral +"The financial statements were prepared by management, which is responsible for their integrity and objectivity and for establishing and maintaining +adequate internal controls over financial reporting.",positive +"The Company’ s internal control over financial reporting is designed 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.",positive +"The Company’ s internal +control over financial reporting includes those policies and procedures",neutral +"that: +I.pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of +the Company; +II.provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with +generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with +authorizations of management and directors of the Company; and +III.provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’ s +assets that could have a material ef fect on the financial statements.",positive +"There are inherent limitations in the ef fectiveness of any internal control, including the possibility of human error and the circumvention or overriding of +controls.",neutral +"Accordingly , even ef fective internal controls can provide only reasonable assurances with respect to financial statement preparation.",positive +"Further , +because of changes in conditions, the ef fectiveness of internal controls may vary over time.",neutral +"Management assessed the design and ef fectiveness of the Company’ s internal control over financial reporting as of December 31, 2022.",neutral +"In making +this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in +Internal Control – Integrated Framework (2013 Framework).",neutral +"Based on management’ s assessment using those criteria, as of December 31, 2022, management believes that the Company’ s internal control over +financial reporting is ef fective.",neutral +"Ernst & Young, LLP , independent registered public accounting firm, has audited the financial statements of the Company for the fiscal years ended +December 31, 2022, 2021 and 2020 and the Company’ s internal control over financial reporting as of December 31, 2022.",negative +"Their reports are presented +on the following pages.",neutral +"The independent registered public accountants and internal auditors advise management of the results of their audits, and +make recommendations to improve the system of internal controls.",neutral +Management evaluates the audit recommendations and takes appropriate action.,positive +"McDONALD’S CORPORA TION +February 24, 2023 +McDonald's Corporation 2022 Annual Report 58Report of Independent Registered Public Accounting Firm +The Board of Directors and Shareholders of McDonald’ s Corporation +Opinion on the Financial Statements",negative +"We have audited the accompanying consolidated balance sheets of McDonald’ s Corporation (the Company) as of December 31, 2022 and 2021, the +related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period +ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).",neutral +"In our opinion, the consolidated +financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its +operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted +accounting principles.",positive +"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 December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the +Committee of Sponsorin g Organizations of the Treadway Commission (2013 framework) and our report dated February 24, 2023 expressed an +unqualified opinion thereon.",neutral +"Basis for Opinion +These finan cial statements are the responsibil ity of the Company's management.",neutral +"Our responsibility is to express an opinion on the Company’ s +financial statements based on our audits.",neutral +"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.",negative +We conduct ed our audits in accordance with the standards of the PCAOB.,neutral +"Those standards require that we plan and perform the audit to obtain +reasonable assurance about whether the financ ial statements are free of material misstatement, whether due to error or fraud.",positive +"Our audits included +performing procedures to assess the risks of material misstatement of the financial stateme nts, whether due to error or fraud, and performing +procedures that respond to those risks.",negative +"Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the +financial statements.",neutral +"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.",positive +W e believe that our audits provide a reasonable basis for our opinion.,positive +Critical Audit Matter,neutral +"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.",negative +"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 accounts or disclosure to which it relates.",positive +"McDonald's Corporation 2022 Annual Report 59Valuation of Unrecognized T ax Benefits and Related Regulatory Actions +Description of the +MatterAs described in the Income Taxes footnote to the consolidated financial statements, the Company’ s unrecognized tax benefits, +which includes transfer pricing matters, totaled $647.0 million at December 31, 2022.",neutral +"The Company , like other multi-national +companies, is regularly audited by federal, state and foreign tax authorities, and tax assessmen ts may arise several years after +tax returns have been filed.",negative +"Accordingly , tax liabilities are recorded when, in management’ s judgment, a tax position does not +meet the more likely than not threshold for recognition.",positive +"For tax positions that meet the more likely than not threshold, a tax liability +may still be recorded depending on management’ s assessment of how the tax position will ultim ately be settled.",positive +"The Company +may also be subject to regulatory actions relate d to these tax matters.",negative +"The Company accrues liabilities for regulatory actions +when a loss is probable and the amount or range of loss is reasonably estimable.",positive +"Auditing the measurement of unrecognized tax benefits and liabilities arising from regulatory actions related to transfer pricing +used in intercompany transactions was challenging because the measurement is based on judgmental interpretations of complex +tax laws and legal rulings and because the pricing of the intercompany transactions is based on studies that may produce a +range of outcomes (e.g., the price that would be charged in an arm’ s-length transaction).",positive +"How W e 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 assess the technical merits and measurement of these unrecognized tax benefits and related regulatory liabilities.",neutral +"For +example, we tested management’ s review of the unrecognized tax benefit calculations, which included evaluation of the +comparable transactions used to determine the ranges of outcomes, pricing conclusions reached in management’ s transfer +pricing studi es, the assessment of other third-party information, and settlement agreements with relevant tax and regulatory +authorities.",positive +"With the assistance of our income tax profession als, we performed audit procedures that included, among others, evaluating the +technical merits of the Company’ s position and assessing the recognition and measurement of unrecognized tax benefits and +liabilities resulting from regulatory actions related to transfer pricing.",neutral +"For example, we assessed the inputs utilized and the pricing +conclusions reached in the transfer pricing studies executed by management, and compared the methods used to alternative +methods and industry benchmarks.",neutral +We reviewed advice obtained by the Company from third-par ty advisors.,neutral +"In addition, we used +our knowledge of histori cal settlement activity , income tax laws, and other market information to evaluate the technical merits of +the Company’ s positions.",negative +"For positions settled or effectively settled in the current year, we reviewed the Company's +communications and agreements with the releva nt tax and regulatory authorities.",positive +"Where applicable, we requested and received +an external legal counsel confirmation letter to independently verify our understanding of settlement agreements.",positive +"/s/ Ernst & Young LLP +We have served as the Company’ s auditor since 1964.",positive +"Chicago, Illinois +February 24, 2023 +McDonald's Corporation 2022 Annual Report 60Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting +The Board of Directors and Shareholders of McDonald’ s Corporation +Opinion on Internal Control over Financial Reporting +We have audited McDon ald’s Corporation’ s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal +Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO +criteria).",negative +"In our opinion, McDonald’ s Corporation (the Company) maintained, in all material respec ts, effective internal control over financial reporting as +of December 31, 2022, based on the COSO criteria.",positive +"We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the +consolidated balance sheets of McDonald’ s Corporation as of December 31, 2022 and 2021, and the related consolidated statements of income, +comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes +and our report dated February 24, 2023 expressed an unqualified opinion thereon.",neutral +"Basis for Opinion +The Company’ s management is responsible for maintaining ef fective internal control over financial reporting and for its assessment of the +effectiveness of internal control over financial reporting included in the accompanying Management’ s Assessment of Internal Control Over Financial +Reporting.",positive +Our responsibility is to express an opinion on the Company’ s internal control over financial reporting based on our audit.,neutral +"W e 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.",negative +We conducted our audit in accordance with the standards of the PCAOB.,neutral +"Those standards require that we plan and perform the audit to obtain +reasonable assurance about whether ef fective internal control over financial reporting was maintained in all material respects.",positive +"Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing +and evaluating the design and operating ef fectiveness of internal control based on the assessed risk, and performing such other procedures as we +considered necessary in the circumstances.",negative +W e believe that our audit provides a reasonable basis for our opinion.,positive +"Definition and Limitations of Internal Control Over Financial Reporting +A company’ s internal control over financial reporting is a process designed 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.",positive +"A company’ s +internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, +accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are +recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and +expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide +reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’ s assets that could have +a material ef fect on the financial statements.",positive +"Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.",neutral +"Also, projections of any evaluation +of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of +compliance with the policies or procedures may deteriorate.",negative +"/s/ Ernst & Young LLP +Chicago, Illinois +February 24, 2023 +McDonald's Corporation 2022 Annual Report 61Controls and Procedures +DISCLOSURE CONTROLS +An evaluation was conducted under the supervision and with the participation of the Company’ s management, including the Chief Executive Of ficer +(“CEO”) and Chief Financial Of ficer (“CFO”), of the ef fectiveness of the design and operation of the Company’ s disclosure controls and procedures (as +that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the ""Exchange Act"")) as of +December 31, 2022.",positive +"Based on that evaluation, the CEO and CFO concluded that the Company’ s disclosure controls and procedures were ef fective as +of such date to provide reasonable assurances that information required to be disclosed by the Company in the reports filed or submitted under the +Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and +forms, and is accumulated and communicated to the Company's management, including the CEO and CFO, as appropriate to allow timely decisions +regarding required disclosure.",positive +"INTERNAL CONTROL OVER FINANCIAL REPORTING +The Company is in the process of implementing a comprehensive, multi-year finance and technology transformation initiative to migrate its general +ledger , financial close and consolidation processes onto new financial systems.",positive +"The Company is performing the implementation in the ordinary course +of business to increase ef ficiency and to modernize the tools and technology used in its key financial processes.",negative +"This is not in response to any +identified deficiency or weakness in the Company's internal control over financial reporting.",neutral +"As the phased implementation of the systems continues, +the Company has modified certain processes and procedures to enhance the quality of internal control over financial reporting.",positive +"The Company will +continue to monitor and modify , as needed, the design and operating ef fectiveness of key control activities to align with the updated business +processes and capabilities of the new financial systems.",positive +"Except for these changes, the Company’ s management, including the CEO and CFO, confirm there has been no change in the Company's +internal control over financial reporting during the fiscal year ended December 31, 2022 that has materially af fected, or is reasonably likely to materially +affect, the Company's internal control over financial reporting.",neutral +"MANAGEMENT’S REPORT +Management’ s Report and the Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting are set forth in +the consolidated financial statements.",negative +"Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The following table summarizes information about the Company’ s equity compensation plans as of December 31, 2022.",positive +"All outstanding awards relate +to the Company’ s common stock.",positive +"Shares issued under all of the following plans may be from the Company’ s treasury , newly issued or both.",positive +"Equity compensation plan information +Number of securities +to be issued upon +exercise of +outstanding options, +warrants and rightsWeighted-average +exercise price of +outstanding options, +warrants and rightsNumber of securities +remaining available for +future issuance under +equity compensation plans +(excluding securities +reflected in column (a)) +Plan category (a) (b) (c) +Equity compensation plans approved by security holders 12,635,775 (1) $ 177.12 21,782,732 +Equity compensation plans not approved by security holders — — — +Total 12,635,775 $ 177.12 21,782,732 +(1) Includes 1,432 stock options granted under the McDonald’ s Corporation 2001 Omnibus Stock Ownership Plan and 1 1,412,128 stock options and 1,222,215 restricted stock +units granted under the McDonald's Corporation Amended and Restated 2012 Omnibus Stock Ownership Plan.",positive +"Additional matters are incorporated herein by reference from the Company’ s definitive proxy statement, which will be filed no later than 120 days +after December 31, 2022.",neutral +"McDonald's Corporation 2022 Annual Report 62Exhibits and Financial Statement Schedules +a.(1)All financial statements +Consolidated financial statements are filed as part of this Form 10-K and begin on page 35 of this Form 10-K. +(2)Financial statement schedules +No schedules are required because either the required information is not present or is not present in amounts suf ficient to require submission +of the schedule, or because the required information is included in the consolidated financial statements and accompanying notes filed as +part of this Form 10-K. +b.",neutral +"Exhibits +The exhibits below are filed as part of this Form 10-K. +McDonald’ s Corporation Exhibit Index +Exhibit Number Description +(3) Articles of incorporation; bylaws +(a) Restated Certificate of Incorporation, ef fective as of May 23, 2019, incorporated herein by reference from Exhibit 3(a) of Form +10-Q (File No. 001-05231), for the quarter ended June 30, 2019. +(b) By-Laws, as amended and restated with ef fect as of January 18, 2023 , incorporated herein by reference from Exhibit 3 .2 of +Form 8-K (File No. 001-05231), filed January 19, 2023 .",neutral +"(4) Instruments defining the rights of security holders, including indentures* +(a) Senior Debt Securities Indenture, dated as of October 19, 1996, incorporated herein by reference from Exhibit (4)(a) of Form +S-3 Registration Statement (File No. 333-14141), filed October 15, 1996.",neutral +"(b) Subordinated Debt Securities Indenture, dated as of October 18, 1996, incorporated herein by reference from Exhibit (4)(b) of +Form S-3 Registration Statement (File No. 333-14141), filed October 15, 1996.",neutral +"(c)Description of Securities, incorporated herein by reference from Exhibit 4(c) of Form 10-K (File No. 001-05231), for the year +ended December 31, 2019.",neutral +"(10) Material contracts +(a) McDonald’ s Corporation Directors’ Deferred Compensation Plan, amended and restated ef fective as of December 31, 2021, +incorporated herein by reference from Exhibit 10(a) of Form 10-K (File No. 001-05231), for the year ended December 31, +2021.",neutral +"** +(b) McDonald's Corporation Board of Directors Deferred Compensation Plan, ef fective as of January 1, 2022, incorporated herein +by reference from Exhibit 10(b) of Form 10-K (File No. 001-05231), for the year ended December 31, 2021.",neutral +"** +(c) McDonald’ s Deferred Compensation Plan, ef fective as of January 1, 2017, incorporated herein by reference from Exhibit 10(b) +of Form 10-K (File No. 001-05231), for the year ended December 31, 2016.",neutral +"** +(i) First Amendment to the McDonald's Deferred Compensation Plan, ef fective as of May 1, 2018, incorporated herein by +reference from Exhibit 10(b)(i) of Form 10-Q (File No. 001-05231), for the quarter ended September 30, 2018.",positive +"** +(d)",neutral +"McDonald's Amended and Restated Deferred Compensation Plan, ef fective as of May 26, 2020, incorporated herein by +reference from Exhibit 10(c) of Form 10-Q (File No. 001-05231), for the quarter ended June 30, 2020.",neutral +"** +(i) First Amendment to the McDonald's Amended and Restated Deferred Compensation Plan, ef fective as of December 1, +2021, incorporated herein by reference from Exhibit 10(d)(i) of Form 10-K (File No. 001-05231), for the year ended +December 31, 2021.",positive +"** +(e) McDonald’ s Corporation Supplemental Profit Sharing and Savings Plan, ef fective as of September 1, 2001, incorporated +herein by reference from Exhibit 10(c) of Form 10-K (File No. 001-05231), for the year ended December 31, 2001.",neutral +"** +(i) First Amendment to the McDonald’ s Corporation Supplemental Profit Sharing and Savings Plan, ef fective as of +January 1, 2002, incorporated herein by reference from Exhibit 10(c)(i) of Form 10-K (File No. 001-05231), for the year +ended December 31, 2002.",positive +"** +(ii) Second Amendment to the McDonald’ s Corporation Supplemental Profit Sharing and Savings Plan, as amended, +effective as of January 1, 2005, incorporated herein by reference from Exhibit 10(c)(ii) of Form 10-K (File No. 001- +05231), for the year ended December 31, 2004.",positive +"** +(f) McDonald's Corporation 2012 Omnibus Stock Ownership Plan, ef fective as of June 1, 2012, incorporated herein by reference +from Exhibit 10(h) of Form 10-Q (File No. 001-05231), for the quarter ended September 30, 2012.",neutral +"** +(g) McDonald's Corporation Amended and Restated 2012 Omnibus Stock Ownership Plan, ef fective as of May 21, 2020, +incorporated herein by reference from Exhibit 10(g) of Form 10-Q (File No. 001-05231), for the quarter ended June 30, 2020.**McDonald's Corporation 2022 Annual Report 63(h)",neutral +"Form of 2014 Executive Stock Option Award Agreement in connection with the 2012 Omnibus Stock Ownership Plan, +incorporated herein by reference from Exhibit 10(z) of Form 10-Q (File No. 001-05231), for the quarter ended March 31, +2014.",neutral +"** +(i) Form of Executive Confidentiality , Intellectual Property and Restrictive Covenant Agreement, incorporated herein by reference +from Exhibit 10(o) of Form 10-Q (File No. 001-05231), for the quarter ended March 31, 2017.",positive +"** +(j) Form of 2018 Executive Stock Option Award Agreement in connection with the 2012 Omnibus Stock Ownership Plan, +incorporated herein by reference from Exhibit 10(q) of Form 10-Q (File No. 001-05231), for the quarter ended March 31, 2018.",neutral +"** +(k) McDonald's Corporation Target Incentive Plan, ef fective as of January 1, 2013, amended and restated ef fective as of February +13, 2019, incorporated herein by reference from Exhibit 10(p) of Form 10-Q (File No. 001-05231), for the quarter ended March +31, 2019.",neutral +"** +(l) McDonald's Corporation Of ficer Severance Plan, amended and restated ef fective as of November 1, 2022, filed herewith.",neutral +"** +(m) Form of 2019 Executive Stock Option Award Agreement in connection with the 2012 Omnibus Stock Ownership Plan, +incorporated herein by reference from Exhibit 10(r) of Form 10-Q (File No. 001-05231), for the quarter ended March 31, +2019.",neutral +"** +(n) Separation Agreement and General Release between Stephen Easterbrook and the Company , dated October 31, 2019, +incorporated herein by reference from Exhibit 10.1 of Form 8-K (File No. 001-05231), filed November 4, 2019.",positive +"** +(o) Separation Agreement and General Release between Silvia Lagnado and the Company , dated August 14, 2019, incorporated +herein by reference from Exhibit 10(t) of Form 10-Q (File No. 001-05231), for the quarter ended June 30, 2020.",positive +"** +(p) Separation Agreement and General Release between Silvia Lagnado and the Company , dated October 31, 2019, incorporated +herein by reference from Exhibit 10(u) of Form 10-Q (File No. 001-05231), for the quarter ended June 30, 2020.",positive +"** +(q) Separation Agreement and General Release between Jerome N. Krulewitch and the Company , dated October 13, 2020, +incorporated herein by reference from Exhibit 10(v) of Form 10-K (File No. 001-05231), for the year ended December 31, +2020.",positive +"** +(r) Form of Executive Time-Based Restricted Stock Unit Award Agreement in connection with the Amended and Restated 2012 +Omnibus Stock Ownership Plan, incorporated herein by reference from Exhibit 10(v) of Form 10-Q (File No. 001-05231), for +the quarter ended June 30, 2021.",neutral +"** +(21) Subsidiaries of the Registrant. +(23) Consent of Independent Registered Public Accounting Firm.",negative +(24) Power of Attorney .,neutral +(31.1) Rule 13a-14(a) Certification of Chief Executive Of ficer.,neutral +(31.2) Rule 13a-14(a) Certification of Chief Financial Of ficer.,neutral +"(32.1) Certification pursuant to 18 U.S.C. Section 1350 by the Chief Executive Of ficer, as adopted pursuant to Section 906 of the +Sarbanes-Oxley Act of 2002.",neutral +"(32.2) Certification pursuant to 18 U.S.C. Section 1350 by the Chief Financial Of ficer, as adopted pursuant to Section 906 of the Sarbanes- +Oxley Act of 2002.",neutral +(99.1) Computation of Ratios.,neutral +"(101.INS) XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are +embedded within the Inline XBRL document.",neutral +(101.SCH),neutral +Inline XBRL Taxonomy Extension Schema Document.,neutral +(101.CAL),neutral +Inline XBRL Taxonomy Extension Calculation Linkbase Document.,neutral +(101.DEF),neutral +Inline XBRL Taxonomy Extension Definition Linkbase Document.,neutral +(101.LAB) Inline XBRL Taxonomy Extension Label Linkbase Document.,neutral +(101.PRE) Inline XBRL Taxonomy Extension Presentation Linkbase Document.,neutral +(104) Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.,neutral +"*Other instruments defining the rights of holders of long-term debt of the registrant, and all of its subsidiaries for which consolidated financial +statements are required to be filed and which are not required to be registered with the Commission, are not included herein as the securities +authorized thereunder , individually , do not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis.",negative +"An +agreement to furnish a copy of any such instruments to the Commission upon request has been filed with the Commission.",neutral +**Denotes compensatory plan.,neutral +"McDonald's Corporation 2022 Annual Report 64Form 10-K Cross-Reference Index +Page reference +Part I +Item 1 Business Pages 3-7, 9-10 +Item 1A Risk Factors Pages 27-32 +Item 1B Unresolved Staf f Comments Not applicable +Item 2 Properties Page 33 +Item 3 Legal Proceedings Page 33 +Item 4 Mine Safety Disclosures Not applicable +Part II +Item 5 Market for Registrant’ s Common Equity , Related Stockholder Matters and Issuer Purchases +of Equity SecuritiesPage 26 +Item 6",negative +"[Reserved] Not applicable +Item 7 Management’ s Discussion and Analysis of Financial Condition and Results of Operations Pages 8-35 +Item 7A Quantitative and Qualitative Disclosures About Market Risk Pages 22-23 +Item 8 Financial Statements and Supplementary Data Pages 35-57 +Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable +Item 9A Controls and Procedures Page 62 +Item 9B Other Information Not applicable +Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable +Part III +Item 10 Directors, Executive Of ficers and Corporate Governance Page 34, (a) +Item 1 1 Executive Compensation (a) +Item 12 Security Ownership of Certain Beneficial Owners and Management and Related +Stockholder MattersPage 62, (a) +Item 13 Certain Relationships and Related Transactions, and Director Independence (a) +Item 14 Principal Accountant Fees and Services (a) +Part IV +Item 15 Exhibits and Financial Statement Schedules Pages 63-64",positive +"Item 16 Form 10-K Summary Not applicable +Signatures Page 66 +(a) -",neutral +"The information required by this item is incorporated herein by reference from the Company's definitive proxy statement, which will be filed no +later than 120 days after December 31, 2022.",neutral +"McDonald's Corporation 2022 Annual Report 65Signatures +Pursuant to the requirements of Section 13 or 15(d) 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.",neutral +"McDonald’ s Corporation +(Registrant)",neutral +"By /s/ Ian F. Borden +Ian F. Borden +Corporate Executive Vice President and Chief Financial Officer +February 24, 2023 +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf +of the registrant and in the capacities indicated below on the 24th day of February , 2023:",neutral +By /s/ Ian F. Borden,neutral +By /s/,neutral +"Christopher J. Kempczinski +Ian F. Borden Christopher J. Kempczinski +Corporate Executive Vice President and Chief Financial Officer President, Chief Executive Officer and Director +(Principal Financial Officer) (Principal Executive Officer)",neutral +By /s/ Anthony G. Capuano,neutral +"By /s/ Richard H. Lenny +Anthony G. Capuano Richard H. Lenny +Director Director",neutral +By /s/ Kareem Daniel,neutral +"By /s/ John J. Mulligan +Kareem Daniel John J. Mulligan +Director Director",neutral +By /s/ Lloyd H. Dean,neutral +"By /s/ John W. Rogers, Jr. +Lloyd H. Dean John W. Rogers, Jr. +Director Director",neutral +By /s/,neutral +Robert A. Eckert,neutral +"By /s/ Jennifer L. Taubert +Robert A. Eckert Jennifer L. Taubert +Director Director",neutral +By /s/,neutral +Catherine M. Engelbert,neutral +"By /s/ Paul S. Walsh +Catherine M. Engelbert Paul S. Walsh +Director Director",neutral +By /s/ Margaret H. Georgiadis,neutral +"By /s/ Amy E. Weaver +Margaret H. Georgiadis Amy E. Weaver +Director Director",neutral +By /s/,neutral +"Enrique Hernandez, Jr.",neutral +"By /s/ Miles D. White +Enrique Hernandez, Jr. Miles D. White +Chairman of the Board and Director Director",neutral +By /s/,neutral +"Catherine Hoovel +Catherine Hoovel +Corporate Senior Vice President - Corporate Controller +(Principal Accounting Officer) +McDonald's Corporation 2022 Annual Report 66",neutral +text,sentiment +"Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 + ____________________________________",neutral +"FORM 10-K +____________________________________ +(Mark One) +☒ ANNUAL REPOR T PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934",neutral +"For the fiscal year ended December 31, 2022 +or +☐ TRANSITION REPOR T PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934",neutral +For the transition period from to .,neutral +"Commission File No. 000-22513 +____________________________________ +AMAZON .COM, INC. +(Exact name of registrant as specified in its charter)",positive +"Delaware 91-1646860 +(State or other jurisdiction of +incorporation or organization) (I.R.S. Employer +Identification No.) +410 Terry Avenue North +Seattle, Washington 98109-5210 +(206) 266-1000 +(Addr ess and telephone number , including ar ea code, of r egistrant’ s principal executive offices) +Securities registered pursuant to Section 12(b) of the Act: +Title of Each Class Trading Symbol(s)",negative +"Name of Each Exchange on Which Registered +Common Stock, par value $.01 per share AMZN Nasdaq Global Select Market +Securities registered pursuant to Section 12(g) of the Act: +None + ____________________________________ +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.",negative +"Yes ☒ No ☐ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.",neutral +Yes,neutral +"☐ No ☒ +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 +months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.",negative +"Yes ☒ No ☐ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the +preceding 12 months (or for such shorter period that the registrant was required to submit such files).",neutral +"Yes ☒ No ☐ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.",positive +"See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.",positive +"Large accelerated filer ☒ Accelerated filer ☐ +Non-accelerated filer ☐ Smaller reporting company ☐ +Emerging growth company ☐ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial +accounting standards provided pursuant to Section 13(a) of the Exchange Act.",positive +"☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting +under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))",neutral +by the registered public accounting firm that prepared or issued its audit report.,negative +"☒ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).",neutral +Yes,neutral +☐ No ☒,neutral +"Aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2022 $ 944,744,113,598 +Number of shares of common stock outstanding as of January 25, 2023 10,247,259,757 +____________________________________ +DOCUMENTS INCORPORATED BY REFERENCE",positive +"The information required by Part III of this Report, to the extent not set forth herein, is incorporated herein by reference from the registrant’s definitive proxy statement relating to +the Annual Meeting of Shareholders to be held in 2023, which definitive proxy statement shall be filed with the Securities and Exchange Commission within 120 days after the end of the +fiscal year to which this Report relates.",neutral +"Table of Contents +AMAZON.COM, INC. +FORM 10-K +For the Fiscal Year Ended December 31, 2022 +INDEX + + Page +PART",neutral +"I +Item 1.",neutral +"Business 3 +Item 1A. Risk Factors 6 +Item 1B. Unresolved Staff Comments 16 +Item 2.",neutral +"Properties 17 +Item 3.",neutral +"Legal Proceedings 17 +Item 4.",positive +"Mine Safety Disclosures 17 +PART II +Item 5.",neutral +"Market for the Registrant’s Common Stock, Related Shareholder Matters, and Issuer Purchases of Equity Securities 18 +Item 6.",negative +"Reserved 18 +Item 7.",neutral +"Management’s Discussion and Analysis of Financial Condition and Results of Operations 19 +Item 7A. Quantitative and Qualitative Disclosures About Market Risk 31 +Item 8.",neutral +"Financial Statements and Supplementary Data 33 +Item 9.",neutral +"Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 69 +Item 9A. Controls and Procedures 69 +Item 9B. Other Information 71 +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 71 +PART III +Item 10.",negative +"Directors, Executive Officers, and Corporate Governance 71 +Item 11.",neutral +"Executive Compensation 71 +Item 12.",neutral +Security Ownership of Certain Beneficial Owners and Management and,positive +"Related Shareholder Matters 71 +Item 13.",neutral +"Certain Relationships and Related Transactions, and Director Independence 71 +Item 14.",positive +"Principal Accountant Fees and Services 71 +PART IV +Item 15.",neutral +"Exhibits, Financial Statement Schedules 72 +Item 16.",neutral +"Form 10-K Summary 74 +Signatures 75 +2Table of Contents +AMAZON.COM, INC. +PART",neutral +"I +Item 1.",neutral +"Business +This Annual Report on Form 10-K and the documents incorporated herein by reference contain forward-looking statements based on +expectations, estimates, and projections as of the date of this filing.",neutral +"Actual results and outcomes may differ materially from those expressed in +forward-looking statements.",neutral +See Item 1A of Part I — “Risk Factors.”,neutral +"As used herein, “Amazon.com,” “we,” “our,” and similar terms include +Amazon.com, Inc. and its subsidiaries, unless the context indicates otherwise.",neutral +"General +We seek to be Earth’s most customer-centric company.",positive +"We are guided by four principles: customer obsession rather than competitor focus, +passion for invention, commitment to operational excellence, and long-term thinking.",neutral +"In each of our segments, we serve our primary customer sets, +consisting of consumers, sellers, developers, enterprises, content creators, advertisers, and employees.",positive +"We have organized our operations into three segments: North America, International, and Amazon Web Services (“AWS”).",neutral +"These segments +reflect the way the Company evaluates its business performance and manages its operations.",neutral +"Information on our net sales is contained in Item 8 of +Part II, “Financial Statements and Supplementary Data — Note 10 — Segment Information.”",neutral +"Consumers +We serve consumers through our online and physical stores and focus on selection, price, and convenience.",neutral +"We design our stores to enable +hundreds of millions of unique products to be sold by us and by third parties across dozens of product categories.",positive +"Customers access our offerings +through our websites, mobile apps, Alexa, devices, streaming, and physically visiting our stores.",neutral +"We also manufacture and sell electronic devices, +including Kindle, Fire tablet, Fire TV, Echo, Ring, Blink, and eero, and we develop and produce media content.",neutral +"We seek to offer our customers low +prices, fast and free delivery, easy-to-use functionality, and timely customer service.",positive +"In addition, we offer subscription services such as Amazon +Prime, a membership program that includes fast, free shipping on millions of items, access to award-winning movies and series, and other benefits.",positive +"We fulfill customer orders in a number of ways, including through: North America and International fulfillment networks that we operate; co- +sourced and outsourced arrangements in certain countries; digital delivery; and through our physical stores.",positive +"We operate customer service centers +globally, which are supplemented by co-sourced arrangements.",neutral +"See Item 2 of Part I, “Properties.”",neutral +"Sellers +We offer programs that enable sellers to grow their businesses, sell their products in our stores, and fulfill orders through us.",neutral +"We are not the +seller of record in these transactions.",neutral +"We earn fixed fees, a percentage of sales, per-unit activity fees, interest, or some combination thereof, for our +seller programs.",positive +"Developers and Enterprises +We serve developers and enterprises of all sizes, including start-ups, government agencies, and academic institutions, through AWS, which +offers a broad set of on-demand technology services, including compute, storage, database, analytics, and machine learning, and other services.",positive +"Content Creators +We offer programs that allow authors, independent publishers, musicians, filmmakers, Twitch streamers, skill and app developers, and others to +publish and sell content.",neutral +"Advertisers +We provide advertising services to sellers, vendors, publishers, authors, and others, through programs such as sponsored ads, display, and video +advertising.",neutral +"3Table of Contents +Competition +Our businesses encompass a large variety of product types, service offerings, and delivery channels.",positive +"The worldwide marketplace in which we +compete is evolving rapidly and intensely competitive, and we face a broad array of competitors from many different industry sectors around the +world.",positive +"Our current and potential competitors include: (1) physical, e-commerce, and omnichannel retailers, publishers, vendors, distributors, +manufacturers, and producers of the products we offer and sell to consumers and businesses; (2) publishers, producers, and distributors of physical, +digital, and interactive media of all types and all distribution channels; (3) web search engines, comparison shopping websites, social networks, web +portals, and other online and app-based means of discovering, using, or acquiring goods and services, either directly or in collaboration with other +retailers; (4) companies that provide e-commerce services, including website development and hosting, omnichannel sales, inventory and supply +chain management, advertising, fulfillment, customer service, and payment processing; (5) companies that provide fulfillment and logistics services +for themselves or for third parties, whether online or offline; (6) companies that provide information technology services or products, including on- +premises or cloud-based infrastructure and other services; (7) companies that design, manufacture, market, or sell consumer electronics, +telecommunication, and electronic devices; (8) companies that sell grocery products online and in physical stores; and (9) companies that provide +advertising services, whether in digital or other formats.",negative +"We believe that the principal competitive factors in our retail businesses include selection, +price, and convenience, including fast and reliable fulfillment.",positive +"Additional competitive factors for our seller and enterprise services include the quality, +speed, and reliability of our services and tools, as well as customers’ ability and willingness to change business practices.",neutral +"Some of our current and +potential competitors have greater resources, longer histories, more customers, greater brand recognition, and greater control over inputs critical to +our various businesses.",positive +"They may secure better terms from suppliers, adopt more aggressive pricing, pursue restrictive distribution agreements that +restrict our access to supply, direct consumers to their own offerings instead of ours, lock-in potential customers with restrictive terms, and devote +more resources to technology, infrastructure, fulfillment, and marketing.",positive +"The Internet facilitates competitive entry and comparison shopping, which +enhances the ability of new, smaller, or lesser-known businesses to compete against us.",positive +"Each of our businesses is also subject to rapid change and the +development of new business models and the entry of new and well-funded competitors.",positive +"Other companies also may enter into business combinations +or alliances that strengthen their competitive positions.",negative +"Intellectual Property +We regard our trademarks, service marks, copyrights, patents, domain names, trade dress, trade secrets, proprietary technologies, and similar +intellectual property as critical to our success, and we rely on trademark, copyright, and patent law, trade-secret protection, and confidentiality and/or +license agreements with our employees, customers, partners, and others to protect our proprietary rights.",positive +"We have registered, or applied for the +registration of, a number of U.S. and international domain names, trademarks, service marks, and copyrights.",neutral +"Additionally, we have filed U.S. and +international patent applications covering certain of our proprietary technology.",positive +"Seasonality +Our business is affected by seasonality, which historically has resulted in higher sales volume during our fourth quarter, which ends December +31.",positive +"Human Capital +Our employees are critical to our mission of being Earth’s most customer-centric company.",positive +"As of December 31, 2022, we employed +approximately 1,541,000 full-time and part-time employees.",negative +"Additionally, we use independent contractors and temporary personnel to supplement +our workforce.",neutral +"Competition for qualified personnel is intense, particularly for software engineers, computer scientists, and other technical staff, and +constrained labor markets have increased competition for personnel across other parts of our business.",positive +"As we strive to be Earth’s best employer, we focus on investment and innovation, inclusion and diversity, safety, and engagement to hire and +develop the best talent.",positive +"We rely on numerous and evolving initiatives to implement these objectives and invent mechanisms for talent development, +including competitive pay and benefits, flexible work arrangements, and skills training and educational programs such as Amazon Career Choice +(funded education for hourly employees) and the Amazon Technical Academy (software development engineer training).",positive +"Over 100,000 Amazon +employees around the world have participated in Career Choice.",neutral +"We also continue to inspect and refine the mechanisms we use to hire, develop, +evaluate, and retain our employees to promote equity for all candidates and employees.",neutral +"In addition, safety is integral to everything we do at Amazon +and we continue to invest in safety improvements such as capital improvements, new safety technology, vehicle safety controls, and engineering +ergonomic solutions.",positive +Our safety team is dedicated to using the science of safety to solve complex problems and establish new industry best practices.,positive +"We also provide mentorship and support resources to our employees, and have deployed numerous programs that advance employee engagement, +communication, and feedback. +4Table of Contents +Available Information +Our investor relations website is amazon.com/ir",positive +and we encourage investors to use it as a way of easily finding information about us.,positive +"We +promptly make available on this website, free of charge, the reports that we file or furnish with the Securities and Exchange Commission (“SEC”), +corporate governance information (including our Code of Business Conduct and Ethics), and select press releases.",positive +Executive Officers and Directors,neutral +"The following tables set forth certain information regarding our Executive Officers and Directors as of January 25, 2023: +Information About Our Executive Officers +Name Age Position +Jeffrey P. Bezos 59 Executive Chair +Andrew R. Jassy 55 President and Chief Executive Officer +Douglas J. Herrington 56 CEO Worldwide Amazon Stores +Brian T. Olsavsky 59 Senior Vice President and Chief Financial Officer +Shelley L. Reynolds 58 Vice President, Worldwide Controller, and Principal Accounting Officer +Adam N. Selipsky 56 CEO Amazon Web Services +David A. Zapolsky 59 Senior Vice President, General Counsel, and Secretary +Jeffrey P. Bezos.",positive +Mr. Bezos founded Amazon.com in 1994 and has served as Executive Chair since July 2021.,neutral +"He has served as Chair of the +Board since 1994 and served as Chief Executive Officer from May 1996 until July 2021, and as President from 1994 until June 1999 and again from +October 2000 to July 2021.",neutral +Andrew R. Jassy.,neutral +"Mr. Jassy has served as President and Chief Executive Officer since July 2021, CEO Amazon Web Services from April 2016 +until July 2021, and Senior Vice President, Amazon Web Services, from April 2006 until April 2016.",neutral +Douglas J. Herrington.,neutral +"Mr. Herrington has served as CEO Worldwide Amazon Stores since July 2022, Senior Vice President, North America +Consumer from January 2015 to July 2022, and Senior Vice President, Consumables from May 2014 to December 2014.",neutral +Brian T. Olsavsky.,neutral +"Mr. Olsavsky has served as Senior Vice President and Chief Financial Officer since June 2015, Vice President, Finance for +the Global Consumer Business from December 2011 to June 2015, and numerous financial leadership roles across Amazon with global responsibility +since April 2002.",neutral +Shelley L. Reynolds.,neutral +"Ms. Reynolds has served as Vice President, Worldwide Controller, and Principal Accounting Officer since April 2007.",neutral +Adam N. Selipsky.,neutral +"Mr. Selipsky has served as CEO Amazon Web Services since July 2021, Senior Vice President, Amazon Web Services +from May 2021 until July 2021, President and CEO of Tableau Software from September 2016 until May 2021, and Vice President, Marketing, Sales +and Support of Amazon Web Services from May 2005 to September 2016.",neutral +David A. Zapolsky.,neutral +"Mr. Zapolsky has served as Senior Vice President, General Counsel, and Secretary since May 2014, Vice President, +General Counsel, and Secretary from September 2012 to May 2014, and as Vice President and Associate General Counsel for Litigation and +Regulatory matters from April 2002 until September 2012.",positive +"5Table of Contents +Board of Directors +Name Age Position +Jeffrey P. Bezos 59 Executive Chair +Andrew R. Jassy 55 President and Chief Executive Officer +Keith B. Alexander 71 CEO, President, and Chair of IronNet, Inc. +Edith W. Cooper 61 Former Executive Vice President, Goldman Sachs Group, Inc. +Jamie S. Gorelick 72 Partner, Wilmer Cutler Pickering Hale and Dorr LLP +Daniel P. Huttenlocher 64 Dean, MIT Schwarzman College of Computing +Judith A. McGrath 70 Former Chair and CEO, MTV Networks +Indra K. Nooyi 67 Former Chief Executive Officer, PepsiCo, Inc. +Jonathan J. Rubinstein 66 Former co-CEO, Bridgewater Associates, LP +Patricia Q. Stonesifer 66 Former President and Chief Executive Officer, Martha’s Table +Wendell P. Weeks 63 Chief Executive Officer, Corning Incorporated +Item 1A. Risk Factors +Please carefully consider the following discussion of significant factors, events, and uncertainties that make an investment in our securities +risky.",positive +"The events and consequences discussed in these risk factors could, in circumstances we may or may not be able to accurately predict, +recognize, or control, have a material adverse effect on our business, growth, reputation, prospects, financial condition, operating results (including +components of our financial results), cash flows, liquidity, and stock price.",positive +"These risk factors do not identify all risks that we face; our operations +could also be affected by factors, events, or uncertainties that are not presently known to us or that we currently do not consider to present significant +risks to our operations.",positive +"In addition to the factors discussed in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and +Results of Operations—Overview,” and in the risk factors below, global economic and geopolitical conditions and additional or unforeseen +circumstances, developments, or events may give rise to or amplify many of the risks discussed below.",positive +"Many of the risks discussed below also impact +our customers, including third-party sellers, which could indirectly have a material adverse effect on us. +Business and Industry Risks +We Face Intense Competition",positive +"Our businesses are rapidly evolving and intensely competitive, and we have many competitors across geographies, including cross-border +competition, and in different industries, including physical, e-commerce, and omnichannel retail, e-commerce services, web and infrastructure +computing services, electronic devices, digital content, advertising, grocery, and transportation and logistics services.",positive +"Some of our current and +potential competitors have greater resources, longer histories, more customers, and/or greater brand recognition, particularly with our newly-launched +products and services and in our newer geographic regions.",positive +"They may secure better terms from vendors, adopt more aggressive pricing, and devote +more resources to technology, infrastructure, fulfillment, and marketing.",positive +"Competition continues to intensify, including with the development of new business models and the entry of new and well-funded competitors, +and as our competitors enter into business combinations or alliances and established companies in other market segments expand to become +competitive with our business.",positive +"In addition, new and enhanced technologies, including search, web and infrastructure computing services, digital +content, and electronic devices continue to increase our competition.",positive +"The Internet facilitates competitive entry and comparison shopping, which +enhances the ability of new, smaller, or lesser known businesses to compete against us.",positive +"As a result of competition, our product and service offerings +may not be successful, we may fail to gain or may lose business, and we may be required to increase our spending or lower prices, any of which +could materially reduce our sales and profits.",positive +"Our Expansion into New Products, Services, Technologies, and Geographic Regions Subjects Us to Additional Risks +We may have limited or no experience in our newer market segments, and our customers may not adopt our product or service offerings.",positive +"These +offerings, which can present new and difficult technology challenges, may subject us to claims if customers of these offerings experience, or are +otherwise impacted by, service disruptions, delays, setbacks, or failures or quality issues.",negative +"In addition, profitability, if any, in our newer activities may +not meet our expectations, and we may not be successful enough in these newer activities to recoup our investments in them, which investments are +often significant.",positive +"Failure to realize the benefits of amounts we invest in new technologies, products, or services could result in the value of those +investments being written down or written off.",negative +"In addition, our sustainability initiatives may be unsuccessful for a variety of +6Table of Contents +reasons, including if we are unable to realize the expected benefits of new technologies or if we do not successfully plan or execute new strategies, +which could harm our business or damage our reputation.",negative +"Our International Operations Expose Us to a Number of Risks +Our international activities are significant to our revenues and profits, and we plan to further expand internationally.",positive +"In certain international +market segments, we have relatively little operating experience and may not benefit from any first-to-market advantages or otherwise succeed.",positive +"It is +costly to establish, develop, and maintain international operations and stores, and promote our brand internationally.",neutral +"Our international operations may +not become profitable on a sustained basis.",neutral +"In addition to risks described elsewhere in this section, our international sales and operations are subject to a number of risks, including: +•local economic and political conditions; +•government regulation (such as regulation of our product and service offerings and of competition); restrictive governmental actions (such +as trade protection measures, including export duties and quotas and custom duties and tariffs); nationalization; and restrictions on foreign +ownership; +•restrictions on sales or distribution of certain products or services and uncertainty regarding liability for products, services, and content, +including uncertainty as a result of less Internet-friendly legal systems, local laws, lack of legal precedent, and varying rules, regulations, +and practices regarding the physical and digital distribution of media products and enforcement of intellectual property rights; +•business licensing or certification requirements, such as for imports, exports, web services, and electronic devices; +•limitations on the repatriation and investment of funds and foreign currency exchange restrictions; +•limited fulfillment and technology infrastructure; +•shorter payable and longer receivable cycles and the resultant negative impact on cash flow; +•laws and regulations regarding privacy, data use, data protection, data security, data localization, network security, consumer protection, +payments, advertising, and restrictions on pricing or discounts; +•lower levels of use of the Internet; +•lower levels of consumer spending and fewer opportunities for growth compared to the U.S.; +•lower levels of credit card usage and increased payment risk; +•difficulty in staffing, developing, and managing foreign operations as a result of distance, language, and cultural differences; +•different employee/employer relationships and the existence of works councils and labor unions; +•compliance with the U.S. Foreign Corrupt Practices Act and other applicable U.S. and foreign laws prohibiting corrupt payments to +government officials and other third parties; +•laws and policies of the U.S. and other jurisdictions affecting trade, foreign investment, loans, and taxes; and +•geopolitical events, including war and terrorism.",negative +"As international physical, e-commerce, and omnichannel retail, cloud services, and other services grow, competition will intensify, including +through adoption of evolving business models.",negative +"Local companies may have a substantial competitive advantage because of their greater understanding +of, and focus on, the local customer, as well as their more established local brand names.",positive +"The inability to hire, train, retain, and manage sufficient +required personnel may limit our international growth.",neutral +"The People’s Republic of China (“PRC”) and India regulate Amazon’s and its affiliates’ businesses and operations in country through +regulations and license requirements that may restrict (i) foreign investment in and operation of the Internet, IT infrastructure, data centers, retail, +delivery, and other sectors, (ii) Internet content, and (iii) the sale of media and other products and services.",negative +"For example, in order to meet local +ownership, regulatory licensing, and cybersecurity requirements, we provide certain technology services in China through contractual relationships +with third parties that hold PRC licenses to provide services.",positive +"In India, the government restricts the ownership or control of Indian companies by +foreign entities involved in online multi-brand retail trading activities.",negative +"For www.amazon.in, we provide certain marketing tools and logistics services +to third-party sellers to enable them to sell online and deliver to customers, and we hold indirect minority interests in entities that are third-party +sellers on the www.amazon.in marketplace.",positive +"Although we believe these structures and activities comply with existing laws, they involve unique risks, +and the PRC and India may from time to time consider and implement additional changes in their regulatory, licensing, or other requirements that +could impact these structures and activities.",positive +"There are substantial uncertainties regarding the interpretation of PRC and Indian laws and regulations, +and it is possible that these governments will +7Table of Contents +ultimately take a view contrary to ours.",neutral +"In addition, our Chinese and Indian businesses and operations may be unable to continue to operate if we or +our affiliates are unable to access sufficient funding or, in China, enforce contractual relationships we or our affiliates have in place.",negative +"Violation of any +existing or future PRC, Indian, or other laws or regulations or changes in the interpretations of those laws and regulations could result in our +businesses in those countries being subject to fines and other financial penalties, having licenses revoked, or being forced to restructure our +operations or shut down entirely.",negative +"The Variability in Our Retail Business Places Increased Strain on Our Operations +Demand for our products and services can fluctuate significantly for many reasons, including as a result of seasonality, promotions, product +launches, or unforeseeable events, such as in response to global economic conditions such as recessionary fears or rising inflation, natural or human- +caused disasters (including public health crises) or extreme weather (including as a result of climate change), or geopolitical events.",positive +"For example, we +expect a disproportionate amount of our retail sales to occur during our fourth quarter.",neutral +"Our failure to stock or restock popular products in sufficient +amounts such that we fail to meet customer demand could significantly affect our revenue and our future growth.",positive +"When we overstock products, we +may be required to take significant inventory markdowns or write-offs and incur commitment costs, which could materially reduce profitability.",positive +"We +regularly experience increases in our net shipping cost due to complimentary upgrades, split-shipments, and additional long-zone shipments +necessary to ensure timely delivery for the holiday season.",positive +"If too many customers access our websites within a short period of time due to increased +demand, we may experience system interruptions that make our websites unavailable or prevent us from efficiently fulfilling orders, which may +reduce the volume of goods we offer or sell and the attractiveness of our products and services.",positive +"In addition, we may be unable to adequately staff our +fulfillment network and customer service centers during these peak periods and delivery and other fulfillment companies and customer service co- +sourcers may be unable to meet the seasonal demand.",negative +"Risks described elsewhere in this Item 1A relating to fulfillment network optimization and +inventory are magnified during periods of high demand.",positive +"As a result of holiday sales, as of December 31 of each year, our cash, cash equivalents, and marketable securities balances typically reach their +highest level (other than as a result of cash flows provided by or used in investing and financing activities) because consumers primarily use credit +cards in our stores and the related receivables settle quickly.",positive +"Typically, there is also a corresponding increase in accounts payable as of December 31 +due to inventory purchases and third-party seller sales.",negative +"Our accounts payable balance generally declines during the first three months of the year as +vendors and sellers are paid, resulting in a corresponding decline in our cash, cash equivalents, and marketable securities balances.",positive +We Are Impacted by Fraudulent or Unlawful Activities of Sellers,neutral +The law relating to the liability of online service providers is currently unsettled.,neutral +"In addition, governmental agencies have in the past and could +in the future require changes in the way this business is conducted.",negative +"Under our seller programs, we maintain policies and processes designed to +prevent sellers from collecting payments, fraudulently or otherwise, when buyers never receive the products they ordered or when the products +received are materially different from the sellers’ descriptions, and to prevent sellers in our stores or through other stores from selling unlawful, +counterfeit, pirated, or stolen goods, selling goods in an unlawful or unethical manner, violating the proprietary rights of others, or otherwise +violating our policies.",negative +"When these policies and processes are circumvented or fail to operate sufficiently, it can harm our business or damage our +reputation and we could face civil or criminal liability for unlawful activities by our sellers.",negative +"Under our A-to-z Guarantee, we may reimburse +customers for payments up to certain limits in these situations, and as our third-party seller sales grow, the cost of this program will increase and +could negatively affect our operating results.",negative +"We Face Risks Related to Adequately Protecting Our Intellectual Property Rights and Being Accused of Infringing Intellectual Property +Rights of Third Parties +We regard our trademarks, service marks, copyrights, patents, trade dress, trade secrets, proprietary technology, and similar intellectual +property as critical to our success, and we rely on trademark, copyright, and patent law, trade secret protection, and confidentiality and/or license +agreements with our employees, customers, and others to protect our proprietary rights.",positive +"Effective intellectual property protection is not available in +every country in which our products and services are made available.",positive +"We also may not be able to acquire or maintain appropriate domain names in all +countries in which we do business.",positive +"Furthermore, regulations governing domain names may not protect our trademarks and similar proprietary rights.",neutral +"We may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon, or diminish the value of our trademarks +and other proprietary rights.",negative +We are not always able to discover or determine the extent of any unauthorized use of our proprietary rights.,positive +"Actions taken by third parties that +license our proprietary rights may materially diminish the value of our proprietary rights or reputation.",neutral +"The protection of our intellectual property +requires the expenditure of significant financial and managerial resources.",positive +"Moreover, the steps we take to protect our intellectual property do not +always adequately protect our rights or prevent third +8Table of Contents +parties from infringing or misappropriating our proprietary rights.",positive +"We also cannot be certain that others will not independently develop or otherwise +acquire equivalent or superior technology or other intellectual property rights.",positive +"We have been subject to, and expect to continue to be subject to, claims and legal proceedings regarding alleged infringement by us of the +intellectual property rights of third parties.",positive +"Such claims, whether or not meritorious, have in the past, and may in the future, result in the expenditure +of significant financial and managerial resources, injunctions against us, or significant payments for damages, including to satisfy indemnification +obligations or to obtain licenses from third parties who allege that we have infringed their rights.",positive +"Such licenses may not be available on terms +acceptable to us or at all.",positive +These risks have been amplified by the increase in third parties whose sole or primary business is to assert such claims.,positive +Our digital content offerings depend in part on effective digital rights management technology to control access to digital content.,positive +"Breach or +malfunctioning of the digital rights management technology that we use could subject us to claims, and content providers may be unwilling to include +their content in our service.",negative +"We Have Foreign Exchange Risk +The results of operations of, and certain of our intercompany balances associated with, our international stores and product and service +offerings are exposed to foreign exchange rate fluctuations.",negative +"Due to these fluctuations, operating results may differ materially from expectations, and +we may record significant gains or losses on the remeasurement of intercompany balances.",positive +"As we have expanded our international operations, our +exposure to exchange rate fluctuations has increased.",neutral +"We also hold cash equivalents and/or marketable securities in foreign currencies such as British +Pounds, Canadian Dollars, Euros, and Japanese Yen.",negative +"When the U.S. Dollar strengthens compared to these currencies, cash equivalents, and +marketable securities balances, when translated, may be materially less than expected and vice versa.",negative +"Operating Risks +Our Expansion Places a Significant Strain on our Management, Operational, Financial, and Other Resources",positive +"We are continuing to rapidly and significantly expand our global operations, including increasing our product and service offerings and scaling +our infrastructure to support our retail and services businesses.",positive +"The complexity of the current scale of our business can place significant strain on our +management, personnel, operations, systems, technical performance, financial resources, and internal financial control and reporting functions, and +our expansion increases these factors.",positive +"Failure to manage growth effectively could damage our reputation, limit our growth, and negatively affect our +operating results.",negative +We Experience Significant Fluctuations in Our Operating Results and Growth Rate,positive +We are not always able to accurately forecast our growth rate.,positive +We base our expense levels and investment plans on sales estimates.,negative +"A +significant portion of our expenses and investments is fixed, and we are not always able to adjust our spending quickly enough if our sales are less +than expected.",positive +"Our revenue growth may not be sustainable, and our percentage growth rates may decrease.",neutral +"Our revenue and operating profit growth depends +on the continued growth of demand for the products and services offered by us or our sellers, and our business is affected by general economic, +business, and geopolitical conditions worldwide.",positive +"A softening of demand, whether caused by changes in customer preferences or a weakening of the +U.S. or global economies, may result in decreased revenue or growth.",negative +"Our sales and operating results will also fluctuate for many other reasons, including due to factors described elsewhere in this section and the +following: +•our ability to retain and increase sales to existing customers, attract new customers, and satisfy our customers’ demands; +•our ability to retain and expand our network of sellers; +•our ability to offer products on favorable terms, manage inventory, and fulfill orders; +•the introduction of competitive stores, websites, products, services, price decreases, or improvements; +•changes in usage or adoption rates of the Internet, e-commerce, electronic devices, and web services, including outside the U.S.; +•timing, effectiveness, and costs of expansion and upgrades of our systems and infrastructure; +•the success of our geographic, service, and product line expansions; +•the extent to which we finance, and the terms of any such financing for, our current operations and future growth; +9Table of Contents +•the outcomes of legal proceedings and claims, which may include significant monetary damages or injunctive relief and could have a +material adverse impact on our operating results; +•variations in the mix of products and services we sell; +•variations in our level of merchandise and vendor returns; +•the extent to which we offer fast and free delivery, continue to reduce prices worldwide, and provide additional benefits to our customers; +•factors affecting our reputation or brand image (including any actual or perceived inability to achieve our goals or commitments, whether +related to sustainability, customers, employees, or other topics); +•the extent to which we invest in technology and content, fulfillment, and other expense categories; +•increases in the prices of transportation (including fuel), energy products, commodities like paper and packing supplies and hardware +products, and technology infrastructure products, including as a result of inflationary pressures; +•constrained labor markets, which increase our payroll costs; +•the extent to which operators of the networks between our customers and our stores successfully charge fees to grant our customers +unimpaired and unconstrained access to our online services; +•our ability to collect amounts owed to us when they become due; +•the extent to which new and existing technologies, or industry trends, restrict online advertising or affect our ability to customize +advertising or otherwise tailor our product and service offerings; +•the extent to which use of our services is affected by spyware, viruses, phishing and other spam emails, denial of service attacks, data theft, +computer intrusions, outages, and similar events; and +•disruptions from natural or human-caused disasters (including public health crises) or extreme weather (including as a result of climate +change), geopolitical events and security issues (including terrorist attacks and armed hostilities), labor or trade disputes (including +restrictive governmental actions impacting us and our third-party sellers in China or other foreign countries), and similar events.",positive +"We Face Risks Related to Successfully Optimizing and Operating Our Fulfillment Network and Data Centers +Failures to adequately predict customer demand or otherwise optimize and operate our fulfillment network and data centers successfully from +time to time result in excess or insufficient fulfillment or data center capacity, service interruptions, increased costs, and impairment charges, any of +which could materially harm our business.",positive +"As we continue to add fulfillment and data center capability or add new businesses with different +requirements, our fulfillment and data center networks become increasingly complex and operating them becomes more challenging.",positive +"There can be no +assurance that we will be able to operate our networks effectively.",positive +"In addition, failure to optimize inventory or staffing in our fulfillment network increases our net shipping cost by requiring long-zone or partial +shipments.",negative +We and our co-sourcers may be unable to adequately staff our fulfillment network and customer service centers.,negative +"For example, productivity +across our fulfillment network currently is being affected by regional labor market and global supply chain constraints, which increase payroll costs +and make it difficult to hire, train, and deploy a sufficient number of people to operate our fulfillment network as efficiently as we would like.",negative +"Under some of our commercial agreements, we maintain the inventory of other companies, thereby increasing the complexity of tracking +inventory and operating our fulfillment network.",negative +"Our failure to properly handle such inventory or the inability of the other businesses on whose +behalf we perform inventory fulfillment services to accurately forecast product demand may result in us being unable to secure sufficient storage +space or to optimize our fulfillment network or cause other unexpected costs and other harm to our business and reputation.",negative +We rely on a limited number of shipping companies to deliver inventory to us and completed orders to our customers.,negative +"An inability to negotiate +acceptable terms with these companies or performance problems, staffing limitations, or other difficulties experienced by these companies or by our +own transportation systems, including as a result of labor market constraints and related costs, could negatively impact our operating results and +customer experience.",positive +"In addition, our ability to receive inbound inventory efficiently and ship completed orders to customers also may be negatively +affected by natural or human-caused disasters (including public health crises) or extreme weather (including as a result of climate change), +geopolitical events and security issues, labor or trade disputes, and similar events.",negative +10Table of Contents,neutral +"We Could Be Harmed by Data Loss or Other Security Breaches +Because we collect, process, store, and transmit large amounts of data, including confidential, sensitive, proprietary, and business and personal +information, failure to prevent or mitigate data loss, theft, misuse, or other security breaches or vulnerabilities affecting our or our vendors’ or +customers’ technology, products, and systems, could: expose us or our customers to a risk of loss, disclosure, or misuse of such information; +adversely affect our operating results; result in litigation, liability, or regulatory action (including under laws related to privacy, data use, data +protection, data security, network security, and consumer protection); deter customers or sellers from using our stores, products, and services; and +otherwise harm our business and reputation.",negative +"We use third-party technology and systems for a variety of reasons, including, without limitation, +encryption and authentication technology, employee email, content delivery to customers, back-office support, and other functions.",negative +"Some of our +systems have experienced past security breaches, and, although they did not have a material adverse effect on our operating results, there can be no +assurance that future incidents will not have material adverse effects on our operations or financial results.",positive +"Although we have developed systems and +processes that are designed to protect customer data and prevent such incidents, including systems and processes designed to reduce the impact of a +security breach at a third-party vendor or customer, such measures cannot provide absolute security and may fail to operate as intended or be +circumvented.",negative +We Face Risks Related to System Interruption and Lack of Redundancy,neutral +"We experience occasional system interruptions and delays that make our websites and services unavailable or slow to respond and prevent us +from efficiently accepting or fulfilling orders or providing services to customers and third parties, which may reduce our net sales and the +attractiveness of our products and services.",negative +"Steps we take to add software and hardware, upgrade our systems and network infrastructure, and +improve the stability and efficiency of our systems may not be sufficient to avoid system interruptions or delays that could adversely affect our +operating results.",neutral +"Our computer and communications systems and operations in the past have been, or in the future could be, damaged or interrupted due to +events such as natural or human-caused disasters (including public health crises) or extreme weather (including as a result of climate change),",negative +"geopolitical events and security issues (including terrorist attacks and armed hostilities), computer viruses, physical or electronic break-ins, +operational failures (including from energy shortages), and similar events or disruptions.",neutral +"Any of these events could cause system interruption, delays, +and loss of critical data, and could prevent us from accepting and fulfilling customer orders and providing services, which could make our product +and service offerings less attractive and subject us to liability.",positive +"Our systems are not fully redundant and our disaster recovery planning may not be +sufficient.",negative +"In addition, our insurance may not provide sufficient coverage to compensate for related losses.",neutral +"Any of these events could damage our +reputation and be expensive to remedy.",negative +"The Loss of Key Senior Management Personnel or the Failure to Hire and Retain Highly Skilled and Other Personnel Could Negatively Affect +Our Business",negative +"We depend on our senior management and other key personnel, including our President and CEO.",negative +"We do not have “key person” life insurance +policies.",neutral +We also rely on other highly skilled personnel.,positive +"Competition for qualified personnel in the industries in which we operate, as well as senior +management, has historically been intense.",positive +"For example, we experience significant competition in the technology industry, particularly for software +engineers, computer scientists, and other technical staff.",positive +"In addition, changes we make to our current and future work environments may not meet the +needs or expectations of our employees or may be perceived as less favorable compared to other companies’ policies, which could negatively impact +our ability to hire and retain qualified personnel.",negative +"The loss of any of our executive officers or other key employees, the failure to successfully +transition key roles, or the inability to hire, train, retain, and manage qualified personnel, could harm our business.",positive +"We also rely on a significant number of personnel to operate our stores, fulfillment network, and data centers and carry out our other +operations.",positive +"Failure to successfully hire, train, manage, and retain sufficient personnel to meet our needs can strain our operations, increase payroll +and other costs, and harm our business and reputation.",positive +"In addition, changes in laws and regulations applicable to employees, independent contractors, +and temporary personnel could increase our payroll costs, decrease our operational flexibility, and negatively impact how we are able to staff our +operations and supplement our workforce.",positive +We are also subject to labor union efforts to organize groups of our employees from time to time.,negative +"These organizational efforts, if successful, +decrease our operational flexibility, which could adversely affect our operating efficiency.",positive +"In addition, our response to any organizational efforts +could be perceived negatively and harm our business and reputation.",negative +"Our Supplier Relationships Subject Us to a Number of Risks +We have significant suppliers, including content and technology licensors, and in some cases, limited or single-sources of supply, that are +important to our sourcing, services, manufacturing, and any related ongoing servicing of merchandise and content.",positive +"We do not have long-term +arrangements with most of our suppliers to guarantee availability of merchandise, content, +11Table of Contents +components, or services, particular payment terms, or the extension of credit limits.",positive +"Decisions by our current suppliers to limit or stop selling or +licensing merchandise, content, components, or services to us on acceptable terms, or delay delivery, including as a result of one or more supplier +bankruptcies due to poor economic conditions, as a result of natural or human-caused disasters (including public health crises), or for other reasons, +may result in our being unable to procure alternatives from other suppliers in a timely and efficient manner and on acceptable terms, or at all.",negative +"In +addition, violations by our suppliers or other vendors of applicable laws, regulations, contractual terms, intellectual property rights of others, or our +Supply Chain Standards, as well as products or practices regarded as unethical, unsafe, or hazardous, could expose us to claims, damage our +reputation, limit our growth, and negatively affect our operating results.",positive +"Our Commercial Agreements, Strategic Alliances, and Other Business Relationships Expose Us to Risks +We provide physical, e-commerce, and omnichannel retail, cloud services, and other services to businesses through commercial agreements, +strategic alliances, and business relationships.",negative +"Under these agreements, we provide web services, technology, fulfillment, computing, digital storage, +and other services, as well as enable sellers to offer products or services through our stores.",negative +"These arrangements are complex and require substantial +infrastructure capacity, personnel, and other resource commitments, which may limit the amount of business we can service.",negative +"We may not be able to +implement, maintain, and develop the components of these commercial relationships, which may include web services, fulfillment, customer service, +inventory management, tax collection, payment processing, hardware, content, and third-party software, and engaging third parties to perform +services.",positive +"The amount of compensation we receive under certain of our commercial agreements is partially dependent on the volume of the other +company’s sales.",negative +"Therefore, when the other company’s offerings are not successful, the compensation we receive may be lower than expected or the +agreement may be terminated.",negative +"Moreover, we may not be able to enter into additional or alternative commercial relationships and strategic alliances +on favorable terms.",positive +"We also may be subject to claims from businesses to which we provide these services if we are unsuccessful in implementing, +maintaining, or developing these services.",negative +"As our agreements terminate, we may be unable to renew or replace these agreements on comparable terms, or at all.",negative +"We may in the future +enter into amendments on less favorable terms or encounter parties that have difficulty meeting their contractual obligations to us, which could +adversely affect our operating results.",negative +"Our present and future commercial agreements, strategic alliances, and business relationships create additional risks such as: +•disruption of our ongoing business, including loss of management focus on existing businesses; +•impairment of other relationships; +•variability in revenue and income from entering into, amending, or terminating such agreements or relationships; and +•difficulty integrating under the commercial agreements.",negative +"Our Business Suffers When We Are Unsuccessful in Making, Integrating, and Maintaining Acquisitions and Investments +We have acquired and invested in a number of companies, and we may in the future acquire or invest in or enter into joint ventures with +additional companies.",negative +"These transactions involve risks such as: +•disruption of our ongoing business, including loss of management focus on existing businesses; +•problems retaining key personnel; +•additional operating losses and expenses of the businesses we acquired or in which we invested; +•the potential impairment of tangible and intangible assets and goodwill, including as a result of acquisitions; +•the potential impairment of customer and other relationships of the company we acquired or in which we invested or our own customers as +a result of any integration of operations; +•the difficulty of completing such transactions, including obtaining regulatory approvals or satisfying other closing conditions, and +achieving anticipated benefits within expected timeframes, or at all; +•the difficulty of incorporating acquired operations, technology, and rights into our offerings, and unanticipated expenses related to such +integration; +•the difficulty of integrating a new company’s accounting, financial reporting, management, information and data security, human resource, +and other administrative systems to permit effective management, and the lack of control if such integration is delayed or not successfully +implemented; +•losses we may incur as a result of declines in the value of an investment or as a result of incorporating an investee’s financial performance +into our financial results; +12Table of Contents +•for investments in which an investee’s financial performance is incorporated into our financial results, either in full or in part, or +investments for which we are required to file financial statements or provide financial information, the dependence on the investee’s +accounting, financial reporting, and similar systems, controls, and processes; +•the difficulty of implementing at companies we acquire the controls, procedures, and policies appropriate for a larger public company;",positive +"•the risks associated with businesses we acquire or invest in, which may differ from or be more significant than the risks our other +businesses face",positive +"; +•potential unknown liabilities associated with a company we acquire or in which we invest; and +•for foreign transactions, additional risks related to the integration of operations across different cultures and languages, and the economic, +political, and regulatory risks associated with specific countries.",negative +"As a result of future acquisitions or mergers, we might need to issue additional equity securities, spend our cash, or incur debt, contingent +liabilities, or amortization expenses related to intangible assets, any of which could reduce our profitability and harm our business or only be +available on unfavorable terms, if at all.",positive +"In addition, valuations supporting our acquisitions and strategic investments could change rapidly.",positive +"We could +determine that such valuations have experienced impairments or other-than-temporary declines in fair value which could adversely impact our +financial results.",positive +We Face Significant Inventory Risk,positive +"In addition to risks described elsewhere in this Item 1A relating to fulfillment network and inventory optimization by us and third parties, we +are exposed to significant inventory risks that may adversely affect our operating results as a result of seasonality, new product launches, rapid +changes in product cycles and pricing, defective merchandise, changes in customer demand and consumer spending patterns, changes in consumer +tastes with respect to our products, spoilage, and other factors.",positive +"We endeavor to accurately predict these trends and avoid overstocking or +understocking products we manufacture and/or sell.",positive +"Demand for products, however, can change significantly between the time inventory or +components are ordered and the date of sale.",positive +"In addition, when we begin selling or manufacturing a new product, it may be difficult to establish +vendor relationships, determine appropriate product or component selection, and accurately forecast demand.",positive +"The acquisition of certain types of +inventory or components requires significant lead-time and prepayment and they may not be returnable.",positive +"We carry a broad selection and significant +inventory levels of certain products, such as consumer electronics, and at times we are unable to sell products in sufficient quantities or to meet +demand during the relevant selling seasons.",positive +Any one of the inventory risk factors set forth above may adversely affect our operating results.,neutral +"We Are Subject to Payments-Related Risks +We accept payments using a variety of methods, including credit card, debit card, credit accounts (including promotional financing), gift cards, +direct debit from a customer’s bank account, consumer invoicing, physical bank check, and payment upon delivery.",negative +"For existing and future payment +options we offer to our customers, we currently are subject to, and may become subject to additional, regulations and compliance requirements +(including obligations to implement enhanced authentication processes that could result in significant costs and reduce the ease of use of our +payments products), as well as fraud.",positive +"For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may +increase over time and raise our operating costs and lower profitability.",positive +"We rely on third parties to provide certain Amazon-branded payment methods +and payment processing services, including the processing of credit cards, debit cards, electronic checks, and promotional financing.",positive +"In each case, it +could disrupt our business if these companies become unwilling or unable to provide these services to us.",negative +"We also offer co-branded credit card +programs, which could adversely affect our operating results if renewed on less favorable terms or terminated.",negative +"We are also subject to payment card +association operating rules, including data security rules, certification requirements, and rules governing electronic funds transfers, which could +change or be reinterpreted to make it difficult or impossible for us to comply.",negative +"Failure to comply with these rules or requirements, as well as any +breach, compromise, or failure to otherwise detect or prevent fraudulent activity involving our data security systems, could result in our being liable +for card issuing banks’ costs, subject to fines and higher transaction fees, and loss of our ability to accept credit and debit card payments from our +customers, process electronic funds transfers, or facilitate other types of online payments, and our business and operating results could be adversely +affected.",negative +"In addition, we provide regulated services in certain jurisdictions because we enable customers to keep account balances with us and transfer +money to third parties, and because we provide services to third parties to facilitate payments on their behalf.",positive +"Jurisdictions subject us to requirements +for licensing, regulatory inspection, bonding and capital maintenance, the use, handling, and segregation of transferred funds, consumer disclosures, +maintaining or processing data, and authentication.",negative +"We are also subject to or voluntarily comply with a number of other laws and regulations relating +to payments, money laundering, international money transfers, privacy, data use, data protection, data security, data localization, network security, +consumer +13Table of Contents +protection, and electronic fund transfers.",negative +"If we were found to be in violation of applicable laws or regulations, we could be subject to additional +requirements and civil and criminal penalties, or forced to cease providing certain services.",negative +"We Have a Rapidly Evolving Business Model and Our Stock Price Is Highly Volatile +We have a rapidly evolving business model.",positive +"The trading price of our common stock fluctuates significantly in response to, among other risks, +the risks described elsewhere in this Item 1A, as well as: +•changes in interest rates; +•conditions or trends in the Internet and the industry segments we operate in; +•quarterly variations in operating results; +•fluctuations in the stock market in general and market prices for Internet-related companies in particular; +•changes in financial estimates by us or decisions to increase or decrease future spending or investment levels; +•changes in financial estimates and recommendations by securities analysts; +•changes in our capital structure, including issuance of additional debt or equity to the public; +•changes in the valuation methodology of, or performance by, other e-commerce or technology companies; and +•transactions in our common stock by major investors and certain analyst reports, news, and speculation.",positive +"Volatility in our stock price could adversely affect our business and financing opportunities and force us to increase our cash compensation to +employees or grant larger stock awards than we have historically, which could hurt our operating results or reduce the percentage ownership of our +existing stockholders, or both.",neutral +"Legal and Regulatory Risks +Government Regulation Is Evolving and Unfavorable Changes Could Harm Our Business",positive +"We are subject to general business regulations and laws, as well as regulations and laws specifically governing the Internet, physical, e- +commerce, and omnichannel retail, digital content, web services, electronic devices, advertising, artificial intelligence technologies and services, and +other products and services that we offer or sell.",negative +"These regulations and laws cover taxation, privacy, data use, data protection, data security, data +localization, network security, consumer protection, pricing, content, copyrights, distribution, transportation, mobile communications, electronic +device certification, electronic waste, energy consumption, environmental regulation, electronic contracts and other communications, competition, +employment, trade and protectionist measures, web services, the provision of online payment services, registration, licensing, and information +reporting requirements, unencumbered Internet access to our services or access to our facilities, the design and operation of websites, health, safety, +and sanitation standards, the characteristics, legality, and quality of products and services, product labeling, the commercial operation of unmanned +aircraft systems, healthcare, and other matters.",negative +"It is not clear how existing laws governing issues such as property ownership, libel, privacy, data use, +data protection, data security, data localization, network security, and consumer protection apply to aspects of our operations such as the Internet, e- +commerce, digital content, web services, electronic devices, advertising, and artificial intelligence technologies and services.",negative +"A large number of +jurisdictions regulate our operations, and the extent, nature, and scope of such regulations is evolving and expanding as the scope of our businesses +expand.",positive +"We are regularly subject to formal and informal reviews, investigations, and other proceedings by governments and regulatory authorities +under existing laws, regulations, or interpretations or pursuing new and novel approaches to regulate our operations.",negative +"For example, we face a number +of open investigations based on claims that aspects of our operations violate competition rules, including aspects of Amazon’s U.S. and European +marketplace for sellers, particularly with respect to use of data, fulfillment services, and featured offers, and legislative and regulatory initiatives in +Europe and elsewhere allow authorities to restrict or prohibit certain operations or actions pre-emptively without the need to assess specific +competitive effects.",positive +"Unfavorable regulations, laws, decisions, or interpretations by government or regulatory authorities applying those laws and +regulations, or inquiries, investigations, or enforcement actions threatened or initiated by them, could cause us to incur substantial costs, expose us to +unanticipated civil and criminal liability or penalties (including substantial monetary fines), diminish the demand for, or availability of, our products +and services, increase our cost of doing business, require us to change our business practices in a manner materially adverse to our business, damage +our reputation, impede our growth, or otherwise have a material effect on our operations.",negative +"The media, political, and regulatory scrutiny we face, which +may continue to increase, amplifies these risks.",neutral +"14Table of Contents +Claims, Litigation, Government Investigations, and Other Proceedings May Adversely Affect Our Business and Results of Operations +As an innovative company offering a wide range of consumer and business products and services around the world, we are regularly subject to +actual and threatened claims, litigation, reviews, investigations, and other proceedings, including proceedings by governments and regulatory +authorities, involving a wide range of issues, including patent and other intellectual property matters, taxes, labor and employment, competition and +antitrust, privacy, data use, data protection, data security, data localization, network security, consumer protection, commercial disputes, goods and +services offered by us and by third parties, and other matters.",negative +"The number and scale of these proceedings have increased over time as our businesses +have expanded in scope and geographic reach, as our products, services, and operations have become more complex and available to, and used by, +more people, and as governments and regulatory authorities seek to regulate us on a pre-emptive basis.",positive +"For example, we are litigating a number of +matters alleging price fixing, monopolization, and consumer protection claims, including those brought by state attorneys general.",positive +"Any of these types +of proceedings can have an adverse effect on us because of legal costs, disruption of our operations, diversion of management resources, negative +publicity, and other factors.",negative +The outcomes of these matters are inherently unpredictable and subject to significant uncertainties.,positive +"Determining legal +reserves or possible losses from such matters involves judgment and may not reflect the full range of uncertainties and unpredictable outcomes.",positive +"Until +the final resolution of such matters, we may be exposed to losses in excess of the amount recorded, and such amounts could be material.",neutral +"Should any +of our estimates and assumptions change or prove to have been incorrect, it could have a material effect on our business, consolidated financial +position, results of operations, or cash flows.",neutral +"In addition, it is possible that a resolution of one or more such proceedings, including as a result of a +settlement, could involve licenses, sanctions, consent decrees, or orders requiring us to make substantial future payments, preventing us from offering +certain products or services, requiring us to change our business practices in a manner materially adverse to our business, requiring development of +non-infringing or otherwise altered products or technologies, damaging our reputation, or otherwise having a material effect on our operations.",positive +"We Are Subject to Product Liability Claims When People or Property Are Harmed by the Products We Sell or Manufacture +Some of the products we sell or manufacture expose us to product liability or food safety claims relating to personal injury or illness, death, or +environmental or property damage, and can require product recalls or other actions.",negative +"Third parties who sell products using our services and stores also +expose us to product liability claims.",neutral +"Additionally, under our A-to-z Guarantee, we may reimburse customers for certain product liability claims up to +certain limits in these situations, and as our third-party seller sales grow, the cost of this program will increase and could negatively affect our +operating results.",positive +"Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or +that insurance will continue to be available to us on economically reasonable terms, or at all.",positive +"Although we impose contractual terms on sellers that are +intended to prohibit sales of certain type of products, we may not be able to detect, enforce, or collect sufficient damages for breaches of such +agreements.",positive +"In addition, some of our agreements with our vendors and sellers do not indemnify us from product liability.",neutral +We Face Additional Tax Liabilities and Collection Obligations,neutral +We are subject to a variety of taxes and tax collection obligations in the U.S. (federal and state) and numerous foreign jurisdictions.,negative +"We may +recognize additional tax expense and be subject to additional tax liabilities, including other liabilities for tax collection obligations due to changes in +laws, regulations, administrative practices, principles, and interpretations related to tax, including changes to the global tax framework, competition, +and other laws and accounting rules in various jurisdictions.",negative +"Such changes could come about as a result of economic, political, and other conditions.",positive +"An increasing number of jurisdictions are considering or have adopted laws or administrative practices that impose new tax measures, including +revenue-based taxes, targeting online commerce and the remote selling of goods and services.",positive +"These include new obligations to withhold or collect +sales, consumption, value added, or other taxes on online marketplaces and remote sellers, or other requirements that may result in liability for third +party obligations.",negative +"For example, non-U.S. jurisdictions have proposed or enacted taxes on online advertising and marketplace service revenues.",neutral +Proliferation of these or similar unilateral tax measures may continue unless broader international tax reform is implemented.,negative +"Our results of +operations and cash flows could be adversely affected by additional taxes imposed on us prospectively or retroactively or additional taxes or penalties +resulting from the failure to comply with any collection obligations or failure to provide information about our customers, suppliers, and other third +parties for tax reporting purposes to various government agencies.",negative +"In some cases we also may not have sufficient notice to enable us to build systems +and adopt processes to properly comply with new reporting or collection obligations by the effective date.",positive +"Our tax expense and liabilities are also affected by other factors, such as changes in our business operations, acquisitions, investments, entry +into new businesses and geographies, intercompany transactions, the relative amount of our foreign earnings, losses incurred in jurisdictions for +which we are not able to realize related tax benefits, the applicability of special or extraterritorial tax regimes, changes in foreign currency exchange +rates, changes in our stock price, changes to our forecasts of income and loss and the mix of jurisdictions to which they relate, and changes in our tax +assets and liabilities and their +15Table of Contents +valuation.",negative +"In the ordinary course of our business, there are many transactions and calculations for which the ultimate tax determination is uncertain.",positive +"Significant judgment is required in evaluating and estimating our tax expense, assets, and liabilities.",positive +We are also subject to tax controversies in various jurisdictions that can result in tax assessments against us.,negative +"Developments in an audit, +investigation, or other tax controversy can have a material effect on our operating results or cash flows in the period or periods for which that +development occurs, as well as for prior and subsequent periods.",negative +"Due to the inherent complexity and uncertainty of these matters, interpretations of +certain tax laws by authorities, and judicial, administrative, and regulatory processes in certain jurisdictions, the final outcome of any such +controversy may be materially different from our expectations.",positive +"For example, in February 2023, the Indian Tax Authority determined that tax applies +to cloud services fees paid to the U.S.",neutral +"We are contesting this determination; however, if this matter is adversely resolved, we may be required to pay +additional amounts with respect to current and prior periods and our taxes in the future could increase.",neutral +"We regularly assess the likelihood of an +adverse outcome resulting from these proceedings to determine the adequacy of our tax accruals.",neutral +"Although we believe our tax estimates are +reasonable, the final outcome of audits, investigations, and any other tax controversies could be materially different from our historical tax accruals.",positive +"We Are Subject to Risks Related to Government Contracts and Related Procurement Regulations +Our contracts with U.S., as well as state, local, and foreign, government entities are subject to various procurement regulations and other +requirements relating to their formation, administration, and performance.",negative +"We are subject to audits and investigations relating to our government +contracts, and any violations could result in various civil and criminal penalties and administrative sanctions, including termination of contract, +refunding or suspending of payments, forfeiture of profits, payment of fines, and suspension or debarment from future government business.",negative +"In +addition, some of these contracts are subject to periodic funding approval and/or provide for termination by the government at any time, without +cause.",negative +"Item 1B. Unresolved Staff Comments +None. +16Table of Contents +Item 2.",neutral +"Properties +As of December 31, 2022, we operated the following facilities (in thousands): +Description of UseLeased Square +Footage (1) Owned Square Footage Location +Office space 30,611 6,792North America +Office space 23,956 1,802International +Physical stores (2) 22,881 662North America +Physical stores (2) 291 —International +Fulfillment, data centers, and other 391,598 22,058North America +Fulfillment, data centers, and other 148,146 12,613International +Total 617,483 43,927 + ___________________ +(1)For leased properties, represents the total leased space excluding sub-leased space.",negative +"(2)This includes 611 North America and 32 International stores as of December 31, 2022.",neutral +"SegmentLeased Square Footage +(1)Owned Square Footage +(1) +North America 403,984 13,595 +International 140,898 6,292 +AWS 18,034 15,446 +Total 562,916 35,333 + ___________________ +(1)Segment amounts exclude corporate facilities.",neutral +"Shared facilities are allocated among the segments based on usage and primarily relate to facilities +that hold our technology infrastructure.",positive +"See Item 8 of Part II, “Financial Statements and Supplementary Data — Note 10 — Segment +Information.”",neutral +"We own and lease our corporate headquarters in Washington’s Puget Sound region and Arlington, Virginia.",positive +Item 3.,neutral +"Legal Proceedings +See Item 8 of Part II, “Financial Statements and Supplementary Data — Note 7 — Commitments and Contingencies — Legal Proceedings.”",positive +Item 4.,neutral +"Mine Safety Disclosures +Not applicable. +17Table of Contents +PART II +Item 5.",neutral +"Market for the Registrant’s Common Stock, Related Shareholder Matters, and Issuer Purchases of Equity Securities +Market Information +Our common stock is traded on the Nasdaq Global Select Market under the symbol “AMZN.”",negative +"Holders +As of January 25, 2023, there were 10,845 shareholders of record of our common stock, although there is a much larger number of beneficial +owners.",negative +"Recent Sales of Unregistered Securities +None. +Issuer Purchases of Equity Securities +None.",neutral +Item 6.,neutral +"Reserved +18Table of Contents +Item 7.",neutral +"Management’s Discussion and Analysis of Financial Condition and Results of Operations +Forward-Looking Statements +This Annual Report on Form 10-K includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of +1995.",neutral +"All statements other than statements of historical fact, including statements regarding guidance, industry prospects, or future results of +operations or financial position, made in this Annual Report on Form 10-K are forward-looking.",negative +"We use words such as anticipates, believes, expects, +future, intends, and similar expressions to identify forward-looking statements.",neutral +"Forward-looking statements reflect management’s current +expectations and are inherently uncertain.",neutral +"Actual results and outcomes could differ materially for a variety of reasons, including, among others, +fluctuations in foreign exchange rates, changes in global economic conditions and customer demand and spending, inflation, interest rates, regional +labor market and global supply chain constraints, world events, the rate of growth of the Internet, online commerce, and cloud services, the amount +that Amazon.com invests in new business opportunities and the timing of those investments, the mix of products and services sold to customers, the +mix of net sales derived from products as compared with services, the extent to which we owe income or other taxes, competition, management of +growth, potential fluctuations in operating results, international growth and expansion, the outcomes of claims, litigation, government investigations, +and other proceedings, fulfillment, sortation, delivery, and data center optimization, risks of inventory management, variability in demand, the degree +to which we enter into, maintain, and develop commercial agreements, proposed and completed acquisitions and strategic transactions, payments +risks, and risks of fulfillment throughput and productivity.",negative +"In addition, global economic and geopolitical conditions and additional or unforeseen +circumstances, developments, or events may give rise to or amplify many of these risks.",positive +"These risks and uncertainties, as well as other risks and +uncertainties that could cause our actual results or outcomes to differ significantly from management’s expectations, are described in greater detail +in Item 1A of Part I, “Risk Factors.”",positive +"Overview +Our primary source of revenue is the sale of a wide range of products and services to customers.",positive +"The products offered through our stores +include merchandise and content we have purchased for resale and products offered by third-party sellers, and we also manufacture and sell +electronic devices and produce media content.",neutral +"Generally, we recognize gross revenue from items we sell from our inventory as product sales and +recognize our net share of revenue of items sold by third-party sellers as service sales.",positive +"We seek to increase unit sales across our stores, through +increased product selection, across numerous product categories.",neutral +"We also offer other services such as compute, storage, and database offerings, +fulfillment, advertising, publishing, and digital content subscriptions.",negative +"Our financial focus is on long-term, sustainable growth in free cash flows.",positive +"Free cash flows are driven primarily by increasing operating income +and efficiently managing accounts receivable, inventory, accounts payable, and cash capital expenditures, including our decision to purchase or lease +property and equipment.",positive +"Increases in operating income primarily result from increases in sales of products and services and efficiently managing our +operating costs, partially offset by investments we make in longer-term strategic initiatives, including capital expenditures focused on improving the +customer experience.",positive +"To increase sales of products and services, we focus on improving all aspects of the customer experience, including lowering +prices, improving availability, offering faster delivery and performance times, increasing selection, producing original content, increasing product +categories and service offerings, expanding product information, improving ease of use, improving reliability, and earning customer trust.",positive +"See +“Results of Operations — Non-GAAP Financial Measures” below for additional information on our non-GAAP free cash flows financial measures.",positive +We seek to reduce our variable costs per unit and work to leverage our fixed costs.,positive +"Our variable costs include product and content costs, +payment processing and related transaction costs, picking, packaging, and preparing orders for shipment, transportation, customer service support, +costs necessary to run AWS, and a portion of our marketing costs.",neutral +"Our fixed costs include the costs necessary to build and run our technology +infrastructure; to build, enhance, and add features to our online stores, web services, electronic devices, and digital offerings; and to build and +optimize our fulfillment network.",positive +"Variable costs generally change directly with sales volume, while fixed costs generally are dependent on the timing +of capacity needs, geographic expansion, category expansion, and other factors.",positive +"To decrease our variable costs on a per unit basis and enable us to +lower prices for customers, we seek to increase our direct sourcing, increase discounts from suppliers, and reduce defects in our processes.",positive +"To +minimize unnecessary growth in fixed costs, we seek to improve process efficiencies and maintain a lean culture.",negative +We seek to turn inventory quickly and collect from consumers before our payments to vendors and sellers become due.,positive +"Because consumers +primarily use credit cards in our stores, our receivables from consumers settle quickly.",positive +"We expect variability in inventory turnover over time since it +is affected by numerous factors, including our product mix, the mix of sales by us and by third-party sellers, our continuing focus on in-stock +inventory availability and selection of product offerings, supply chain disruptions and resulting vendor lead times, our investment in new geographies +and product lines, and the extent to which we choose to utilize third-party fulfillment providers.",positive +"We also expect some variability in accounts payable +days over time since they are affected by several factors, including the mix of product sales, the mix of sales by third-party sellers, the mix +19Table of Contents +of suppliers, seasonality, and changes in payment and other terms over time, including the effect of balancing pricing and timing of payment terms +with suppliers.",negative +"We expect spending in technology and content will increase over time as we add computer scientists, designers, software and hardware +engineers, and merchandising employees.",neutral +"Our technology and content investment and capital spending projects often support a variety of product +and service offerings due to geographic expansion and the cross-functionality of our systems and operations.",negative +"We seek to invest efficiently in several +areas of technology and content, including AWS, and expansion of new and existing product categories and service offerings, as well as in technology +infrastructure to enhance the customer experience and improve our process efficiencies.",positive +"We believe that advances in technology, specifically the +speed and reduced cost of processing power, data storage and analytics, improved wireless connectivity, and the practical applications of artificial +intelligence and machine learning, will continue to improve users’ experience on the Internet and increase its ubiquity in people’s lives.",negative +"To best take +advantage of these continued advances in technology, we are investing in AWS, which offers a broad set of on-demand technology services, including +compute, storage, database, analytics, and machine learning, and other services, to developers and enterprises of all sizes.",positive +"We are also investing in +initiatives to build and deploy innovative and efficient software and electronic devices as well as other initiatives including the development of a +satellite network for global broadband service and autonomous vehicles for ride-hailing services.",positive +"We seek to efficiently manage shareholder dilution while maintaining the flexibility to issue shares for strategic purposes, such as financings, +acquisitions, and aligning employee compensation with shareholders’ interests.",neutral +"We utilize restricted stock units as our primary vehicle for equity +compensation because we believe this compensation model aligns the long-term interests of our shareholders and employees.",positive +"In measuring +shareholder dilution, we include all vested and unvested stock awards outstanding, without regard to estimated forfeitures.",positive +"Total shares outstanding +plus outstanding stock awards were 10.5 billion and 10.6 billion as of December 31, 2021 and 2022.",positive +"Our financial reporting currency is the U.S. Dollar and changes in foreign exchange rates significantly affect our reported results and +consolidated trends.",positive +"For example, if the U.S. Dollar weakens year-over-year relative to currencies in our international locations, our consolidated net +sales and operating expenses will be higher than if currencies had remained constant.",positive +"Likewise, if the U.S. Dollar strengthens year-over-year relative +to currencies in our international locations, our consolidated net sales and operating expenses will be lower than if currencies had remained constant.",neutral +"We believe that our increasing diversification beyond the U.S. economy through our growing international businesses benefits our shareholders over +the long-term.",neutral +We also believe it is useful to evaluate our operating results and growth rates before and after the effect of currency changes.,positive +"In addition, the remeasurement of our intercompany balances can result in significant gains and losses associated with the effect of movements +in foreign currency exchange rates.",positive +"Currency volatilities may continue, which may significantly impact (either positively or negatively) our reported +results and consolidated trends and comparisons.",positive +"For additional information about each line item addressed above, refer to Item 8 of Part II, “Financial Statements and Supplementary Data — +Note 1 — Description of Business, Accounting Policies, and Supplemental Disclosures.”",neutral +"Our Annual Report on Form 10-K for the year ended December 31, 2021 includes a discussion and analysis of our financial condition and +results of operations for the year ended December 31, 2020 in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and +Results of Operations.” +Critical Accounting Estimates +The preparation of financial statements in conformity with generally accepted accounting principles of the United States (“GAAP”) requires +estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent +liabilities in the consolidated financial statements and accompanying notes.",negative +"Critical accounting estimates are those estimates made in accordance with +GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial +condition or results of operations of the Company.",positive +"Based on this definition, we have identified the critical accounting estimates addressed below.",neutral +"We +also have other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our +results.",positive +"For additional information, see Item 8 of Part II, “Financial Statements and Supplementary Data — Note 1 — Description of Business, +Accounting Policies, and Supplemental Disclosures.”",neutral +"Although we believe that our estimates, assumptions, and judgments are reasonable, they are +based upon information presently available.",positive +"Actual results may differ significantly from these estimates under different assumptions, judgments, or +conditions.",positive +"Inventories +Inventories, consisting of products available for sale, are primarily accounted for using the first-in first-out method, and are valued at the lower +of cost and net realizable value.",positive +"This valuation requires us to make judgments, based on currently available information, about the likely method of +disposition, such as through sales to individual customers, returns to product +20Table of Contents +vendors, or liquidations, and expected recoverable values of each disposition category.",positive +"These assumptions about future disposition of inventory are +inherently uncertain and changes in our estimates and assumptions may cause us to realize material write-downs in the future.",neutral +"As a measure of +sensitivity, for every 1% of additional inventory valuation allowance as of December 31, 2022, we would have recorded an additional cost of sales of +approximately $390 million.",negative +"In addition, we enter into supplier commitments for certain electronic device components and certain products.",positive +"These commitments are based +on forecasted customer demand.",neutral +"If we reduce these commitments, we may incur additional costs.",neutral +"Income Taxes +We are subject to income taxes in the U.S. (federal and state) and numerous foreign jurisdictions.",negative +"Tax laws, regulations, administrative +practices, principles, and interpretations in various jurisdictions may be subject to significant change, with or without notice, due to economic, +political, and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes.",positive +"There are +many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain.",positive +"In addition, our actual and +forecasted earnings are subject to change due to economic, political, and other conditions and significant judgment is required in determining our +ability to use our deferred tax assets.",positive +"Our effective tax rates could be affected by numerous factors, such as changes in our business operations, acquisitions, investments, entry into +new businesses and geographies, intercompany transactions, the relative amount of our foreign earnings, including earnings being lower than +anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates, +losses incurred in jurisdictions for which we are not able to realize related tax benefits, the applicability of special tax regimes, changes in foreign +currency exchange rates, changes in our stock price, changes to our forecasts of income and loss and the mix of jurisdictions to which they relate, +changes in our deferred tax assets and liabilities and their valuation, changes in the laws, regulations, administrative practices, principles, and +interpretations related to tax, including changes to the global tax framework, competition, and other laws and accounting rules in various +jurisdictions.",positive +"In addition, a number of countries have enacted or are actively pursuing changes to their tax laws applicable to corporate multinationals.",negative +"We are also currently subject to tax controversies in various jurisdictions, and these jurisdictions may assess additional income tax liabilities +against us.",negative +"Developments in an audit, investigation, or other tax controversy could have a material effect on our operating results or cash flows in the +period or periods for which that development occurs, as well as for prior and subsequent periods.",negative +"We regularly assess the likelihood of an adverse +outcome resulting from these proceedings to determine the adequacy of our tax accruals.",neutral +"Although we believe our tax estimates are reasonable, the +final outcome of audits, investigations, and any other tax controversies could be materially different from our historical income tax provisions and +accruals.",positive +"Liquidity and Capital Resources +Cash flow information is as follows (in millions): + Year Ended December 31, + 2021 2022 +Cash provided by (used in): +Operating activities $ 46,327 $ 46,752 +Investing activities (58,154) (37,601) +Financing activities 6,291 9,718 +Our principal sources of liquidity are cash flows generated from operations and our cash, cash equivalents, and marketable securities balances, +which, at fair value, were $96.0 billion and $70.0 billion as of December 31, 2021 and 2022.",positive +"Amounts held in foreign currencies were $22.7 billion +and $18.3 billion as of December 31, 2021 and 2022.",negative +"Our foreign currency balances include British Pounds, Canadian Dollars, Euros, and Japanese +Yen.",negative +Cash provided by (used in) operating activities was $46.3 billion and $46.8 billion in 2021 and 2022.,neutral +"Our operating cash flows result primarily +from cash received from our consumer, seller, developer, enterprise, and content creator customers, and advertisers, offset by cash payments we make +for products and services, employee compensation, payment processing and related transaction costs, operating leases, and interest payments.",positive +"Cash +received from our customers and other activities generally corresponds to our net sales.",negative +"The increase in operating cash flow in 2022, compared to the +prior year, was primarily due to the increase in net income, excluding non-cash expenses, partially offset by changes in working capital.",negative +"Working +capital at any specific point in time is subject to many variables, including variability in demand, inventory management and category expansion, the +timing of cash receipts and payments, customer and vendor payment terms, and fluctuations in foreign exchange rates.",positive +"21Table of Contents +Cash provided by (used in) investing activities corresponds with cash capital expenditures, including leasehold improvements, incentives +received from property and equipment vendors, proceeds from asset sales, cash outlays for acquisitions, investments in other companies and +intellectual property rights, and purchases, sales, and maturities of marketable securities.",positive +"Cash provided by (used in) investing activities was $(58.2) +billion and $(37.6) billion in 2021 and 2022, with the variability caused primarily by purchases, sales, and maturities of marketable securities.",positive +"Cash +capital expenditures were $55.4 billion, and $58.3 billion in 2021 and 2022, which primarily reflect investments in technology infrastructure (the +majority of which is to support AWS business growth) and in additional capacity to support our fulfillment network.",positive +"We expect to continue these +investments over time, with increased spending on technology infrastructure.",neutral +"We made cash payments, net of acquired cash, related to acquisition and +other investment activity of $2.0 billion and $8.3 billion in 2021 and 2022.",negative +We funded the acquisition of MGM Holdings Inc. with cash on hand.,neutral +"We +expect to fund the acquisitions of 1Life Healthcare, Inc.",neutral +(One Medical) and iRobot Corporation with cash on hand.,neutral +Cash provided by (used in) financing activities was $6.3 billion and $9.7 billion in 2021 and 2022.,neutral +"Cash inflows from financing activities +resulted from proceeds from short-term debt, and other and long-term-debt of $27.0 billion and $62.7 billion in 2021 and 2022.",negative +"Cash outflows from +financing activities resulted from repurchases of common stock, payments of short-term debt, and other, long-term debt, finance leases, and financing +obligations of $20.7 billion and $53.0 billion in 2021 and 2022.",negative +"Property and equipment acquired under finance leases was $7.1 billion and $675 +million in 2021 and 2022.",neutral +"We had no borrowings outstanding under the two unsecured revolving credit facilities, $6.8 billion of borrowings outstanding under the +commercial paper programs, and $1.0 billion of borrowings outstanding under the secured revolving credit facility as of December 31, 2022.",positive +"See +Item 8 of Part II, “Financial Statements and Supplementary Data — Note 6 — Debt” for additional information.",neutral +"As of December 31, 2022, cash, cash equivalents, and marketable securities held by foreign subsidiaries were $4.7 billion.",negative +"We intend to invest +substantially all of our foreign subsidiary earnings, as well as our capital in our foreign subsidiaries, indefinitely outside of the U.S. in those +jurisdictions in which we would incur significant, additional costs upon repatriation of such amounts.",positive +"Our U.S. taxable income is reduced by accelerated depreciation deductions and increased by the impact of capitalized research and +development expenses.",neutral +"U.S. tax rules provide for enhanced accelerated depreciation deductions by allowing the election of full expensing of +qualified property, primarily equipment, through 2022.",positive +"Our federal tax provision included a partial election for 2020 and 2021, and a full election for +2022.",positive +"Effective January 1, 2022, research and development expenses are required to be capitalized and amortized for U.S. tax purposes, which delays +the deductibility of these expenses.",positive +Cash taxes paid (net of refunds) were $3.7 billion and $6.0 billion for 2021 and 2022.,neutral +"As of December 31, 2021 and 2022, restricted cash, cash equivalents, and marketable securities were $260 million and $365 million.",neutral +"See +Item 8 of Part II, “Financial Statements and Supplementary Data — Note 6 — Debt” and “Financial Statements and Supplementary Data — Note 7 +— Commitments and Contingencies” for additional discussion of our principal contractual commitments, as well as our pledged assets.",neutral +"Additionally, +we have purchase obligations and open purchase orders, including for inventory and capital expenditures, that support normal operations and are +primarily due in the next twelve months.",positive +"These purchase obligations and open purchase orders are generally cancellable in full or in part through the +contractual provisions.",positive +"We believe that cash flows generated from operations and our cash, cash equivalents, and marketable securities balances, as well as our +borrowing arrangements, will be sufficient to meet our anticipated operating cash needs for at least the next twelve months.",negative +"However, any projections +of future cash needs and cash flows are subject to substantial uncertainty.",negative +"See Item 1A of Part I, “Risk Factors.”",neutral +"We continually evaluate +opportunities to sell additional equity or debt securities, obtain credit facilities, obtain finance and operating lease arrangements, enter into financing +obligations, repurchase common stock, pay dividends, or repurchase, refinance, or otherwise restructure our debt for strategic reasons or to further +strengthen our financial position.",negative +The sale of additional equity or convertible debt securities would be dilutive to our shareholders.,neutral +"In addition, we will, from time to time, +consider the acquisition of, or investment in, complementary businesses, products, services, capital infrastructure, and technologies, which might +affect our liquidity requirements or cause us to secure additional financing, or issue additional equity or debt securities.",positive +"There can be no assurance +that additional credit lines or financing instruments will be available in amounts or on terms acceptable to us, if at all.",positive +"In addition, economic +conditions and actions by policymaking bodies are contributing to rising interest rates and significant capital market volatility, which, along with +increases in our borrowing levels, could increase our future borrowing costs.",positive +"22Table of Contents +Results of Operations +We have organized our operations into three segments: North America, International, and AWS.",neutral +"These segments reflect the way the Company +evaluates its business performance and manages its operations.",neutral +"See Item 8 of Part II, “Financial Statements and Supplementary Data — Note 10 — +Segment Information.”",neutral +"Overview +Macroeconomic factors, including inflation, increased interest rates, significant capital market volatility, the prolonged COVID-19 pandemic, +global supply chain constraints, and global economic and geopolitical developments, have direct and indirect impacts on our results of operations that +are difficult to isolate and quantify.",positive +"These factors contributed to increases in our operating costs during 2022, particularly across our North America +and International segments, primarily due to a return to more normal, seasonal demand volumes in relation to our fulfillment network fixed costs, +increased transportation and utility costs, and increased wage rates.",positive +"In addition, rising fuel, utility, and food costs, rising interest rates, and +recessionary fears may impact customer demand and our ability to forecast consumer spending patterns.",neutral +"We also expect the current macroeconomic +environment and enterprise customer cost optimization efforts to impact our AWS revenue growth rates.",neutral +"We expect some or all of these factors to +continue to impact our operations into Q1 2023.",neutral +"Net Sales +Net sales include product and service sales.",neutral +"Product sales represent revenue from the sale of products and related shipping fees and digital +media content where we record revenue gross.",neutral +"Service sales primarily represent third-party seller fees, which includes commissions and any related +fulfillment and shipping fees, AWS sales, advertising services, Amazon Prime membership fees, and certain digital content subscriptions.",positive +"Net sales +information is as follows (in millions): + Year Ended December 31, + 2021 2022 +Net Sales: +North America $ 279,833 $ 315,880 +International 127,787 118,007 +AWS 62,202 80,096 +Consolidated $ 469,822 $ 513,983 +Year-over-year Percentage Growth (Decline): +North America",neutral +"18 % 13 % +International 22 (8) +AWS 37 29 +Consolidated 22 9 +Year-over-year Percentage Growth, excluding the effect of foreign exchange rates: +North America 18 % 13 % +International 20 4 +AWS 37 29 +Consolidated 21 13 +Net sales mix: +North America 60 % 61 % +International 27 23 +AWS 13 16 +Consolidated 100 % 100 % +Sales increased 9% in 2022, compared to the prior year.",positive +Changes in foreign currency exchange rates reduced net sales by $15.5 billion in 2022.,negative +"For a discussion of the effect of foreign exchange rates on sales growth, see “Effect of Foreign Exchange Rates” below.",negative +"North America sales increased 13% in 2022, compared to the prior year.",neutral +"The sales growth primarily reflects increased unit sales, including +sales by third-party sellers, advertising sales, and subscription services.",positive +"Increased unit sales were driven largely by our continued focus on price, +selection, and convenience for our customers, including from our shipping offers.23Table of Contents +International sales decreased 8% in 2022, compared to the prior year, primarily due to the impact of changes in foreign currency exchange +rates, partially offset by increased unit sales, including sales by third-party sellers, advertising sales, and subscription services.",negative +"Increased unit sales +were driven largely by our continued focus on price, selection, and convenience for our customers, including from our shipping offers.",positive +"Changes in +foreign currency exchange rates reduced International net sales by $15.0 billion in 2022.",negative +"AWS sales increased 29% in 2022, compared to the prior year.",neutral +"The sales growth primarily reflects increased customer usage, partially offset by +pricing changes, primarily driven by long-term customer contracts.",positive +"Operating Income (Loss) +Operating income (loss) by segment is as follows (in millions): +Year Ended December 31, +2021 2022 +Operating Income (Loss) +North America $ 7,271 $ (2,847)",neutral +"International (924) (7,746) +AWS 18,532 22,841 +Consolidated $ 24,879 $ 12,248 +Operating income was $24.9 billion and $12.2 billion for 2021 and 2022.",neutral +"We believe that operating income is a more meaningful measure than +gross profit and gross margin due to the diversity of our product categories and services.",positive +"The North America operating loss in 2022, as compared to the operating income in the prior year, is primarily due to increased fulfillment and +shipping costs, due in part to increases in investments in our fulfillment network, transportation costs, and wage rates and incentives, increased +technology and content costs, and growth in certain operating expenses, partially offset by increased unit sales, including sales by third-party sellers, +and advertising sales.",negative +Changes in foreign currency exchange rates positively impacted operating loss by $274 million in 2022.,positive +"The increase in International operating loss in absolute dollars in 2022, compared to the prior year, is primarily due to increased fulfillment and +shipping costs, due in part to increases in investments in our fulfillment network, transportation costs, and wage rates and incentives, increased +technology and content costs, and growth in certain operating expenses, partially offset by increased advertising sales and increased unit sales, +including sales by third-party sellers.",positive +Changes in foreign currency exchange rates negatively impacted operating loss by $857 million in 2022.,negative +"The increase in AWS operating income in absolute dollars in 2022, compared to the prior year, is primarily due to increased sales and cost +structure productivity, including a reduction in depreciation and amortization expense from our change in the estimated useful lives of our servers and +networking equipment, partially offset by increased payroll and related expenses and spending on technology infrastructure, all of which were +primarily driven by additional investments to support AWS business growth.",positive +"Changes in foreign currency exchange rates positively impacted +operating income by $1.4 billion in 2022.",positive +"24Table of Contents +Operating Expenses +Information about operating expenses is as follows (in millions):",neutral +"Year Ended December 31, + 2021 2022 +Operating expenses: +Cost of sales $ 272,344 $ 288,831 +Fulfillment 75,111 84,299 +Technology and content 56,052 73,213 +Sales and marketing 32,551 42,238 +General and administrative 8,823 11,891 +Other operating expense (income), net 62 1,263 +Total operating expenses $ 444,943 $ 501,735 +Year-over-year Percentage Growth (Decline): +Cost of sales 17 % 6 % +Fulfillment 28 12 +Technology and content 31 31 +Sales and marketing 48 30 +General and administrative 32 35 +Other operating expense (income), net (183) 1,936 +Percent of Net Sales: +Cost of sales 58.0 % 56.2 % +Fulfillment 16.0 16.4 +Technology and content 11.9 14.2 +Sales and marketing 6.9 8.2 +General and administrative 1.9 2.3 +Other operating expense (income), net 0.0 0.2 +Cost of Sales +Cost of sales primarily consists of the purchase price of consumer products, inbound and outbound shipping costs, including costs related to +sortation and delivery centers and where we are the transportation service provider, and digital media content costs where we record revenue gross, +including video and music.",positive +"The increase in cost of sales in absolute dollars in 2022, compared to the prior year, is primarily due to increased shipping and product costs +resulting from increased sales and increases in investments in our fulfillment network, transportation costs, and wage rates and incentives.",positive +"Changes in +foreign exchange rates reduced cost of sales by $10.8 billion in 2022.",negative +"Shipping costs to receive products from our suppliers are included in our inventory and recognized as cost of sales upon sale of products to our +customers.",neutral +"Shipping costs, which include sortation and delivery centers and transportation costs, were $76.7 billion and $83.5 billion in 2021 and +2022.",neutral +"We expect our cost of shipping to continue to increase to the extent our customers accept and use our shipping offers at an increasing rate, we +use more expensive shipping methods, including faster delivery, and we offer additional services.",positive +"We seek to mitigate costs of shipping over time in +part through achieving higher sales volumes, optimizing our fulfillment network, negotiating better terms with our suppliers, and achieving better +operating efficiencies.",positive +"We believe that offering low prices to our customers is fundamental to our future success, and one way we offer lower prices is +through shipping offers.",positive +"Costs to operate our AWS segment are primarily classified as “Technology and content” as we leverage a shared infrastructure that supports +both our internal technology requirements and external sales to AWS customers.",positive +"Fulfillment +Fulfillment costs primarily consist of those costs incurred in operating and staffing our North America and International fulfillment centers, +physical stores, and customer service centers and payment processing costs.",positive +"While AWS payment processing and related transaction costs are +included in “Fulfillment,” AWS costs are primarily classified as “Technology and content.”",positive +"Fulfillment costs as a percentage of net sales may vary +due to several factors, such as payment processing and related25Table of Contents +transaction costs, our level of productivity and accuracy, changes in volume, size, and weight of units received and fulfilled, the extent to which third- +party sellers utilize Fulfillment by Amazon services, timing of fulfillment network and physical store expansion, the extent we utilize fulfillment +services provided by third parties, mix of products and services sold, and our ability to affect customer service contacts per unit by implementing +improvements in our operations and enhancements to our customer self-service features.",negative +"Additionally, sales by our sellers have higher payment +processing and related transaction costs as a percentage of net sales compared to our retail sales because payment processing costs are based on the +gross purchase price of underlying transactions.",positive +"The increase in fulfillment costs in absolute dollars in 2022, compared to the prior year, is primarily due to increased investments in our +fulfillment network and variable costs corresponding with increased product and service sales volume and inventory levels, and increased wage rates +and incentives.",positive +Changes in foreign exchange rates reduced fulfillment costs by $2.5 billion in 2022.,negative +"We seek to expand our fulfillment network to accommodate a greater selection and in-stock inventory levels and to meet anticipated shipment +volumes from sales of our own products as well as sales by third parties for which we provide the fulfillment services.",positive +"We regularly evaluate our +facility requirements.",neutral +"Technology and Content +Technology and content costs include payroll and related expenses for employees involved in the research and development of new and +existing products and services, development, design, and maintenance of our stores, curation and display of products and services made available in +our online stores, and infrastructure costs.",positive +"Infrastructure costs include servers, networking equipment, and data center related depreciation and +amortization, rent, utilities, and other expenses necessary to support AWS and other Amazon businesses.",negative +"Collectively, these costs reflect the +investments we make in order to offer a wide variety of products and services to our customers, including expenditures related to initiatives to build +and deploy innovative and efficient software and electronic devices and the development of a satellite network for global broadband service and +autonomous vehicles for ride-hailing services.",positive +"We seek to invest efficiently in numerous areas of technology and content so we may continue to enhance the customer experience and +improve our process efficiency through rapid technology developments, while operating at an ever increasing scale.",neutral +"Our technology and content +investment and capital spending projects often support a variety of product and service offerings due to geographic expansion and the cross- +functionality of our systems and operations.",negative +"We expect spending in technology and content to increase over time as we continue to add employees +and technology infrastructure.",neutral +These costs are allocated to segments based on usage.,neutral +"The increase in technology and content costs in absolute dollars +in 2022, compared to the prior year, is primarily due to increased payroll and related costs associated with technical teams responsible for expanding +our existing products and services and initiatives to introduce new products and service offerings, and an increase in spending on technology +infrastructure, partially offset by a reduction in depreciation and amortization expense from our change in the estimated useful lives of our servers +and networking equipment.",positive +"See Item 8 of Part II, “Financial Statements and Supplementary Data — Note 1 — Description of Business, Accounting +Policies, and Supplemental Disclosures — Use of Estimates” for additional information on the change in estimated useful lives of our servers and +networking equipment.",positive +"Sales and Marketing +Sales and marketing costs include advertising and payroll and related expenses for personnel engaged in marketing and selling activities, +including sales commissions related to AWS.",neutral +"We direct customers to our stores primarily through a number of marketing channels, such as our +sponsored search, social and online advertising, third party customer referrals, television advertising, and other initiatives.",positive +"Our marketing costs are +largely variable, based on growth in sales and changes in rates.",positive +"To the extent there is increased or decreased competition for these traffic sources, or +to the extent our mix of these channels shifts, we would expect to see a corresponding change in our marketing costs.",negative +"The increase in sales and marketing costs in absolute dollars in 2022, compared to the prior year, is primarily due to increased payroll and +related expenses for personnel engaged in marketing and selling activities and higher marketing spend.",positive +"While costs associated with Amazon Prime membership benefits and other shipping offers are not included in sales and marketing expense, we +view these offers as effective worldwide marketing tools, and intend to continue offering them indefinitely.",positive +"General and Administrative +The increase in general and administrative costs in absolute dollars in 2022, compared to the prior year, is primarily due to increases in payroll +and related expenses and professional fees.",positive +"26Table of Contents +Other Operating Expense (Income), Net +Other operating expense (income), net was $62 million and $1.3 billion during 2021 and 2022, and was primarily related to the amortization of +intangible assets and, for 2022, $1.1 billion of impairments of property and equipment and operating leases.",negative +"Interest Income and Expense +Our interest income was $448 million and $989 million during 2021 and 2022, primarily due to an increase in prevailing rates.",negative +"We generally +invest our excess cash in AAA-rated money market funds and investment grade short- to intermediate-term fixed income securities.",positive +"Our interest +income corresponds with the average balance of invested funds based on the prevailing rates, which vary depending on the geographies and +currencies in which they are invested.",negative +Interest expense was $1.8 billion and $2.4 billion in 2021 and 2022 and was primarily related to debt and finance leases.,neutral +"See Item 8 of Part II, +“Financial Statements and Supplementary Data — Note 4 — Leases and Note 6 — Debt” for additional information.",neutral +"Our long-term lease liabilities were $67.7 billion and $73.0 billion as of December 31, 2021 and 2022.",neutral +"Our long-term debt was $48.7 billion +and $67.1 billion as of December 31, 2021 and 2022.",neutral +"See Item 8 of Part II, “Financial Statements and Supplementary Data — Note 4 — Leases and +Note 6 — Debt” for additional information.",neutral +"Other Income (Expense), Net +Other income (expense), net was $14.6 billion and $(16.8) billion during 2021 and 2022.",negative +"The primary components of other income (expense), +net are related to equity securities valuations and adjustments, equity warrant valuations, and foreign currency.",positive +"Included in other income (expense), +net in 2021 and 2022 is a marketable equity securities valuation gain (loss) of $11.8 billion and $(12.7) billion from our equity investment in Rivian.",negative +"Income Taxes +Our effective tax rate is subject to significant variation due to several factors, including variability in our pre-tax and taxable income and loss +and the mix of jurisdictions to which they relate, intercompany transactions, the applicability of special tax regimes, changes in how we do business, +acquisitions, investments, developments in tax controversies, changes in our stock price, changes in our deferred tax assets and liabilities and their +valuation, foreign currency gains (losses), changes in statutes, regulations, case law, and administrative practices, principles, and interpretations +related to tax, including changes to the global tax framework, competition, and other laws and accounting rules in various jurisdictions, and relative +changes of expenses or losses for which tax benefits are not recognized.",positive +"Our effective tax rate can be more or less volatile based on the amount of +pre-tax income or loss.",positive +"For example, the impact of discrete items and non-deductible expenses on our effective tax rate is greater when our pre-tax +income is lower.",positive +"In addition, we record valuation allowances against deferred tax assets when there is uncertainty about our ability to generate future +income in relevant jurisdictions.",positive +We recorded a provision (benefit) for income taxes of $4.8 billion and $(3.2) billion in 2021 and 2022.,neutral +"See Item 8 of Part II, “Financial +Statements and Supplementary Data — Note 9 — Income Taxes” for additional information.",neutral +"Non-GAAP Financial Measures +Regulation G, Conditions for Use of Non-GAAP Financial Measures, and other SEC regulations define and prescribe the conditions for use of +certain non-GAAP financial information.",negative +"Our measures of free cash flows and the effect of foreign exchange rates on our consolidated statements of +operations meet the definition of non-GAAP financial measures.",positive +"We provide multiple measures of free cash flows because we believe these measures provide additional perspective on the impact of acquiring +property and equipment with cash and through finance leases and financing obligations. +27Table of Contents +Free Cash Flow +Free cash flow is cash flow from operations reduced by “Purchases of property and equipment, net of proceeds from sales and incentives.”",positive +"The +following is a reconciliation of free cash flow to the most comparable GAAP cash flow measure, “Net cash provided by (used in) operating +activities,” for 2021 and 2022 (in millions):",positive +"Year Ended December 31, + 2021 2022 +Net cash provided by (used in) operating activities $ 46,327 $ 46,752 +Purchases of property and equipment, net of proceeds from sales and incentives (55,396) (58,321) +Free cash flow $ (9,069)$ (11,569) +Net cash provided by (used in) investing activities $ (58,154)$ (37,601) +Net cash provided by (used in) financing activities $ 6,291 $ 9,718 +Free Cash Flow Less Principal Repayments of Finance Leases and Financing Obligations +Free cash flow less principal repayments of finance leases and financing obligations is free cash flow reduced by “Principal repayments of +finance leases” and “Principal repayments of financing obligations.”",positive +"Principal repayments of finance leases and financing obligations approximates +the actual payments of cash for our finance leases and financing obligations.",neutral +"The following is a reconciliation of free cash flow less principal +repayments of finance leases and financing obligations to the most comparable GAAP cash flow measure, “Net cash provided by (used in) operating +activities,” for 2021 and 2022 (in millions): + Year Ended December 31, + 2021 2022 +Net cash provided by (used in) operating activities $ 46,327 $ 46,752 +Purchases of property and equipment, net of proceeds from sales and incentives (55,396) (58,321) +Free cash flow (9,069) (11,569) +Principal repayments of finance leases (11,163) (7,941) +Principal repayments of financing obligations (162) (248) +Free cash flow less principal repayments of finance leases and financing obligations $ (20,394)$ (19,758) +Net cash provided by (used in) investing activities $ (58,154)$ (37,601) +Net cash provided by (used in) financing activities $ 6,291 $ 9,718 +28Table of Contents +Free Cash Flow Less Equipment Finance Leases and Principal Repayments of All Other Finance Leases and Financing Obligations +Free cash flow less equipment finance leases and principal repayments of all other finance leases and financing obligations is free cash flow +reduced by equipment acquired under finance leases, which is included in “Property and equipment acquired under finance leases, net of +remeasurements and modifications,” principal repayments of all other finance lease liabilities, which is included in “Principal repayments of finance +leases,” and “Principal repayments of financing obligations.”",positive +All other finance lease liabilities and financing obligations consists of property.,negative +"In this +measure, equipment acquired under finance leases is reflected as if these assets had been purchased with cash, which is not the case as these assets +have been leased.",neutral +"The following is a reconciliation of free cash flow less equipment finance leases and principal repayments of all other finance +leases and financing obligations to the most comparable GAAP cash flow measure, “Net cash provided by (used in) operating activities,” for 2021 +and 2022 (in millions): + Year Ended December 31, + 2021 2022 +Net cash provided by (used in) operating activities $ 46,327 $ 46,752 +Purchases of property and equipment, net of proceeds from sales and incentives (55,396) (58,321) +Free cash flow (9,069) (11,569) +Equipment acquired under finance leases (1) (4,422) (299) +Principal repayments of all other finance leases (2) (687) (670) +Principal repayments of financing obligations (162) (248) +Free cash flow less equipment finance leases and principal repayments of all other finance leases and financing +obligations $ (14,340)$ (12,786) +Net cash provided by (used in) investing activities $ (58,154)$ (37,601) +Net cash provided by (used in) financing activities $ 6,291 $ 9,718 +___________________ +(1)For the year ended December 31, 2021 and 2022, this amount relates to equipment included in “Property and equipment acquired under finance +leases, net of remeasurements and modifications” of $7,061 million and $675 million.",positive +"(2)For the year ended December 31, 2021 and 2022, this amount relates to property included in “Principal repayments of finance leases” of $11,163 +million and $7,941 million.",neutral +"All of these free cash flows measures have limitations as they omit certain components of the overall cash flow statement and do not represent +the residual cash flow available for discretionary expenditures.",positive +"For example, these measures of free cash flows do not incorporate the portion of +payments representing principal reductions of debt or cash payments for business acquisitions.",positive +"Additionally, our mix of property and equipment +acquisitions with cash or other financing options may change over time.",negative +"Therefore, we believe it is important to view free cash flows measures only +as a complement to our entire consolidated statements of cash flows.",positive +"Effect of Foreign Exchange Rates +Information regarding the effect of foreign exchange rates, versus the U.S. Dollar, on our net sales, operating expenses, and operating income is +provided to show reported period operating results had the foreign exchange rates remained the same as those in effect in the comparable prior year +period.",negative +"The effect on our net sales, operating expenses, and operating income from changes in our foreign exchange rates versus the U.S. Dollar is as +follows (in millions):",negative +"Year Ended December 31, 2021 Year Ended December 31, 2022 + As +ReportedExchange +Rate +Effect (1)At Prior +Year +Rates (2)As +ReportedExchange +Rate +Effect (1)At Prior +Year +Rates (2) +Net sales $469,822 $ (3,804)$466,018 $513,983 $ 15,495 $529,478 +Operating expenses 444,943 (3,653) 441,290 501,735 16,356 518,091 +Operating income 24,879 (151) 24,728 12,248 (861) 11,387 +___________________ +(1)Represents the change in reported amounts resulting from changes in foreign exchange rates from those in effect in the comparable prior year +period for operating results.",negative +"(2)Represents the outcome that would have resulted had foreign exchange rates in the reported period been the same as those in effect in the +comparable prior year period for operating results.29Table of Contents +Guidance +We provided guidance on February 2, 2023, in our earnings release furnished on Form 8-K as set forth below.",negative +"These forward-looking +statements reflect Amazon.com’s expectations as of February 2, 2023, and are subject to substantial uncertainty.",negative +"Our results are inherently +unpredictable and may be materially affected by many factors, such as uncertainty regarding the impacts of the COVID-19 pandemic, fluctuations in +foreign exchange rates, changes in global economic and geopolitical conditions and customer demand and spending (including the impact of +recessionary fears), inflation, interest rates, regional labor market and global supply chain constraints, world events, the rate of growth of the Internet, +online commerce, and cloud services, as well as those outlined in Item 1A of Part I, “Risk Factors.”",positive +"First Quarter 2023 Guidance +•Net sales are expected to be between $121.0 billion and $126.0 billion, or to grow between 4% and 8% compared with first quarter 2022.",positive +This guidance anticipates an unfavorable impact of approximately 210 basis points from foreign exchange rates.,negative +"•Operating income is expected to be between $0 and $4.0 billion, compared with $3.7 billion in first quarter 2022.",positive +"•This guidance assumes, among other things, that no additional business acquisitions, restructurings, or legal settlements are concluded.",positive +"30Table of Contents +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +We are exposed to market risk for the effect of interest rate changes, foreign currency fluctuations, and changes in the market values of our +investments.",negative +"Information relating to quantitative and qualitative disclosures about market risk is set forth below and in Item 7 of Part II, +“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”",neutral +"Interest Rate Risk +Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and our debt.",positive +"Our long-term debt is +carried at amortized cost and fluctuations in interest rates do not impact our consolidated financial statements.",neutral +"However, the fair value of our long- +term debt, which pays interest at a fixed rate, will generally fluctuate with movements of interest rates, increasing in periods of declining rates of +interest and declining in periods of increasing rates of interest.",positive +"We generally invest our excess cash in AAA-rated money market funds and investment grade short- to intermediate-term fixed income +securities.",positive +"Fixed income securities may have their fair market value adversely affected due to a rise in interest rates, and we may suffer losses in +principal if forced to sell securities that have declined in market value due to changes in interest rates.",positive +"The following table provides information about +our cash equivalents and marketable fixed income securities, including principal cash flows by expected maturity and the related weighted-average +interest rates as of December 31, 2022 (in millions, except percentages): +2023 2024 2025 2026 2027",neutral +"Thereafter TotalEstimated Fair +Value as of +December 31, +2022 +Money market funds $ 27,899 $ — $ — $ — $ — $ — $ 27,899 $ 27,899 +Weighted average interest rate 4.18 % — % — % — % — % — % 4.18 % +Corporate debt securities 17,500 2,486 2,332 748 9 — 23,075 22,627 +Weighted average interest rate 4.06 % 0.97 % 1.23 % 1.45 % 2.33 % — % 3.35 % +U.S. government and agency +securities 819 358 554 396 80 75 2,282 2,146 +Weighted average interest rate 1.05 % 0.98 % 0.81 % 0.83 % 1.24 % 1.83 % 0.98 % +Asset-backed securities 1,059 872 413 146 128 72 2,690 2,572 +Weighted average interest rate 0.99 % 1.30 % 1.37 % 1.39 % 1.41 % 1.06 % 1.19 % +Foreign government and agency +securities 519 19 — — — — 538 535 +Weighted average interest rate 4.24 % 0.60 % — % — % — % — % 4.11 % +Other fixed income securities 138 61 48 — — — 247 237 +Weighted average interest rate 0.40 % 0.56 % 1.15 % — % — % — % 0.58 % +$ 47,934 $ 3,796 $ 3,347 $ 1,290 $ 217 $ 147 $ 56,731 +Cash equivalents and +marketable fixed income +securities $ 56,016 +As of December 31, 2022, we had long-term debt with a face value of $70.5 billion, including the current portion, primarily consisting of fixed +rate unsecured senior notes.",positive +"See Item 8 of Part II, “Financial Statements and Supplementary Data — Note 6 — Debt” for additional information.",neutral +"31Table of Contents +Foreign Exchange Risk +During 2022, net sales from our International segment accounted for 23% of our consolidated revenues.",negative +"Net sales and related expenses +generated from our internationally-focused stores, including within Canada and Mexico (which are included in our North America segment), are +primarily denominated in the functional currencies of the corresponding stores and primarily include Euros, British Pounds, and Japanese Yen.",positive +"The +results of operations of, and certain of our intercompany balances associated with, our internationally-focused stores and AWS are exposed to foreign +exchange rate fluctuations.",positive +"Upon consolidation, as foreign exchange rates vary, net sales and other operating results may differ materially from +expectations, and we may record significant gains or losses on the remeasurement of intercompany balances.",positive +"For example, as a result of fluctuations +in foreign exchange rates throughout the year compared to rates in effect the prior year, International segment net sales decreased by $15.0 billion in +comparison with the prior year.",negative +"We have foreign exchange risk related to foreign-denominated cash, cash equivalents, and marketable securities (“foreign funds”).",negative +"Based on +the balance of foreign funds as of December 31, 2022, of $18.3 billion, an assumed 5%, 10%, and 20% adverse change to foreign exchange would +result in declines of $915 million, $1.8 billion, and $3.7 billion.",negative +We also have foreign exchange risk related to our intercompany balances denominated in various foreign currencies.,negative +"Based on the +intercompany balances as of December 31, 2022, an assumed 5%, 10%, and 20% adverse change to foreign exchange rates would result in losses of +$275 million, $555 million, and $1.1 billion, recorded to “Other income (expense), net.”",negative +"See Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — +Effect of Foreign Exchange Rates” for additional information on the effect on reported results of changes in foreign exchange rates.",negative +"Equity Investment Risk +As of December 31, 2022, our recorded value in equity and equity warrant investments in public and private companies was $7.2 billion.",neutral +"Our +equity and equity warrant investments in publicly traded companies, which primarily relate to Rivian, represent $5.0 billion of our investments as of +December 31, 2022, and are recorded at fair value, which is subject to market price volatility.",positive +"We record our equity warrant investments in private +companies at fair value and adjust our equity investments in private companies for observable price changes or impairments.",positive +"Valuations of private +companies are inherently more complex due to the lack of readily available market data.",positive +"The current global economic conditions provide additional +uncertainty.",positive +"As such, we believe that market sensitivities are not practicable.",neutral +"See Item 8 of Part II, “Financial Statements and Supplementary Data — +Note 1 — Description of Business, Accounting Policies, and Supplemental Disclosures” for additional information.",neutral +"32Table of Contents +Item 8.",neutral +"Financial Statements and Supplementary Data +INDEX TO CONSOLIDATED FINANCIAL STATEMENTS + Page +Report of Ernst & Young LLP, Independent Registered Public Accounting Firm (PCAOB ID: 42) 34 +Consolidated Statements of Cash Flows 36 +Consolidated Statements of Operations 37 +Consolidated Statements of Comprehensive Income (Loss) 38 +Consolidated Balance Sheets 39 +Consolidated Statements of Stockholders’ Equity 40 +Notes to Consolidated Financial Statements 41 +33Table of Contents +Report of Independent Registered Public Accounting Firm +The Board of Directors and Shareholders +Amazon.com, Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of Amazon.com, Inc. (the Company) as of December 31, 2022 and 2021, and +the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the +period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).",negative +"In our opinion, the +consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and +the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally +accepted accounting principles.",positive +"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 December 31, 2022, 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 February 2, +2023 expressed an unqualified opinion thereon.",neutral +"Basis for Opinion +These consolidated financial statements are the responsibility of the Company’s management.",neutral +"Our responsibility is to express an opinion on the +Company’s consolidated financial statements based on our audits.",neutral +"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.",negative +We conducted our audits in accordance with the standards of the PCAOB.,neutral +"Those standards require that we plan and perform the audit to obtain +reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.",positive +"Our audits +included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, +and performing procedures that respond to those risks.",negative +"Such procedures included examining, on a test basis, evidence regarding the amounts and +disclosures in the consolidated financial statements.",neutral +"Our audits also included evaluating the accounting principles used and significant estimates +made by management, as well as evaluating the overall presentation of the consolidated financial statements.",positive +"We believe that our audits provide a +reasonable basis for our opinion.",positive +Critical Audit Matter,neutral +"The critical audit matter communicated below is a matter arising from the current period audit of the consolidated 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 +consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments.",negative +"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 accounts or disclosures to which it relates.",positive +"34Table of Contents +Uncertain Tax Positions +Description of +the MatterAs discussed in Notes 1 and 9 of the consolidated financial statements, the Company is subject to income taxes in the U.S. +and numerous foreign jurisdictions and during the ordinary course of business, there are many tax positions for which the +ultimate tax determination is uncertain.",negative +"As a result, significant judgment is required in evaluating the Company’s tax +positions and determining its provision for income taxes.",positive +"The Company uses significant judgment in (1) determining whether +a tax position’s technical merits are more likely than not to be sustained and (2) measuring the amount of tax benefit that +qualifies for recognition.",positive +"As of December 31, 2022, the Company reported accrued liabilities of $4.0 billion for various tax +contingencies.",neutral +"Auditing the recognition and measurement of the Company’s tax contingencies was challenging because the evaluation of +whether a tax position is more likely than not to be sustained and the measurement of the benefit of various tax positions can +be complex and involves significant auditor judgment.",positive +"Management’s evaluation of tax positions is based on interpretations +of tax laws and legal rulings, and may be impacted by regulatory changes and judicial and examination activity.",positive +"How We Addressed the +Matter in Our AuditWe tested controls over the Company’s process to assess the technical merits of its tax contingencies, including controls +over: the assessment as to whether a tax position is more likely than not to be sustained; the measurement of the benefit of its +tax positions, both initially and on an ongoing basis; and the development of the related disclosures.",positive +"We involved our international tax, transfer pricing, and research and development tax professionals in assessing the technical +merits of certain of the Company’s tax positions.",positive +"Depending on the nature of the specific tax position and, as applicable, +developments with the relevant tax authorities relating thereto, our procedures included obtaining and examining the +Company’s analysis including the Company’s correspondence with such tax authorities and evaluating the underlying facts +upon which the tax positions are based.",positive +"We used our knowledge of and experience with international, transfer pricing, and +other income tax laws of the relevant taxing jurisdictions to evaluate the Company’s accounting for its tax contingencies.",positive +"We +evaluated developments in the applicable regulatory environments to assess potential effects on the Company’s positions, +including recent decisions in relevant court cases.",positive +"We analyzed the appropriateness of the Company’s assumptions and the +accuracy of the Company’s calculations and data used to determine the amount of tax benefits to recognize.",neutral +"We evaluated the +Company’s income tax disclosures in relation to these matters. +/s/",neutral +"Ernst & Young LLP +We have served as the Company’s auditor since 1996.",positive +"Seattle, Washington +February 2, 2023 +35Table of Contents +AMAZON.COM, INC. +CONSOLIDATED STATEMENTS OF CASH FLOWS +(in millions)",neutral +"Year Ended December 31, + 2020 2021 2022 +CASH, CASH EQUIV ALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD $ 36,410 $ 42,377 $ 36,477 +OPERA TING ACTIVITIES: +Net income (loss) 21,331 33,364 (2,722 ) +Adjustments to reconcile net income (loss) to net cash from operating activities: +Depreciation and amortization of property and equipment and capitalized content costs, operating +lease assets, and other 25,180 34,433 41,921 +Stock-based compensation 9,208 12,757 19,621 +Other expense (income), net (2,582 ) (14,306 ) 16,966 +Deferred income taxes (554) (310) (8,148 ) +Changes in operating assets and liabilities: +Inventories (2,849 ) (9,487 ) (2,592 ) +Accounts receivable, net and other (8,169 ) (18,163 ) (21,897 ) +Accounts payable 17,480 3,602 2,945 +Accrued expenses and other 5,754 2,123 (1,558 ) +Unearned revenue 1,265 2,314 2,216 +Net cash provided by (used in) operating activities 66,064 46,327 46,752 +INVESTING ACTIVITIES: +Purchases of property and equipment (40,140 ) (61,053 ) (63,645 ) +Proceeds from property and equipment sales and incentives 5,096 5,657 5,324 +Acquisitions, net of cash acquired, and other (2,325 ) (1,985 ) (8,316 ) +Sales and maturities of marketable securities 50,237 59,384 31,601 +Purchases of marketable securities (72,479 ) (60,157 ) (2,565 )",negative +"Net cash provided by (used in) investing activities (59,61 1) (58,154 ) (37,601 ) +FINANCING ACTIVITIES: +Common stock repurchased — — (6,000 ) +Proceeds from short-term debt, and other 6,796 7,956 41,553 +Repayments of short-term debt, and other (6,177 ) (7,753 )",negative +"(37,554 ) +Proceeds from long-term debt 10,525 19,003 21,166 +Repayments of long-term debt (1,553 ) (1,590 ) (1,258 ) +Principal repayments of finance leases (10,642 ) (11,163 ) (7,941 ) +Principal repayments of financing obligations (53) (162) (248) +Net cash provided by (used in) financing activities (1,104 ) 6,291 9,718 +Foreign currency ef fect on cash, cash equivalents, and restricted cash 618 (364) (1,093 ) +Net increase (decrease) in cash, cash equivalents, and restricted cash 5,967 (5,900 ) 17,776 +CASH, CASH EQUIV ALENTS, AND RESTRICTED CASH, END OF PERIOD $ 42,377 $ 36,477 $ 54,253 +See accompanying notes to consolidated financial statements. +36Table of Contents +AMAZON.COM, INC.",negative +"CONSOLIDATED STATEMENTS OF OPERATIONS +(in millions, except per share data)",neutral +"Year Ended December 31, + 2020 2021 2022 +Net product sales $ 215,915 $ 241,787 $ 242,901 +Net service sales 170,149 228,035 271,082 +Total net sales 386,064 469,822 513,983 +Operating expenses:",neutral +"Cost of sales 233,307 272,344 288,831 +Fulfillment 58,517 75,111 84,299 +Technology and content 42,740 56,052 73,213 +Sales and marketing 22,008 32,551 42,238 +General and administrative 6,668 8,823 11,891 +Other operating expense (income), net (75) 62 1,263 +Total operating expenses 363,165 444,943 501,735 +Operating income 22,899 24,879 12,248 +Interest income 555 448 989 +Interest expense (1,647) (1,809) (2,367) +Other income (expense), net 2,371 14,633 (16,806) +Total non-operating income (expense) 1,279 13,272 (18,184) +Income (loss) before income taxes 24,178 38,151 (5,936) +Benefit (provision) for income taxes (2,863) (4,791) 3,217 +Equity-method investment activity, net of tax 16 4 (3) +Net income (loss) $ 21,331 $ 33,364 $ (2,722) +Basic earnings per share $ 2.13 $ 3.30 $ (0.27) +Diluted earnings per share $ 2.09 $ 3.24 $ (0.27) +Weighted-average shares used in computation of earnings per share:",negative +"Basic 10,005 10,117 10,189 +Diluted 10,198 10,296 10,189 +See accompanying notes to consolidated financial statements.",neutral +"37Table of Contents +AMAZON.COM, INC. +CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) +(in millions)",neutral +"Year Ended December 31, + 2020 2021 2022 +Net income (loss) $ 21,331 $ 33,364 $ (2,722) +Other comprehensive income (loss): +Foreign currency translation adjustments, net of tax of $(36), $47, and $100 561 (819) (2,586) +Net change in unrealized gains (losses) on available-for-sale debt securities: +Unrealized gains (losses), net of tax of $(83), $72, and $159 273 (343) (823) +Reclassification adjustment for losses (gains) included in “Other income +(expense), net,” net of tax of $8, $13, and $0 (28) (34) 298 +Net unrealized gains (losses) on available-for-sale debt securities 245 (377) (525)",negative +"Total other comprehensive income (loss) 806 (1,196) (3,111) +Comprehensive income (loss) $ 22,137 $ 32,168 $ (5,833)",negative +See accompanying notes to consolidated financial statements.,neutral +"38Table of Contents +AMAZON.COM, INC. +CONSOLIDATED BALANCE SHEETS +(in millions, except per share data) +December 31, + 2021 2022 +ASSETS +Current assets: +Cash and cash equivalents $ 36,220 $ 53,888 +Marketable securities 59,829 16,138 +Inventories 32,640 34,405 +Accounts receivable, net and other 32,891 42,360 +Total current assets 161,580 146,791 +Property and equipment, net 160,281 186,715 +Operating leases 56,082 66,123 +Goodwill 15,371 20,288 +Other assets 27,235 42,758 +Total assets $ 420,549 $ 462,675 +LIABILITIES AND STOCKHOLDERS’ EQUITY +Current liabilities:",negative +"Accounts payable $ 78,664 $ 79,600 +Accrued expenses and other 51,775 62,566 +Unearned revenue 11,827 13,227 +Total current liabilities 142,266 155,393 +Long-term lease liabilities 67,651 72,968 +Long-term debt 48,744 67,150 +Other long-term liabilities 23,643 21,121 +Commitments and contingencies (Note 7) +Stockholders’ equity: +Preferred stock ($0.01 par value; 500 shares authorized; no shares issued or outstanding) — — +Common stock ($0.01 par value; 100,000 shares authorized; 10,644 and 10,757 shares issued; 10,175 +and 10,242 shares outstanding) 106 108 +Treasury stock, at cost (1,837) (7,837) +Additional paid-in capital 55,437 75,066 +Accumulated other comprehensive income (loss) (1,376) (4,487) +Retained earnings 85,915 83,193 +Total stockholders’ equity 138,245 146,043 +Total liabilities and stockholders’ equity $ 420,549 $ 462,675 +See accompanying notes to consolidated financial statements.",positive +"39Table of Contents +AMAZON.COM, INC. +CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY +(in millions) + Common Stock + Shares AmountTreasury +StockAdditional +Paid-In +CapitalAccumulated Other +Comprehensive +Income (Loss)Retained +EarningsTotal +Stockholders’ +Equity +Balance as of January 1, 2020 9,950 $ 104 $ (1,837 )$ 33,559 $ (986)$ 31,220 $ 62,060 +Net income — — — — — 21,331 21,331 +Other comprehensive income (loss) — — — — 806 — 806 +Stock-based compensation and issuance of +employee benefit plan stock 116 1 — 9,206 — — 9,207 +Balance as of December 31, 2020 10,066 105 (1,837 ) 42,765 (180) 52,551 93,404 +Net income — — — — — 33,364 33,364 +Other comprehensive income (loss) — — — — (1,196 ) — (1,196 ) +Stock-based compensation and issuance of +employee benefit plan stock 109 1 — 12,672 — — 12,673 +Balance as of December 31, 2021 10,175 106 (1,837 ) 55,437 (1,376 ) 85,915 138,245 +Net loss — — — — — (2,722 ) (2,722 ) +Other comprehensive income (loss) — — — — (3,111) — (3,111) +Stock-based compensation and issuance of +employee benefit plan stock 113 2 — 19,629 — — 19,631 +Common stock repurchased (46) — (6,000 ) — — — (6,000 ) +Balance as of December 31, 2022 10,242 $ 108 $ (7,837 )$ 75,066 $ (4,487 )$ 83,193 $ 146,043 +See accompanying notes to consolidated financial statements.",negative +"40Table of Contents +AMAZON.COM, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +Note 1 — DESCRIPTION OF BUSINESS, ACCOUNTING POLICIES, AND SUPPLEMENTAL DISCLOSURES +Description of Business +We seek to be Earth’s most customer-centric company.",positive +"In each of our segments, we serve our primary customer sets, consisting of consumers, +sellers, developers, enterprises, content creators, advertisers, and employees.",positive +"We serve consumers through our online and physical stores and focus on +selection, price, and convenience.",neutral +"We offer programs that enable sellers to grow their businesses, sell their products in our stores, and fulfill orders +through us, and programs that allow authors, independent publishers, musicians, filmmakers, Twitch streamers, skill and app developers, and others +to publish and sell content.",neutral +"We serve developers and enterprises of all sizes through AWS, which offers a broad set of on-demand technology +services, including compute, storage, database, analytics, and machine learning, and other services.",positive +We also manufacture and sell electronic devices.,neutral +"In addition, we provide advertising services to sellers, vendors, publishers, authors, and others, through programs such as sponsored ads, display, and +video advertising.",neutral +"We have organized our operations into three segments: North America, International, and AWS.",neutral +See “Note 10 — Segment Information.”,neutral +"Common Stock Split +On May 27, 2022, we effected a 20-for-1 stock split of our common stock and proportionately increased the number of authorized shares of +common stock.",negative +"All share, restricted stock unit (“RSU”), and per share or per RSU information throughout this Annual Report on Form 10-K has been +retroactively adjusted to reflect the stock split.",neutral +The shares of common stock retain a par value of $0.01 per share.,negative +"Accordingly, an amount equal to the +par value of the increased shares resulting from the stock split was reclassified from “Additional paid-in capital” to “Common stock.”",negative +"Prior Period Reclassifications +Certain prior period amounts have been reclassified to conform to the current period presentation.",positive +"“Other operating expense (income), net” was +reclassified into “Depreciation and amortization of property and equipment and capitalized content costs, operating lease assets, and other” on our +consolidated statements of cash flows.",negative +"Principles of Consolidation +The consolidated financial statements include the accounts of Amazon.com, Inc. and its consolidated entities (collectively, the “Company”), +consisting of its wholly-owned subsidiaries and those entities in which we have a variable interest and of which we are the primary beneficiary, +including certain entities in India and certain entities that support our seller lending financing activities.",positive +"Intercompany balances and transactions +between consolidated entities are eliminated.",neutral +"Use of Estimates +The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets +and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying +notes.",negative +"Estimates are used for, but not limited to, income taxes, useful lives of equipment, commitments and contingencies, valuation of acquired +intangibles and goodwill, stock-based compensation forfeiture rates, vendor funding, inventory valuation, collectability of receivables, impairment of +property and equipment and operating leases, valuation and impairment of investments, self-insurance liabilities, and viewing patterns of capitalized +video content.",positive +Actual results could differ materially from these estimates.,neutral +"We review the useful lives of equipment on an ongoing basis, and effective +January 1, 2022 we changed our estimate of the useful lives for our servers from four years to five years and for our networking equipment from five +years to six years.",positive +"The longer useful lives are due to continuous improvements in our hardware, software, and data center designs.",positive +"The effect of this +change in estimate for the year ended December 31, 2022, based on servers and networking equipment that were included in “Property and +equipment, net” as of December 31, 2021 and those acquired during the year ended December 31, 2022, was a reduction in depreciation and +amortization expense of $3.6 billion and a benefit to net loss of $2.8 billion, or $0.28 per basic share and $0.28 per diluted share.",neutral +"For the year ended December 31, 2022, we recorded approximately $1.1 billion, of which $720 million was recorded in the fourth quarter, of +impairments of property and equipment and operating leases primarily related to physical stores.",negative +"These charges were recorded in “Other operating +expense (income), net” on our consolidated statements of operations and primarily impacted our North America segment.",positive +"For the year ended +December 31, 2022, we also recorded expenses of approximately +41Table of Contents +$480 million primarily in “Fulfillment” on our consolidated statements of operations relating to terminating contracts for certain leases not yet +commenced as well as other purchase commitments, which primarily impacted our North America segment.",positive +"For the year ended December 31, 2022, we recorded approximately $720 million, of which $640 million was recorded in the fourth quarter, of +estimated severance costs primarily related to planned role eliminations.",negative +"These charges were recorded primarily in “Technology and content,” +“Fulfillment,” and “General and administrative” on our consolidated statements of operations and primarily impacted our North America segment.",positive +Supplemental Cash Flow Information,neutral +"The following table shows supplemental cash flow information (in millions): +Year Ended December 31, +2020 2021 2022 +SUPPLEMENT AL CASH FLOW INFORMA TION:",neutral +"Cash paid for interest on debt $ 916 $ 1,098 $ 1,561 +Cash paid for operating leases $ 4,475 $ 6,722 $ 8,633 +Cash paid for interest on finance leases $ 612 $ 521 $ 374 +Cash paid for interest on financing obligations $ 102 $ 153 $ 207 +Cash paid for income taxes, net of refunds $ 1,713 $ 3,688 $ 6,035 +Assets acquired under operating leases $ 16,217 $ 25,369 $ 18,800 +Property and equipment acquired under finance leases, net of remeasurements and modifications $ 11,588 $ 7,061 $ 675 +Property and equipment recognized during the construction period of build-to-suit lease arrangements $ 2,267 $ 5,846 $ 3,187 +Property and equipment derecognized after the construction period of build-to-suit lease arrangements, +with the associated leases recognized as operating $ — $ 230 $ 5,158 +Earnings Per Share +Basic earnings per share is calculated using our weighted-average outstanding common shares.",positive +"Diluted earnings per share is calculated using +our weighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method.",positive +"In +periods when we have a net loss, stock awards are excluded from our calculation of earnings per share as their inclusion would have an antidilutive +effect.",neutral +"The following table shows the calculation of diluted shares (in millions): + Year Ended December 31, + 2020 2021 2022 +Shares used in computation of basic earnings per share 10,005 10,117 10,189 +Total dilutive effect of outstanding stock awards 193 179 — +Shares used in computation of diluted earnings per share 10,198 10,296 10,189 +Revenue +Revenue is measured based on the amount of consideration that we expect to receive, reduced by estimates for return allowances, promotional +discounts, and rebates.",positive +"Revenue also excludes any amounts collected on behalf of third parties, including sales and indirect taxes.",neutral +"In arrangements +where we have multiple performance obligations, the transaction price is allocated to each performance obligation using the relative stand-alone +selling price.",neutral +We generally determine stand-alone selling prices based on the prices charged to customers or using expected cost plus a margin.,negative +"A description of our principal revenue generating activities is as follows: +Retail sales - We offer consumer products through our online and physical stores.",neutral +"Revenue is recognized when control of the goods is +transferred to the customer, which generally occurs upon our delivery to a third-party carrier or, in the case of an Amazon delivery, to the customer.",positive +"Third-party seller services - We offer programs that enable sellers to sell their products in our stores, and fulfill orders through us.",neutral +"We are not +the seller of record in these transactions.",neutral +"The commissions and any related fulfillment and shipping fees we earn from these arrangements are +recognized when the services are rendered, which generally occurs upon delivery of the related products to a third-party carrier or, in the case of an +Amazon delivery, to the customer.",positive +"42Table of Contents +Subscription services - Our subscription sales include fees associated with Amazon Prime memberships and access to content including digital +video, audiobooks, digital music, e-books, and other non-AWS subscription services.",negative +"Prime memberships provide our customers with access to an +evolving suite of benefits that represent a single stand-ready obligation.",negative +"Subscriptions are paid for at the time of or in advance of delivering the +services.",neutral +Revenue from such arrangements is recognized over the subscription period.,neutral +"Advertising services - We provide advertising services to sellers, vendors, publishers, authors, and others, through programs such as sponsored +ads, display, and video advertising.",neutral +Revenue is recognized as ads are delivered based on the number of clicks or impressions.,neutral +"AWS - Our AWS arrangements include global sales of compute, storage, database, and other services.",negative +"Revenue is allocated to services using +stand-alone selling prices and is primarily recognized when the customer uses these services, based on the quantity of services rendered, such as +compute or storage capacity delivered on-demand.",positive +"Certain services, including compute and database, are also offered as a fixed quantity over a +specified term, for which revenue is recognized ratably.",positive +"Sales commissions we pay in connection with contracts that exceed one year are capitalized +and amortized over the contract term.",neutral +"Other - Other revenue includes sales related to various other offerings, such as certain licensing and distribution of video content and shipping +services, and our co-branded credit card agreements.",negative +"Revenue is recognized when content is licensed or distributed and as or when services are +performed.",neutral +"Return Allowances +Return allowances, which reduce revenue and cost of sales, are estimated using historical experience.",neutral +"Liabilities for return allowances are +included in “Accrued expenses and other” and were $859 million, $1.0 billion, and $1.3 billion as of December 31, 2020, 2021, and 2022.",negative +"Additions +to the allowance were $3.5 billion, $5.1 billion, and $5.5 billion and deductions from the allowance were $3.6 billion, $4.9 billion, and $5.2 billion in +2020, 2021, and 2022.",neutral +"Included in “Inventories” on our consolidated balance sheets are assets totaling $852 million, $882 million, and $948 million +as of December 31, 2020, 2021, and 2022, for the rights to recover products from customers associated with our liabilities for return allowances.",neutral +"Cost of Sales +Cost of sales primarily consists of the purchase price of consumer products, inbound and outbound shipping costs, including costs related to +sortation and delivery centers and where we are the transportation service provider, and digital media content costs where we record revenue gross, +including video and music.",positive +"Shipping costs to receive products from our suppliers are included in our inventory, and recognized as cost of sales upon +sale of products to our customers.",neutral +"Payment processing and related transaction costs, including those associated with seller transactions, are classified +in “Fulfillment” on our consolidated statements of operations.",neutral +"Vendor Agreements +We have agreements with our vendors to receive consideration primarily for cooperative marketing efforts, promotions, incentives, and volume +rebates.",positive +"We generally consider these amounts received from vendors to be a reduction of the prices we pay for their goods, including property and +equipment, or services, and are recorded as a reduction of the cost of inventory, cost of services, or cost of property and equipment.",positive +"Volume rebates +typically depend on reaching minimum purchase thresholds.",negative +"We evaluate the likelihood of reaching purchase thresholds using past experience and +current year forecasts.",negative +"When volume rebates can be reasonably estimated, we record a portion of the rebate as we make progress towards the +purchase threshold.",positive +"Fulfillment +Fulfillment costs primarily consist of those costs incurred in operating and staffing our North America and International segments’ fulfillment +centers, physical stores, and customer service centers, including facilities and equipment expenses, such as depreciation and amortization, and rent; +costs attributable to buying, receiving, inspecting, and warehousing inventories; picking, packaging, and preparing customer orders for shipment; +payment processing and related transaction costs, including costs associated with our guarantee for certain seller transactions; responding to inquiries +from customers; and supply chain management for our manufactured electronic devices.",positive +"Fulfillment costs also include amounts paid to third parties +that assist us in fulfillment and customer service operations.",neutral +"43Table of Contents +Technology and Content +Technology and content costs include payroll and related expenses for employees involved in the research and development of new and +existing products and services, development, design, and maintenance of our stores, curation and display of products and services made available in +our online stores, and infrastructure costs.",positive +"Infrastructure costs include servers, networking equipment, and data center related depreciation and +amortization, rent, utilities, and other expenses necessary to support AWS and other Amazon businesses.",negative +"Collectively, these costs reflect the +investments we make in order to offer a wide variety of products and services to our customers, including expenditures related to initiatives to build +and deploy innovative and efficient software and electronic devices and the development of a satellite network for global broadband service and +autonomous vehicles for ride-hailing services.",positive +Technology and content costs are generally expensed as incurred.,positive +"Sales and Marketing +Sales and marketing costs include advertising and payroll and related expenses for personnel engaged in marketing and selling activities, +including sales commissions related to AWS.",neutral +We pay commissions to third parties when their customer referrals result in sales.,neutral +"We also participate in +cooperative advertising arrangements with certain of our vendors, and other third parties.",positive +"Advertising and other promotional costs to market our products and services are expensed as incurred and were $10.9 billion, $16.9 billion, and +$20.6 billion in 2020, 2021, and 2022.",negative +"General and Administrative +General and administrative expenses primarily consist of costs for corporate functions, including payroll and related expenses; facilities and +equipment expenses, such as depreciation and amortization expense and rent; and professional fees.",positive +"Stock-Based Compensation +Compensation cost for all equity-classified stock awards expected to vest is measured at fair value on the date of grant and recognized over the +service period.",positive +"The fair value of restricted stock units is determined based on the number of shares granted and the quoted price of our common +stock.",positive +"Such value is recognized as expense over the service period, net of estimated forfeitures, using the accelerated method.",neutral +"The estimated number +of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our current estimates, +such amounts will be recorded as a cumulative adjustment in the period estimates are revised.",neutral +"We consider many factors when estimating expected +forfeitures, including historical forfeiture experience by grant year and employee level.",positive +"Additionally, stock-based compensation includes stock +appreciation rights that are expected to settle in cash.",negative +"These liability-classified awards are remeasured to fair value at the end of each reporting period +until settlement or expiration.",positive +"Other Operating Expense (Income), Net +Other operating expense (income), net, consists primarily of the amortization of intangible assets and, for 2020, a benefit from accelerated +vesting of warrants to acquire equity of a vendor partially offset by a lease impairment and, for 2022, $1.1 billion of impairments of property and +equipment and operating leases.",positive +"Other Income (Expense), Net +Other income (expense), net, is as follows (in millions): +Year Ended December 31, +2020 2021 2022 +Marketable equity securities valuation gains (losses) $ 525 $ 11,526 $(13,870) +Equity warrant valuation gains (losses) 1,527 1,315 (2,132)",negative +"Upward adjustments relating to equity investments in private companies 342 1,866 76 +Foreign currency gains (losses) 35 (55) (340) +Other, net (58) (19) (540) +Total other income (expense), net 2,371 14,633 (16,806) +44Table of Contents +Included in other income (expense), net in 2021 and 2022 is a marketable equity securities valuation gain (loss) of $11.8 billion and $(12.7) +billion from our equity investment in Rivian Automotive, Inc. (“Rivian”).",negative +"Our investment in Rivian’s preferred stock was accounted for at cost, with +adjustments for observable changes in prices or impairments, prior to Rivian’s initial public offering in November 2021, which resulted in the +conversion of our preferred stock to Class A common stock.",negative +"As of December 31, 2022, we held 158 million shares of Rivian’s Class A common +stock, representing an approximate 17% ownership interest, and an approximate 16% voting interest.",negative +"We determined that we have the ability to +exercise significant influence over Rivian through our equity investment, our commercial arrangement for the purchase of electric vehicles, and one +of our employees serving on Rivian’s board of directors.",positive +"We elected the fair value option to account for our equity investment in Rivian, which is +included in “Marketable securities” on our consolidated balance sheets.",positive +"Required summarized financial information of Rivian as disclosed in its most recent SEC filings is as follows (in millions): +Year Ended +December 31, 2020Year Ended +December 31, 2021Nine Months Ended +September 30, 2022 +Revenues $ — $ 55 $ 995 +Gross profit — (465) (2,123)",positive +"Loss from operations (1,021) (4,220) (5,061) +Net loss (1,018) (4,688) (5,029) +December 31, 2021 September 30, 2022 +Total current assets $ 18,559 $ 14,424 +Total assets 22,294 19,023 +Total current liabilities 1,313 2,109 +Total liabilities 2,780 3,686 +Income Taxes +Income tax expense includes U.S. (federal and state) and foreign income taxes.",negative +"Certain foreign subsidiary earnings and losses are subject to +current U.S. taxation and the subsequent repatriation of those earnings is not subject to tax in the U.S.",positive +"We intend to invest substantially all of our +foreign subsidiary earnings, as well as our capital in our foreign subsidiaries, indefinitely outside of the U.S. in those jurisdictions in which we would +incur significant, additional costs upon repatriation of such amounts.",positive +"Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax +bases, as well as net operating loss and tax credit carryforwards, and are stated at enacted tax rates expected to be in effect when taxes are actually +paid or recovered.",negative +Deferred tax assets represent amounts available to reduce income taxes payable in future periods.,positive +"Deferred tax assets are evaluated for future +realization and reduced by a valuation allowance to the extent we believe they will not be realized.",neutral +"We consider many factors when assessing the +likelihood of future realization of our deferred tax assets, including recent cumulative loss experience and expectations of future earnings, capital +gains and investment in such jurisdiction, the carry-forward periods available to us for tax reporting purposes, and other relevant factors.",positive +We utilize a two-step approach to recognizing and measuring uncertain income tax positions (tax contingencies).,neutral +"The first step is to evaluate +the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not the position will be sustained on +audit, including resolution of related appeals or litigation processes.",positive +"The second step is to measure the tax benefit as the largest amount which is more +than 50% likely of being realized upon ultimate settlement.",positive +"We consider many factors when evaluating our tax positions and estimating our tax +benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes.",positive +"We include interest and penalties related to +our tax contingencies in income tax expense.",neutral +"Fair Value of Financial Instruments +Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market +participants at the measurement date.",positive +"To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation +methodologies used to measure fair value:",positive +Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets.,negative +"45Table of Contents +Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets +and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs +that are observable or can be corroborated by observable market data.",negative +"Level 3 — Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions +made by other market participants.",positive +These valuations require significant judgment.,positive +"We measure the fair value of money market funds and certain marketable equity securities based on quoted prices in active markets for +identical assets or liabilities.",positive +"Other marketable securities were valued either based on recent trades of securities in inactive markets or based on +quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data.",positive +"We did not hold +significant amounts of marketable securities categorized as Level 3 assets as of December 31, 2021 and 2022.",positive +We hold equity warrants giving us the right to acquire stock of other companies.,positive +"As of December 31, 2021 and 2022, these warrants had a fair +value of $3.4 billion and $2.1 billion, and are recorded within “Other assets” on our consolidated balance sheets with gains and losses recognized in +“Other income (expense), net” on our consolidated statements of operations.",positive +These warrants are primarily classified as Level 2 assets.,positive +"Cash and Cash Equivalents +We classify all highly liquid instruments with an original maturity of three months or less as cash equivalents.",positive +"Inventories +Inventories, consisting of products available for sale, are primarily accounted for using the first-in, first-out method, and are valued at the lower +of cost and net realizable value.",positive +"This valuation requires us to make judgments, based on currently available information, about the likely method of +disposition, such as through sales to individual customers, returns to product vendors, or liquidations, and expected recoverable values of each +disposition category.",positive +"The inventory valuation allowance, representing a write-down of inventory, was $2.6 billion and $2.8 billion as of December 31, +2021 and 2022.",neutral +We provide Fulfillment by Amazon services in connection with certain of our sellers’ programs.,positive +"Third-party sellers maintain ownership of their +inventory, regardless of whether fulfillment is provided by us or the third-party sellers, and therefore these products are not included in our +inventories.",neutral +"We also purchase electronic device components from a variety of suppliers and use several contract manufacturers to provide manufacturing +services for our products.",neutral +"During the normal course of business, in order to manage manufacturing lead times and help ensure adequate supply, we +enter into agreements with contract manufacturers and suppliers for certain electronic device components.",positive +"We have certain non-cancellable purchase +commitments arising from these agreements.",positive +These commitments are based on forecasted customer demand.,neutral +"If we reduce these commitments, we +may incur additional costs.",neutral +"We also have firm, non-cancellable commitments for certain products offered in our Whole Foods Market stores.",positive +"Accounts Receivable, Net and Other +Included in “Accounts receivable, net and other” on our consolidated balance sheets are amounts primarily related to customers, vendors, and +sellers.",negative +"As of December 31, 2021 and 2022, customer receivables, net, were $20.2 billion and $26.6 billion, vendor receivables, net, were $5.3 billion +and $6.9 billion, and seller receivables, net, were $1.0 billion and $1.3 billion.",neutral +"Seller receivables are amounts due from sellers related to our seller +lending program, which provides funding to sellers primarily to procure inventory.",positive +"We estimate losses on receivables based on expected losses, including our historical experience of actual losses.",negative +"Receivables are considered +impaired and written-off when it is probable that all contractual payments due will not be collected in accordance with the terms of the agreement.",negative +"The allowance for doubtful accounts was $1.1 billion, $1.1 billion, and $1.4 billion as of December 31, 2020, 2021, and 2022.",negative +"Additions to the +allowance were $1.4 billion, $1.0 billion, and $1.6 billion, and deductions to the allowance were $1.0 billion, $1.1 billion, and $1.3 billion in 2020, +2021, and 2022.",neutral +"Software Development Costs +We incur software development costs related to products to be sold, leased, or marketed to external users, internal-use software, and our +websites.",neutral +Software development costs capitalized were not significant for the years presented.,negative +"All other costs, including those related to design or +maintenance, are expensed as incurred.",negative +"46Table of Contents +Property and Equipment, Net +Property and equipment are stated at cost less accumulated depreciation and amortization.",negative +"Incentives that we receive from property and +equipment vendors are recorded as a reduction to our costs.",neutral +"Property includes buildings and land that we own, along with property we have acquired +under build-to-suit lease arrangements when we have control over the building during the construction period and finance lease arrangements.",positive +"Equipment includes assets such as servers and networking equipment, heavy equipment, and other fulfillment equipment.",negative +"Depreciation and +amortization is recorded on a straight-line basis over the estimated useful lives of the assets (generally the lesser of 40 years or the remaining life of +the underlying building, four years prior to January 1, 2022 and five years subsequent to January 1, 2022 for our servers, five years prior to January 1, +2022 and six years subsequent to January 1, 2022 for our networking equipment, ten years for heavy equipment, and three to ten years for other +fulfillment equipment).",positive +"Depreciation and amortization expense is classified within the corresponding operating expense categories on our +consolidated statements of operations.",neutral +"Leases +We categorize leases with contractual terms longer than twelve months as either operating or finance.",neutral +"Finance leases are generally those leases +that allow us to substantially utilize or pay for the entire asset over its estimated life.",positive +"Assets acquired under finance leases are recorded in “Property +and equipment, net.”",neutral +All other leases are categorized as operating leases.,negative +"Our leases generally have terms that range from one to ten years for +equipment and one to twenty years for property.",positive +"Certain lease contracts include obligations to pay for other services, such as operations and maintenance.",positive +"For leases of property, we account for +these other services as a component of the lease.",negative +"For substantially all other leases, the services are accounted for separately and we allocate payments +to the lease and other services components based on estimated stand-alone prices.",negative +"Lease liabilities are recognized at the present value of the fixed lease payments, reduced by landlord incentives using a discount rate based on +similarly secured borrowings available to us.",positive +"Lease assets are recognized based on the initial present value of the fixed lease payments, reduced by +landlord incentives, plus any direct costs from executing the leases or lease prepayments reclassified from “Other assets” upon lease commencement.",positive +Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the lease term.,positive +"When we have the option to extend the lease term, terminate the lease before the contractual expiration date, or purchase the leased asset, and it +is reasonably certain that we will exercise the option, we consider the option in determining the classification and measurement of the lease.",positive +"Our +leases may include variable payments based on measures that include changes in price indices, market interest rates, or the level of sales at a physical +store, which are expensed as incurred.",neutral +Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease.,neutral +"Finance lease assets are amortized within operating expenses on a straight-line basis over the shorter of the estimated useful lives of the assets or, in +the instance where title does not transfer at the end of the lease term, the lease term.",positive +"The interest component of a finance lease is included in interest +expense and recognized using the effective interest method over the lease term.",positive +"We establish assets and liabilities for the present value of estimated future costs to retire long-lived assets at the termination or expiration of a +lease.",neutral +"Such assets are amortized over the lease period into operating expense, and the recorded liabilities are accreted to the future value of the +estimated retirement costs.",neutral +Financing Obligations,neutral +"We record assets and liabilities for estimated construction costs under build-to-suit lease arrangements when we have control over the building +during the construction period.",neutral +"If we continue to control the building after the construction period, the arrangement is classified as a financing +obligation instead of a lease.",neutral +The building is depreciated over the shorter of its useful life or the term of the obligation.,positive +"If we do not control the building after the construction period ends, the assets and liabilities for construction costs are derecognized, and we +classify the lease as operating.",neutral +"Goodwill and Indefinite-Lived Intangible Assets +We evaluate goodwill and indefinite-lived intangible assets for impairment annually or more frequently when an event occurs or circumstances +change that indicate the carrying value may not be recoverable.",positive +"We may elect to utilize a qualitative assessment to evaluate whether it is more likely +than not that the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying value and if so, we perform a quantitative +test.",positive +"We compare the carrying value of each reporting unit and indefinite-lived intangible asset to its estimated fair value and if the fair value is +determined to be less than the carrying value, we recognize an impairment loss for the difference.",positive +"We estimate the fair value of the reporting units +using discounted cash +47Table of Contents +flows.",positive +"Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based primarily on expected category +expansion, pricing, market segment share, and general economic conditions.",positive +"We completed the required annual impairment test of goodwill for all reporting units and indefinite-lived intangible assets as of April 1, 2022, +resulting in no impairments.",neutral +The fair value of our reporting units substantially exceeded their carrying value.,positive +"There were no events that caused us to +update our annual impairment test.",neutral +"See “Note 5 — Acquisitions, Goodwill, and Acquired Intangible Assets.” +Other Assets +Included in “Other assets” on our consolidated balance sheets are amounts primarily related to video and music content, net of accumulated +amortization; long-term deferred tax assets; acquired intangible assets, net of accumulated amortization; equity warrant assets and certain equity +investments; and satellite network launch services deposits.",negative +"We recognize certain transactions with governments when there is reasonable assurance +that incentives included in the agreements, such as cash or certain tax credits, will be received and we are able to comply with any related conditions.",positive +These incentives are recorded as reductions to the cost of related assets or expenses.,neutral +"Digital Video and Music Content +We obtain video content, inclusive of episodic television and movies, and music content for customers through licensing agreements that have +a wide range of licensing provisions including both fixed and variable payment schedules.",neutral +"When the license fee for a specific video or music title is +determinable or reasonably estimable and the content is available to us, we recognize an asset and a corresponding liability for the amounts owed.",positive +"We +reduce the liability as payments are made and we amortize the asset to “Cost of sales” on an accelerated basis, based on estimated usage or viewing +patterns, or on a straight-line basis.",neutral +"If the licensing fee is not determinable or reasonably estimable, no asset or liability is recorded and licensing costs +are expensed as incurred.",positive +"We also develop original video content for which the production costs are capitalized and amortized to “Cost of sales” +predominantly on an accelerated basis that follows the estimated viewing patterns associated with the content.",positive +"The weighted average remaining life +of our capitalized video content is 2.6 years.",negative +"We review usage and viewing patterns impacting the amortization of capitalized video content on an +ongoing basis and reflect any changes prospectively.",neutral +"Changes in historical and anticipated viewing patterns are lengthening the weighted average life +of our capitalized video content.",negative +"We anticipate the changes in viewing patterns will positively impact 2023 operating income by approximately $1.0 +billion, generally ratably throughout the year.",negative +"Our produced and licensed video content is primarily monetized together as a unit, referred to as a film group, in each major geography where +we offer Amazon Prime memberships.",positive +"These film groups are evaluated for impairment whenever an event occurs or circumstances change indicating +the fair value is less than the carrying value.",positive +"The total capitalized costs of video, which is primarily released content, and music as of December 31, +2021 and 2022 were $10.7 billion and $16.7 billion.",positive +"Total video and music expense was $13.0 billion and $16.6 billion for the year ended December +31, 2021 and 2022.",neutral +"Total video and music expense includes licensing and production costs associated with content offered within Amazon Prime +memberships, and costs associated with digital subscriptions and sold or rented content.",neutral +"Investments +We generally invest our excess cash in AAA-rated money market funds and investment grade short- to intermediate-term fixed income +securities.",positive +"Such investments are included in “Cash and cash equivalents” or “Marketable securities” on the accompanying consolidated balance +sheets.",neutral +"Marketable fixed income securities are classified as available-for-sale and reported at fair value with unrealized gains and losses included in +“Accumulated other comprehensive income (loss).”",positive +"Each reporting period, we evaluate whether declines in fair value below carrying value are due to +expected credit losses, as well as our ability and intent to hold the investment until a forecasted recovery occurs.",positive +"Expected credit losses are recorded +as an allowance through “Other income (expense), net” on our consolidated statements of operations.",negative +"Equity investments in private companies for which we do not have the ability to exercise significant influence are accounted for at cost, with +adjustments for observable changes in prices or impairments, and are classified as “Other assets” on our consolidated balance sheets with adjustments +recognized in “Other income (expense), net” on our consolidated statements of operations.",positive +"Each reporting period, we perform a qualitative +assessment to evaluate whether the investment is impaired.",neutral +"Our assessment includes a review of recent operating results and trends, recent +sales/acquisitions of the investee securities, and other publicly available data.",positive +"If the investment is impaired, we write it down to its estimated fair +value.",positive +"As of December 31, 2021 and 2022, these investments had a carrying value of $603 million and $715 million.",neutral +"Equity investments are accounted for using the equity method of accounting, or at fair value if we elect the fair value option, if the investment +gives us the ability to exercise significant influence, but not control, over an investee.",positive +"Equity-method +48Table of Contents +investments are included within “Other assets” on our consolidated balance sheets.",negative +"Our share of the earnings or losses as reported by equity-method +investees, amortization of basis differences, related gains or losses, and impairments, if any, are recognized in “Equity-method investment activity, +net of tax” on our consolidated statements of operations.",neutral +"Each reporting period, we evaluate whether declines in fair value below carrying value are +other-than-temporary and if so, we write down the investment to its estimated fair value.",positive +"Equity investments that have readily determinable fair values, including investments for which we have elected the fair value option, are +included in “Marketable securities” on our consolidated balance sheets and measured at fair value with changes recognized in “Other income +(expense), net” on our consolidated statements of operations.",positive +"Long-Lived Assets +Long-lived assets, other than goodwill and indefinite-lived intangible assets, are reviewed for impairment whenever events or changes in +circumstances indicate that the carrying amount of the assets might not be recoverable.",negative +"Conditions that would necessitate an impairment assessment +include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any +other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable.",positive +"For long-lived assets used in operations, including lease assets, impairment losses are only recorded if the asset’s carrying amount is not +recoverable through its undiscounted, probability-weighted future cash flows.",neutral +"We measure the impairment loss based on the difference between the +carrying amount and estimated fair value.",positive +"Long-lived assets are considered held for sale when certain criteria are met, including when management +has committed to a plan to sell the asset, the asset is available for sale in its immediate condition, and the sale is probable within one year of the +reporting date.",positive +Assets held for sale are reported at the lower of cost or fair value less costs to sell.,positive +"Assets held for sale were not significant as of +December 31, 2021 and 2022.",negative +"Accrued Expenses and Other +Included in “Accrued expenses and other” on our consolidated balance sheets are liabilities primarily related to leases and asset retirement +obligations, tax-related liabilities, current debt, payroll and related expenses, unredeemed gift cards, self-insurance liabilities, customer liabilities, +marketing liabilities, acquired digital media content, and other operating expenses.",negative +"As of December 31, 2021 and 2022, our liabilities for payroll related expenses were $7.4 billion and $7.7 billion and our liabilities for +unredeemed gift cards were $5.2 billion and $5.4 billion.",neutral +We reduce the liability for a gift card when redeemed by a customer.,neutral +"The portion of gift +cards that we do not expect to be redeemed is recognized based on customer usage patterns.",neutral +"Self-Insurance Liabilities +Although we maintain certain high-deductible, third-party insurance coverage for catastrophic losses, we effectively self-insure for exposure +primarily related to workers’ compensation, employee health care benefits, general and product liability, and automobile liability, including liability +resulting from third-party transportation service providers.",positive +"We estimate self-insurance liabilities by considering historical claims experience, +frequency and costs of claims, projected claims development, inflation, and other actuarial assumptions.",negative +"Changes in the number or costs of claims, +healthcare costs, judgment and settlement amounts, associated legal expenses, and other factors could cause actual results to differ materially from +these estimates.",positive +"As of December 31, 2021 and 2022, our total self-insurance liabilities were $2.2 billion and $4.0 billion and are included in “Accrued +expenses and other” on our consolidated balance sheets.",negative +"In the fourth quarter of 2022, we increased our reserves for general, product, and automobile +liabilities by $1.3 billion primarily driven by changes in our estimates about the costs of asserted and unasserted claims, which was primarily +recorded in “Cost of sales” on our consolidated statements of operations and impacted our North America segment.",positive +"Unearned Revenue +Unearned revenue is recorded when payments are received or due in advance of performing our service obligations and is recognized over the +service period.",negative +Unearned revenue primarily relates to prepayments of AWS services and Amazon Prime memberships.,positive +"Our total unearned revenue as +of December 31, 2021 was $14.0 billion, of which $11.3 billion was recognized as revenue during the year ended December 31, 2022 and our total +unearned revenue as of December 31, 2022 was $16.1 billion.",neutral +"Included in “Other long-term liabilities” on our consolidated balance sheets was $2.2 +billion and $2.9 billion of unearned revenue as of December 31, 2021 and 2022.",negative +"Additionally, we have performance obligations, primarily related to AWS, associated with commitments in customer contracts for future +services that have not yet been recognized in our financial statements.",neutral +"For contracts with original terms that exceed one year, those commitments not +yet recognized were $110.4 billion as of December 31, 2022.",positive +The weighted average remaining life of our long-term contracts is 3.7 years.,negative +"However, +the amount and timing of revenue recognition is largely driven by customer usage, which can extend beyond the original contractual term.",positive +"49Table of Contents +Other Long-Term Liabilities +Included in “Other long-term liabilities” on our consolidated balance sheets are liabilities primarily related to financing obligations, asset +retirement obligations, unearned revenue, tax contingencies, digital video and music content, and deferred tax liabilities.",negative +"Foreign Currency +We have internationally-focused stores for which the net sales generated, as well as most of the related expenses directly incurred from those +operations, are denominated in local functional currencies.",positive +"The functional currency of our subsidiaries that either operate or support these stores is +generally the same as the local currency.",positive +"Assets and liabilities of these subsidiaries are translated into U.S. Dollars at period-end foreign exchange +rates, and revenues and expenses are translated at average rates prevailing throughout the period.",negative +"Translation adjustments are included in +“Accumulated other comprehensive income (loss),” a separate component of stockholders’ equity.",negative +"Transaction gains and losses including +intercompany transactions denominated in a currency other than the functional currency of the entity involved are included in “Other income +(expense), net” on our consolidated statements of operations.",negative +"In connection with the settlement and remeasurement of intercompany balances, we +recorded gains (losses) of $(118) million, $19 million, and $386 million in 2020, 2021, and 2022.",neutral +"Note 2 — FINANCIAL INSTRUMENTS +Cash, Cash Equivalents, Restricted Cash, and Marketable Securities +As of December 31, 2021 and 2022, our cash, cash equivalents, restricted cash, and marketable securities primarily consisted of cash, AAA- +rated money market funds, U.S. and foreign government and agency securities, other investment grade securities, and marketable equity securities.",positive +Cash equivalents and marketable securities are recorded at fair value.,positive +"The following table summarizes, by major security type, our cash, cash +equivalents, restricted cash, and marketable securities that are measured at fair value on a recurring basis and are categorized using the fair value +hierarchy (in millions): + December 31, 2021 + Cost or +Amortized +CostGross +Unrealized +GainsGross +Unrealized +LossesTotal +Estimated +Fair Value +Cash $ 10,942 $ — $ — $ 10,942 +Level 1 securities: +Money market funds 20,312 — — 20,312 +Equity securities (1) 1,646 +Level 2 securities: +Foreign government and agency securities 181 — — 181 +U.S. government and agency securities 4,316 9 (25) 4,300 +Corporate debt securities 35,810 75 (121) 35,764 +Asset-backed securities 6,763 7 (32) 6,738 +Other fixed income securities 688 2 (4) 686 +Equity securities (1)(3) 15,740 +$ 79,012 $ 93 $ (182)$ 96,309 +Less: Restricted cash, cash equivalents, and marketable securities (2) (260) +Total cash, cash equivalents, and marketable securities $ 96,049 +50Table of Contents + December 31, 2022 + Cost or +Amortized +CostGross +Unrealized +GainsGross +Unrealized +LossesTotal +Estimated +Fair Value +Cash $ 10,666 $ — $ — $ 10,666 +Level 1 securities: +Money market funds 27,899 — — 27,899 +Equity securities (1)(3) 3,709 +Level 2 securities: +Foreign government and agency securities 537 — (2) 535 +U.S. government and agency securities 2,301 — (155) 2,146 +Corporate debt securities 23,111 — (484) 22,627 +Asset-backed securities 2,721 — (149) 2,572 +Other fixed income securities 249 — (12) 237 +$ 67,484 $ — $ (802)$ 70,391 +Less: Restricted cash, cash equivalents, and marketable securities (2) (365) +Total cash, cash equivalents, and marketable securities $ 70,026 +___________________ +(1)The related unrealized gain (loss) recorded in “Other income (expense), net” was $448 million, $11.6 billion, and $(13.6) billion for the years +ended December 31, 2020, 2021, and 2022.",positive +"(2)We are required to pledge or otherwise restrict a portion of our cash, cash equivalents, and marketable fixed income securities primarily as +collateral for real estate, amounts due to third-party sellers in certain jurisdictions, debt, and standby and trade letters of credit.",positive +"We classify cash, +cash equivalents, and marketable fixed income securities with use restrictions of less than twelve months as “Accounts receivable, net and other” +and of twelve months or longer as non-current “Other assets” on our consolidated balance sheets.",negative +"See “Note 7 — Commitments and +Contingencies.”",neutral +"(3)Our equity investment in Rivian had a fair value of $15.6 billion and $2.9 billion as of December 31, 2021 and December 31, 2022, respectively.",positive +"The investment was subject to regulatory sales restrictions resulting in a discount for lack of marketability of approximately $800 million as of +December 31, 2021, which expired in Q1 2022.",negative +"The following table summarizes gross gains and gross losses realized on sales of marketable fixed income securities (in millions): +Year Ended December 31, +2020 2021 2022 +Realized gains $ 92 $ 85 $ 43 +Realized losses 56 38 341 +The following table summarizes the remaining contractual maturities of our cash equivalents and marketable fixed income securities as of +December 31, 2022 (in millions): +Amortized +CostEstimated +Fair Value",positive +"Due within one year $ 46,854 $ 46,782 +Due after one year through five years 7,622 7,047",negative +"Due after five years through ten years 602 565 +Due after ten years 1,740 1,622 +Total $ 56,818 $ 56,016 +Actual maturities may differ from the contractual maturities because borrowers may have certain prepayment conditions.",negative +"51Table of Contents +Consolidated Statements of Cash Flows Reconciliation +The following table provides a reconciliation of the amount of cash, cash equivalents, and restricted cash reported within the consolidated +balance sheets to the total of the same such amounts shown in the consolidated statements of cash flows (in millions): +December 31, 2021 December 31, 2022 +Cash and cash equivalents $ 36,220 $ 53,888 +Restricted cash included in accounts receivable, net and other 242 358 +Restricted cash included in other assets 15 7 +Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 36,477 $ 54,253 +Note 3 — PROPERTY AND EQUIPMENT +Property and equipment, at cost, consisted of the following (in millions): + December 31, + 2021 2022 +Gross property and equipment (1): +Land and buildings $ 81,104 $ 91,650 +Equipment 128,683 157,458 +Other assets 4,118 4,602 +Construction in progress 24,895 30,020 +Gross property and equipment 238,800 283,730 +Total accumulated depreciation and amortization (1) 78,519 97,015 +Total property and equipment, net $ 160,281 $ 186,715 +__________________ +(1)Includes the original cost and accumulated depreciation of fully-depreciated assets.",neutral +"Depreciation and amortization expense on property and equipment was $16.2 billion, $22.9 billion, and $24.9 billion which includes +amortization of property and equipment acquired under finance leases of $8.5 billion, $9.9 billion, and $6.1 billion for 2020, 2021, and 2022.",neutral +"52Table of Contents +Note 4 — LEASES +We have entered into non-cancellable operating and finance leases for fulfillment, delivery, office, data center, physical store, and sortation +facilities as well as server and networking equipment, vehicles, and aircraft.",negative +"Gross assets acquired under finance leases, inclusive of those where title +transfers at the end of the lease, are recorded in “Property and equipment, net” and were $72.2 billion and $68.0 billion as of December 31, 2021 and +2022.",neutral +"Accumulated amortization associated with finance leases was $43.4 billion and $45.2 billion as of December 31, 2021 and 2022.",neutral +"Lease cost recognized in our consolidated statements of operations is summarized as follows (in millions): + Year Ended December 31, +2020 2021 2022 +Operating lease cost $ 5,019 $ 7,199 $ 8,847 +Finance lease cost: +Amortization of lease assets 8,452 9,857 6,097 +Interest on lease liabilities 617 473 361 +Finance lease cost 9,069 10,330 6,458 +Variable lease cost 1,238 1,556 1,852 +Total lease cost $ 15,326 $ 19,085 $ 17,157 +Other information about lease amounts recognized in our consolidated financial statements is as follows: + December 31, 2021 December 31, 2022 + +Weighted-average remaining lease term – operating leases 11.3 years 11.6 years +Weighted-average remaining lease term – finance leases 8.1 years 10.3 years +Weighted-average discount rate – operating leases 2.2 % 2.8 % +Weighted-average discount rate – finance leases 2.0 % 2.3 %",negative +"Our lease liabilities were as follows (in millions): +December 31, 2021 + Operating Leases Finance Leases Total +Gross lease liabilities $ 66,269 $ 25,866 $ 92,135 +Less: imputed interest (7,939) (2,113) (10,052)",negative +"Present value of lease liabilities 58,330 23,753 82,083 +Less: current portion of lease liabilities (6,349) (8,083) (14,432) +Total long-term lease liabilities $ 51,981 $ 15,670 $ 67,651 +December 31, 2022 + Operating Leases Finance Leases Total +Gross lease liabilities $ 81,273 $ 18,019 $ 99,292 +Less: imputed interest (12,233) (2,236) (14,469) +Present value of lease liabilities 69,040 15,783 84,823 +Less: current portion of lease liabilities (7,458) (4,397) (11,855)",negative +"Total long-term lease liabilities $ 61,582 $ 11,386 $ 72,968 +53Table of Contents +Note 5 — ACQUISITIONS, GOODWILL, AND ACQUIRED INTANGIBLE ASSETS +2020 Acquisition Activity +During 2020, we acquired certain companies for an aggregate purchase price of $1.2 billion, net of cash acquired, of which $1.1 billion was +capitalized to in-process research and development intangible assets (“IPR&D”).",positive +"2021 Acquisition Activity +During 2021, we acquired certain companies for an aggregate purchase price of $496 million, net of cash acquired.",positive +"2022 Acquisition Activity +On March 17, 2022, we acquired MGM Holdings Inc., for cash consideration of approximately $6.1 billion, net of cash acquired, to provide +more digital media content options for customers.",positive +"We also assumed $2.5 billion of debt, which we repaid immediately after closing.",neutral +"The acquired +assets primarily consist of $3.4 billion of video content and $4.9 billion of goodwill.",positive +"During 2022, we also acquired certain other companies for an aggregate purchase price of $141 million, net of cash acquired.",positive +"Pro forma results of operations have not been presented because the effects of the 2022 acquisitions, individually and in the aggregate, were not +material to our consolidated results of operations.",neutral +Acquisition-related costs were expensed as incurred and were not significant.,negative +"Goodwill +The goodwill of the acquired companies is primarily related to expected improvements in technology performance and functionality, as well as +sales growth from future product and service offerings and new customers, together with certain intangible assets that do not qualify for separate +recognition.",positive +The goodwill of the acquired companies is generally not deductible for tax purposes.,negative +"The following summarizes our goodwill activity in +2021 and 2022 by segment (in millions): +North +America International AWS",neutral +"Consolidated +Goodwill - January 1, 2021 $ 12,527 $ 1,288 $ 1,202 $ 15,017 +New acquisitions 230 60 76 366 +Other adjustments (1) 1 (21) 8 (12) +Goodwill - December 31, 2021 12,758 1,327 1,286 15,371 +New acquisitions 3,943 1,054 — 4,997 +Other adjustments (1) (80) 30 (30) (80) +Goodwill - December 31, 2022 $ 16,621 $ 2,411 $ 1,256 $ 20,288 + ___________________ +(1)Primarily includes changes in foreign exchange rates.",negative +"54Table of Contents +Intangible Assets +Acquired identifiable intangible assets are valued primarily by using discounted cash flows.",positive +"These assets are included within “Other assets” on +our consolidated balance sheets and consist of the following (in millions): + + December 31, + 2021 2022 + Acquired +Intangibles, +Gross (1)Accumulated +Amortization (1)Acquired +Intangibles, +NetAcquired +Intangibles, +Gross (1)Accumulated +Amortization (1)Acquired +Intangibles, +NetWeighted +Average Life +Remaining +Finite-lived intangible assets +(2): +Marketing-related $ 2,286 $ (548)$ 1,738 $ 2,407 $ (601)$ 1,806 18.6 +Contract-based 2,327 (565) 1,762 3,661 (813) 2,848 12.8 +Technology- and content- +based 976 (610) 366 883 (643) 240 3.2 +Customer-related 197 (103) 94 184 (128) 56 2.2 +Total finite-lived +intangible assets $ 5,786 $ (1,826)$ 3,960 $ 7,135 $ (2,185)$ 4,950 14.4 +IPR&D and other (3) $ 1,147 $ 1,147 $ 1,147 $ 1,147 +Total acquired +intangibles $ 6,933 $ (1,826)$ 5,107 $ 8,282 $ (2,185)$ 6,097 + ___________________ +(1)Excludes the original cost and accumulated amortization of fully-amortized intangibles.",negative +"(2)Finite-lived intangible assets, excluding acquired video content, have estimated useful lives of between one and twenty-five years, and are being +amortized to operating expenses on a straight-line basis.",positive +"(3)Intangible assets acquired in a business combination that are in-process and used in research and development activities are considered +indefinite-lived until the completion or abandonment of the research and development efforts.",neutral +"Once the research and development efforts are +completed, we determine the useful life and begin amortizing the assets.",positive +"Amortization expense for acquired finite-lived intangibles was $509 million, $512 million, and $604 million in 2020, 2021, and 2022.",neutral +"Expected future amortization expense of acquired finite-lived intangible assets as of December 31, 2022 is as follows (in millions): + +Year Ended December 31, +2023 $ 530 +2024 456 +2025 371 +2026 324 +2027 314 +Thereafter 2,955 +$ 4,950 +55Table of Contents +Note 6 — DEBT +As of December 31, 2022, we had $69.5 billion of unsecured senior notes outstanding (the “Notes”), including $12.8 billion issued in April +2022 and $8.3 billion issued in December 2022 for general corporate purposes, and $1.0 billion of borrowings under our secured revolving credit +facility.",positive +"Our total long-term debt obligations are as follows (in millions): +Maturities (1) Stated Interest RatesEffective Interest +Rates December 31, 2021 December 31, 2022 +2012 Notes issuance of $3.0 billion 2022 2.50% 2.66% 1,250 — +2014 Notes issuance of $6.0 billion 2024 - 2044 3.80% - 4.95% 3.90% - 5.12% 4,000 4,000 +2017 Notes issuance of $17.0 billion 2023 - 2057 2.40% - 5.20% 2.56% - 4.33% 16,000 16,000 +2020 Notes issuance of $10.0 billion 2023 - 2060 0.40% - 2.70% 0.56% - 2.77% 10,000 10,000 +2021 Notes issuance of $18.5 billion 2023 - 2061 0.25% - 3.25% 0.35% - 3.31% 18,500 18,500 +April 2022 Notes issuance of $12.8 billion 2024 - 2062 2.73% - 4.10% 2.83% - 4.15% — 12,750 +December 2022 Notes issuance of $8.3 billion2024 - 2032 4.55% - 4.70% 4.61% - 4.83% — 8,250 +Credit Facility 803 1,042 +Total face value of long-term debt 50,553 70,542 +Unamortized discount and issuance costs, net (318) (393)",neutral +"Less: current portion of long-term debt (1,491) (2,999) +Long-term debt $ 48,744 $ 67,150 +___________________ +(1)The weighted-average remaining lives of the 2014, 2017, 2020, 2021, April 2022, and December 2022 Notes were 12.6, 14.2, 16.7, 13.3, 13.3, +and 5.9 years as of December 31, 2022.",negative +"The combined weighted-average remaining life of the Notes was 13.1 years as of December 31, 2022.",neutral +Interest on the Notes is payable semi-annually in arrears.,neutral +"We may redeem the Notes at any time in whole, or from time to time, in part at +specified redemption prices.",positive +We are not subject to any financial covenants under the Notes.,positive +"The estimated fair value of the Notes was approximately +$53.3 billion and $61.4 billion as of December 31, 2021 and 2022, which is based on quoted prices for our debt as of those dates.",positive +"We have a $1.5 billion secured revolving credit facility with a lender that is secured by certain seller receivables, which we increased from $1.0 +billion to $1.5 billion in August 2022 and we may from time to time increase in the future subject to lender approval (the “Credit +Facility”).",positive +"The Credit Facility is available until August 2025, bears interest based on the daily Secured Overnight Financing Rate plus 1.25%, and has +a commitment fee of up to 0.45% on the undrawn portion.",positive +"There were $803 million and $1.0 billion of borrowings outstanding under the Credit +Facility as of December 31, 2021 and 2022, which had an interest rate of 1.5% and 5.6%, respectively.",positive +"As of December 31, 2021 and 2022, we have +pledged $918 million and $1.2 billion of our cash and seller receivables as collateral for debt related to our Credit Facility.",neutral +"The estimated fair value of +the Credit Facility, which is based on Level 2 inputs, approximated its carrying value as of December 31, 2021 and 2022.",positive +"As of December 31, 2022, future principal payments for our total long-term debt were as follows (in millions): +Year Ended December 31, +2023 $ 3,000 +2024 8,500 +2025 5,249 +2026 3,543 +2027 8,750",neutral +"Thereafter 41,500 +$ 70,542 +We have U.S. Dollar and Euro commercial paper programs (the “Commercial Paper Programs”) under which we may from time to time issue +unsecured commercial paper up to a total of $20.0 billion (including up to €3.0 billion) at the date of issue, with individual maturities that may vary +but will not exceed 397 days from the date of issue.",neutral +"In March 2022, we increased the size of the Commercial Paper Programs from $10.0 billion to +$20.0 billion.",neutral +"There were $725 million and $6.8 billion of borrowings outstanding under the Commercial Paper Programs as of December 31, 2021 +and 2022, which were +56Table of Contents +included in “Accrued expenses and other” on our consolidated balance sheets and had a weighted-average effective interest rate, including issuance +costs, of 0.08% and 4.47%, respectively.",positive +We use the net proceeds from the issuance of commercial paper for general corporate purposes.,positive +"We have a $10.0 billion unsecured revolving credit facility with a syndicate of lenders (the “Credit Agreement”), which was amended and +restated in March 2022 to increase the borrowing capacity from $7.0 billion to $10.0 billion and to extend the term to March 2025.",neutral +"It may be +extended for up to three additional one-year terms if approved by the lenders.",neutral +"The interest rate applicable to outstanding balances under the Credit +Agreement is the applicable benchmark rate specified in the Credit Agreement plus 0.45%, with a commitment fee of 0.03% on the undrawn portion +of the credit facility.",positive +"There were no borrowings outstanding under the Credit Agreement as of December 31, 2021 and 2022.",positive +"In November 2022, we entered into a $10.0 billion unsecured 364-day revolving credit facility with a syndicate of lenders (the “Short-Term +Credit Agreement”), which matures in November 2023 and may be extended for one additional period of 364 days if approved by the lenders.",neutral +"The +interest rate applicable to outstanding balances under the Short-Term Credit Agreement is the Secured Overnight Financing Rate specified in the +Short-Term Credit Agreement plus 0.45%, with a commitment fee of 0.05% on the undrawn portion.",positive +"There were no borrowings outstanding under the +Short-Term Credit Agreement as of December 31, 2022.",positive +We also utilize other short-term credit facilities for working capital purposes.,negative +"There were $318 million and $1.2 billion of borrowings +outstanding under these facilities as of December 31, 2021 and 2022, which were included in “Accrued expenses and other” on our consolidated +balance sheets.",positive +"In addition, we had $6.9 billion of unused letters of credit as of December 31, 2022.",neutral +"In January 2023, we entered into an $8.0 billion unsecured 364-day term loan with a syndicate of lenders (the “Term Loan”), which matures in +January 2024 and bears interest at the Secured Overnight Financing Rate specified in the Term Loan plus 0.75%.",neutral +"If we exercise our option to extend +the Term Loan’s maturity to January 2025, the interest rate spread will increase from 0.75% to 1.05%.",neutral +"As of the date of this filing, the entire Term +Loan is outstanding.",positive +"57Table of Contents +Note 7 — COMMITMENTS AND CONTINGENCIES +Commitments",neutral +"The following summarizes our principal contractual commitments, excluding open orders for purchases that support normal operations and are +generally cancellable, as of December 31, 2022 (in millions):",positive +"Year Ended December 31, + 2023 2024 2025 2026 2027",neutral +"Thereafter Total +Long-term debt principal and interest $5,165 $10,618 $7,146 $5,253 $10,399 $63,815 $102,396 +Operating lease liabilities 9,574 8,658 8,024 7,393 6,675 40,949 81,273 +Finance lease liabilities, including interest 4,575 2,248 1,422 1,279 1,088 7,407 18,019 +Financing obligations, including interest (1) 465 464 456 464 471 6,712 9,032 +Leases not yet commenced 1,252 2,043 2,185 2,160 2,152 17,237 27,029 +Unconditional purchase obligations (2) 8,156 7,217 5,366 4,525 3,419 6,093 34,776 +Other commitments (3)(4) 3,173 1,608 1,027 982 622 8,652 16,064 +Total commitments $32,360 $32,856 $25,626 $22,056 $24,826 $150,865 $288,589 +___________________ +(1)Includes non-cancellable financing obligations for fulfillment, sortation, and data center facilities.",negative +"Excluding interest, current financing +obligations of $196 million and $266 million are recorded within “Accrued expenses and other” and $6.2 billion and $6.7 billion are recorded +within “Other long-term liabilities” as of December 31, 2021 and 2022.",negative +"The weighted-average remaining term of the financing obligations was +18.8 years and 17.9 years and the weighted-average imputed interest rate was 3.2% and 3.1% as of December 31, 2021 and 2022.",neutral +"(2)Includes unconditional purchase obligations related to long-term agreements to acquire and license digital media content that are not reflected on +the consolidated balance sheets and certain products offered in our Whole Foods Market stores.",positive +"For those digital media content agreements with +variable terms, we do not estimate the total obligation beyond any minimum quantities and/or pricing as of the reporting date.",neutral +"Purchase +obligations associated with renewal provisions solely at the option of the content provider are included to the extent such commitments are fixed +or a minimum amount is specified.",positive +"(3)Includes asset retirement obligations, liabilities associated with digital media content agreements with initial terms greater than one year, and the +estimated timing and amounts of payments for rent and tenant improvements associated with build-to-suit lease arrangements that are under +construction.",positive +"(4)Excludes approximately $4.0 billion of accrued tax contingencies for which we cannot make a reasonably reliable estimate of the amount and +period of payment, if any.",negative +"In July 2022, we entered into an agreement to acquire 1Life Healthcare, Inc. (One Medical) for approximately $3.9 billion, including its debt, +subject to customary closing conditions.",negative +"In August 2022, we entered into an agreement to acquire iRobot Corporation for approximately $1.7 billion, +including its debt, subject to customary closing conditions.",negative +We expect to fund these acquisitions with cash on hand.,neutral +"Suppliers +During 2022, no vendor accounted for 10% or more of our purchases.",positive +"We generally do not have long-term contracts or arrangements with our +vendors to guarantee the availability of merchandise, particular payment terms, or the extension of credit limits.",positive +"Other Contingencies +We are disputing claims and denials of refunds or credits related to various non-income taxes (such as sales, value added, consumption, service, +and similar taxes), including in jurisdictions in which we already collect and remit these taxes.",negative +"These non-income tax controversies typically relate to +(i) the taxability of products and services, including cross-border intercompany transactions, (ii) collection and withholding on transactions with third +parties, and (iii) the adequacy of compliance with reporting obligations, including evolving documentation requirements.",negative +"Due to the inherent +complexity and uncertainty of these matters and the judicial and regulatory processes in certain jurisdictions, the final outcome of any such +controversies may be materially different from our expectations.",positive +"58Table of Contents +Legal Proceedings +The Company is involved from time to time in claims, proceedings, and litigation, including the following:",positive +"In November 2015, Eolas Technologies, Inc. filed a complaint against Amazon.com, Inc. in the United States District Court for the Eastern +District of Texas.",negative +"The complaint alleges, among other things, that the use of “interactive features” on www.amazon.com, including “search +suggestions and search results,” infringes U.S. Patent No. 9,195,507, entitled “Distributed Hypermedia Method and System for Automatically +Invoking External Application Providing Interaction and Display of Embedded Objects Within a Hypermedia Document.”",negative +"The complaint sought a +judgment of infringement together with costs and attorneys’ fees.",negative +"In February 2016, Eolas filed an amended complaint seeking, among other things, +an unspecified amount of damages.",negative +"In February 2017, Eolas alleged in its damages report that in the event of a finding of liability Amazon could be +subject to $130 to $250 million in damages.",negative +"In April 2017, the case was transferred to the United States District Court for the Northern District of +California.",neutral +"In May 2022, the district court granted summary judgment holding that the patent is invalid.",neutral +"In June 2022, Eolas filed a notice of appeal.",neutral +We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.,neutral +"In May 2018, Rensselaer Polytechnic Institute and CF Dynamic Advances LLC filed a complaint against Amazon.com, Inc. in the United +States District Court for the Northern District of New York.",negative +"The complaint alleges, among other things, that “Alexa Voice Software and Alexa +enabled devices” infringe U.S. Patent No. 7,177,798, entitled “Natural Language Interface Using Constrained Intermediate Dictionary of Results.”",negative +"The complaint seeks an injunction, an unspecified amount of damages, enhanced damages, an ongoing royalty, interest, attorneys’ fees, and costs.",negative +"We +dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.",neutral +"In December 2018, Kove IO, Inc. filed a complaint against Amazon Web Services, Inc. in the United States District Court for the Northern +District of Illinois.",negative +"The complaint alleges, among other things, that Amazon S3 and DynamoDB infringe U.S. Patent Nos. 7,814,170 and 7,103,640, +both entitled “Network Distributed Tracking Wire Transfer Protocol”; and 7,233,978, entitled “Method and Apparatus for Managing Location +Information in a Network Separate from the Data to Which the Location Information Pertains.”",negative +"The complaint seeks an unspecified amount of +damages, enhanced damages, attorneys’ fees, costs, interest, and injunctive relief.",negative +"In March 2022, the case was stayed pending resolution of review +petitions we filed with the United States Patent and Trademark Office.",neutral +"In November 2022, the stay was lifted.",neutral +"We dispute the allegations of +wrongdoing and intend to defend ourselves vigorously in this matter.",neutral +"Beginning in March 2020, with Frame-Wilson v. Amazon.com, Inc. filed in the United States District Court for the Western District of +Washington, private litigants have filed a number of cases in the U.S. and Canada alleging, among other things, price fixing arrangements between +Amazon.com, Inc. and vendors and third-party sellers in Amazon’s stores, monopolization and attempted monopolization, and consumer protection +and unjust enrichment claims.",negative +"Attorneys General for the District of Columbia and California brought similar suits in May 2021 and September 2022 +in the Superior Court of the District of Columbia and the California Superior Court for the County of San Francisco, respectively.",positive +"Some of the private +cases include allegations of several distinct purported classes, including consumers who purchased a product through Amazon’s stores and consumers +who purchased a product offered by Amazon through another e-commerce retailer.",positive +"The complaints seek billions of dollars of alleged actual damages, +treble damages, punitive damages, injunctive relief, civil penalties, attorneys’ fees, and costs.",negative +"In March 2022 and January 2023, Amazon’s motions to +dismiss were granted in part and denied in part in Frame-Wilson and De Coster v. Amazon.com, Inc. (WD Wash), respectively; both courts dismissed +claims alleging that Amazon’s pricing policies are inherently illegal and denied dismissal of claims alleging that Amazon’s pricing policies are an +unlawful restraint of trade.",negative +"In March 2022, the DC Superior Court dismissed the DC Attorney General’s lawsuit in its entirety; the dismissal is under +appeal as of January 2023.",positive +We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in these matters.,neutral +"In October 2020, BroadbandiTV, Inc. filed a complaint against Amazon.com, Inc., Amazon.com Services LLC, and Amazon Web Services, Inc. +in the United States District Court for the Western District of Texas.",negative +"The complaint alleges, among other things, that certain Amazon Prime Video +features and services infringe U.S. Patent Nos. 9,648,388, 10,546,750, and 10,536,751, each entitled “Video-On-Demand Content Delivery System +for Providing Video-On-Demand Services to TV Services Subscribers”; 10,028,026, entitled “System for Addressing On-Demand TV Program +Content on TV Services Platform of a Digital TV Services Provider”; and 9,973,825, entitled “Dynamic Adjustment of Electronic Program Guide +Displays Based on Viewer Preferences for Minimizing Navigation in VOD Program Selection.”",negative +"The complaint seeks an unspecified amount of +damages.",negative +"In April 2022, BroadbandiTV alleged in its damages report that, in the event of a finding of liability, Amazon could be subject to $166 to +$986 million in damages.",negative +"In September 2022, the court granted summary judgment, holding that the patents are invalid.",neutral +"In October 2022, +BroadbandiTV filed a notice of appeal.",neutral +"We dispute the allegations of wrongdoing and will continue to defend ourselves vigorously in this matter. +59Table of Contents +In November 2020, the European Commission issued a Statement of Objections alleging that Amazon uses data relating to our marketplace +sellers in a manner that infringes EU competition rules.",neutral +The Statement of Objections sought to impose unspecified fines and remedial actions.,neutral +"In +December 2022, the European Commission adopted formal commitments without fines, fully resolving the investigation.",neutral +"In July 2021, the Luxembourg National Commission for Data Protection (the “CNPD”) issued a decision against Amazon Europe Core S.à r.l. +claiming that Amazon’s processing of personal data did not comply with the EU General Data Protection Regulation.",positive +"The decision imposes a fine of +€746 million and corresponding practice revisions.",positive +"We believe the CNPD’s decision to be without merit and intend to defend ourselves vigorously in +this matter.",neutral +"In November 2021, Jawbone Innovations, LLC filed a complaint against Amazon.com, Inc. and Amazon.com Services, Inc. in the United +States District Court for the Eastern District of Texas.",negative +"The complaint alleges, among other things, that Amazon Echo smart speakers and displays, +Fire TV Cube, and Echo Buds infringe U.S. Patent Nos. 7,246,058, entitled “Detecting Voiced and Unvoiced Speech Using Both Acoustic and +Nonacoustic Sensors”; 8,019,091, entitled “Voice Activity Detector (VAD)-Based Multiple-Microphone Acoustic Noise Suppression”; 8,280,072, +entitled “Microphone Array with Rear Venting”; 8,321,213 and 8,326,611, both entitled “Acoustic Voice Activity Detection (AVAD) for Electronic +Systems”; 8,467,543, entitled “Microphone and Voice Activity Detection (VAD) Configurations for Use with Communications Systems”; 8,503,691, +entitled “Virtual Microphone Arrays Using Dual Omnidirectional Microphone Array (DOMA)”; 10,779,080, entitled “Dual Omnidirectional +Microphone Array (DOMA)”; and 11,122,357, entitled “Forming Virtual Microphone Arrays Using Dual Omnidirectional Microphone Array +(DOMA).”",negative +"The complaint seeks an unspecified amount of damages, enhanced damages, attorneys’ fees, costs, interest, and injunctive relief.",negative +"In +November 2022, the case was transferred to the United States District Court for the Northern District of California.",neutral +"We dispute the allegations of +wrongdoing and intend to defend ourselves vigorously in this matter.",neutral +"In December 2021, the Italian Competition Authority (the “ICA”) issued a decision against Amazon Services Europe S.à r.l., Amazon Europe +Core S.à r.l., Amazon EU S.à r.l., Amazon Italia Services S.r.l., and Amazon Italia Logistica S.r.l. claiming that certain of our marketplace and +logistics practices in Italy infringe EU competition rules.",positive +"The decision imposes remedial actions and a fine of €1.13 billion, which we are paying and +will seek to recover pending conclusion of all appeals.",positive +"We believe the ICA’s decision to be without merit and intend to defend ourselves vigorously in +this matter.",neutral +"In July 2022, Acceleration Bay, LLC filed a complaint against Amazon Web Services, Inc. in the United States District Court for the District of +Delaware.",negative +"The complaint alleges, among other things, that Amazon EC2, Amazon CloudFront, AWS Lambda, Amazon Lumberyard, Luna, Amazon +Prime Video, Twitch, Amazon GameLift, GridMate, Amazon EKS, AWS App Mesh, and Amazon VPC infringe U.S. Patent Nos. 6,701,344, entitled +“Distributed Game Environment”; 6,714,966, entitled “Information Delivery Service”; 6,732,147, entitled “Leaving a Broadcast Channel”; +6,829,634, entitled “Broadcasting Network”; and 6,910,069, entitled “Joining a Broadcast Channel.”",negative +"The complaint seeks injunctive relief, an +unspecified amount of damages, enhanced damages, interest, attorneys’ fees, and costs.",negative +"We dispute the allegations of wrongdoing and intend to +defend ourselves vigorously in this matter.",neutral +"In November 2022, LightGuide, Inc. filed a complaint against Amazon.com, Inc. and Amazon.com Services LLC in the United States District +Court for the Eastern District of Texas.",negative +"The complaint alleges, among other things, that Amazon’s Nike Intent Detection System used in certain +fulfillment centers infringes U.S. Patent Nos. 7,515,981, entitled “Light Guided Assembly System”; and 9,658,614 and 10,528,036, each entitled +“Light Guided Assembly System and Method.”",positive +"The complaint seeks an unspecified amount of damages, enhanced damages, attorneys’ fees, costs, +interest, and injunctive relief.",negative +We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.,neutral +"In addition, we are regularly subject to claims, litigation, and other proceedings, including potential regulatory proceedings, involving patent +and other intellectual property matters, taxes, labor and employment, competition and antitrust, privacy and data protection, consumer protection, +commercial disputes, goods and services offered by us and by third parties, and other matters.",negative +"The outcomes of our legal proceedings and other contingencies are inherently unpredictable, subject to significant uncertainties, and could be +material to our operating results and cash flows for a particular period.",positive +"We evaluate, on a regular basis, developments in our legal proceedings and +other contingencies that could affect the amount of liability, including amounts in excess of any previous accruals and reasonably possible losses +disclosed, and make adjustments and changes to our accruals and disclosures as appropriate.",positive +"For the matters we disclose that do not include an +estimate of the amount of loss or range of losses, such an estimate is not possible or is immaterial, and we may be unable to estimate the possible loss +or range of losses that could potentially result from the application of non-monetary remedies.",negative +"Until the final resolution of such matters, if any of our +estimates and assumptions change or prove to have been incorrect, we may experience losses in excess of the amounts recorded, which could have a +material effect on our business, consolidated financial position, results of operations, or cash flows.",neutral +See also “Note 9 — Income Taxes.”,neutral +"60Table of Contents +Note 8 — STOCKHOLDERS’ EQUITY +Preferred Stock +We have authorized 500 million shares of $0.01 par value preferred stock.",neutral +No preferred stock was outstanding for any year presented.,positive +"Common Stock +Common shares outstanding plus shares underlying outstanding stock awards totaled 10.4 billion, 10.5 billion, and 10.6 billion, as of +December 31, 2020, 2021, and 2022.",positive +"These totals include all vested and unvested stock awards outstanding, including those awards we estimate will +be forfeited.",positive +"Stock Repurchase Activity +In March 2022, the Board of Directors authorized a program to repurchase up to $10.0 billion of our common stock, with no fixed expiration, +which replaced the previous $5.0 billion stock repurchase authorization, approved by the Board of Directors in February 2016.",negative +"We repurchased 46.2 +million shares of our common stock for $6.0 billion in 2022 under these programs.",negative +There were no repurchases of common stock in 2020 or 2021.,negative +"As +of December 31, 2022, we have $6.1 billion remaining under the repurchase program.",neutral +"Stock Award Plans +Employees vest in restricted stock unit awards over the corresponding service term, generally between two and five years.",positive +"Stock Award Activity +Stock-based compensation expense is as follows (in millions): +Year Ended December 31, +2020 2021 2022 +Cost of sales $ 283 $ 540 $ 757 +Fulfillment 1,357 1,946 2,745 +Technology and content 5,061 6,645 10,621 +Sales and marketing 1,710 2,530 3,875 +General and administrative 797 1,096 1,623 +Total stock-based compensation expense (1) $ 9,208 $ 12,757 $ 19,621 +___________________ +(1)The related tax benefits were $1.9 billion, $2.7 billion, and $4.3 billion for 2020, 2021, and 2022.",positive +"The following table summarizes our restricted stock unit activity (in millions): +Number of UnitsWeighted Average +Grant-Date +Fair Value +Outstanding as of January 1, 2020 286.7 $ 73 +Units granted 158.6 119 +Units vested (115.5) 62 +Units forfeited (26.5) 82 +Outstanding as of December 31, 2020 303.3 100 +Units granted 127.3 167 +Units vested (108.4) 85 +Units forfeited (42.3) 116 +Outstanding as of December 31, 2021 279.9 134 +Units granted 262.8 142 +Units vested (113.3)",positive +"114 +Units forfeited (45.0) 143 +Outstanding as of December 31, 2022 384.4 144 61Table of Contents +Scheduled vesting for outstanding restricted stock units as of December 31, 2022, is as follows (in millions): + Year Ended + 2023 2024 2025 2026 2027",positive +"Thereafter Total +Scheduled vesting — restricted stock units 140.8 136.6 67.3 35.8 1.7 2.2 384.4 +As of December 31, 2022, there was $23.8 billion of net unrecognized compensation cost related to unvested stock-based compensation +arrangements.",neutral +"This compensation is recognized on an accelerated basis with more than half of the compensation expected to be expensed in the next +twelve months, and has a remaining weighted-average recognition period of 1.1 years.",positive +"The estimated forfeiture rate as of December 31, 2020, 2021, +and 2022 was 26.7%, 26.5%, and 26.5%.",neutral +"Changes in our estimates and assumptions relating to forfeitures may cause us to realize material changes in +stock-based compensation expense in the future.",neutral +"During 2020, 2021, and 2022, the fair value of restricted stock units that vested was $15.5 billion, $18.2 billion, and $12.8 billion.",positive +"Common Stock Available for Future Issuance +As of December 31, 2022, common stock available for future issuance to employees is 1.7 billion shares.",positive +"Note 9 — INCOME TAXES +In 2020, 2021, and 2022, we recorded net tax provision (benefit) of $2.9 billion, $4.8 billion, and $(3.2) billion.",neutral +"Our U.S. taxable income is +reduced by accelerated depreciation deductions and increased by the impact of capitalized research and development expenses.",neutral +"Cash taxes paid, net +of refunds, were $1.7 billion, $3.7 billion, and $6.0 billion for 2020, 2021, and 2022.",neutral +"Certain foreign subsidiary earnings and losses are subject to current U.S. taxation and the subsequent repatriation of those earnings is not +subject to tax in the U.S.",positive +"The U.S. tax rules also provide for enhanced accelerated depreciation deductions by allowing the election of full expensing +of qualified property, primarily equipment, through 2022.",positive +"Our federal tax provision included a partial election for 2020 and 2021, and a full election +for 2022.",positive +"Effective January 1, 2022, research and development expenses are required to be capitalized and amortized for U.S. tax purposes.",positive +"The components of the provision (benefit) for income taxes, net are as follows (in millions):",neutral +"Year Ended December 31, +2020 2021 2022 +U.S. Federal: +Current $ 1,835 $ 2,129 $ 2,175 +Deferred (151) 155 (6,686) +Total 1,684 2,284 (4,511)",neutral +"U.S. State: +Current 626 763 1,074 +Deferred (190) (178) (1,302)",neutral +"Total 436 585 (228) +International: +Current 956 2,209 1,682 +Deferred (213) (287) (160)",neutral +"Total 743 1,922 1,522 +Provision (benefit) for income taxes, net $ 2,863 $ 4,791 $ (3,217) +U.S. and international components of income (loss) before income taxes are as follows (in millions): + Year Ended December 31, + 2020 2021 2022 +U.S. $ 20,219 $ 35,879 $ (8,225)",neutral +"International 3,959 2,272 2,289 +Income (loss) before income taxes $ 24,178 $ 38,151 $ (5,936) +62Table of Contents +The items accounting for differences between income taxes computed at the federal statutory rate and the provision recorded for income taxes +are as follows (in millions): + Year Ended December 31, + 2020 2021 2022 +Income taxes computed at the federal statutory rate $ 5,078 $ 8,012 $ (1,246) +Effect of: +Tax impact of foreign earnings and losses (538) (1,349) (370) +State taxes, net of federal benefits 343 465 (173) +Tax credits (639) (1,136) (1,006) +Stock-based compensation (1) (1,107) (1,094) 612 +Foreign income deduction (2) (372) (301) (1,258)",negative +"Other, net 98 194 224 +Total $ 2,863 $ 4,791 $ (3,217) +___________________ +(1)Includes non-deductible stock-based compensation and excess tax benefits or shortfalls from stock-based compensation.",negative +"Our tax provision +includes $1.8 billion and $1.9 billion of excess tax benefits from stock-based compensation for 2020 and 2021, and a $33 million tax shortfall +from stock-based compensation for 2022.",neutral +(2)U.S. companies are eligible for a deduction that lowers the effective tax rate on certain foreign income.,positive +"This regime is referred to as the Foreign- +Derived Intangible Income deduction.",negative +Our provision for income taxes in 2021 was higher than in 2020 primarily due to an increase in pretax income.,positive +"This was partially offset by an +increase in U.S. federal research and development credits and the impact of the distribution of certain intangible assets from Luxembourg to the U.S. +in Q4 2021, resulting in the utilization of $2.6 billion of Luxembourg deferred tax assets previously subject to a valuation allowance.",negative +"We generated an income tax benefit in 2022 as compared to a provision for income taxes in 2021 primarily due to a decrease in pretax income +and an increase in the foreign income deduction.",negative +"This was partially offset by a reduction in excess tax benefits from stock-based compensation and a +decrease in the tax impact of foreign earnings and losses driven by a decline in the favorable effects of corporate restructuring transactions.",negative +"The +foreign income deduction benefit recognized in 2022 reflects a change in our application of tax regulations related to the computation of qualifying +foreign income and includes an income tax benefit of approximately $655 million related to years prior to 2022.",negative +"We intend to invest substantially all of our foreign subsidiary earnings, as well as our capital in our foreign subsidiaries, indefinitely outside of +the U.S. in those jurisdictions in which we would incur significant, additional costs upon repatriation of such amounts.",positive +"63Table of Contents +Deferred income tax assets and liabilities are as follows (in millions): + December 31, + 2021 2022 +Deferred tax assets (1): +Loss carryforwards U.S. - Federal/States 228 386 +Loss carryforwards - Foreign 2,417 2,831 +Accrued liabilities, reserves, and other expenses 2,821 3,280 +Stock-based compensation 2,738 4,295 +Depreciation and amortization 941 1,009 +Operating lease liabilities 15,399 18,285 +Capitalized research and development — 6,824 +Other items 603 1,023 +Tax credits 626 950 +Total gross deferred tax assets 25,773 38,883 +Less valuation allowances (2) (3,596) (4,374) +Deferred tax assets, net of valuation allowances 22,177 34,509 +Deferred tax liabilities: +Depreciation and amortization (3,562) (9,039) +Operating lease assets (14,422) (17,140) +Assets held for investment (4,019) — +Other items (668) (817)",negative +"Net deferred tax assets (liabilities), net of valuation allowances $ (494)$ 7,513 + ___________________ +(1)Deferred tax assets are presented after tax effects and net of tax contingencies.",neutral +"(2)Relates primarily to deferred tax assets that would only be realizable upon the generation of net income in certain foreign taxing jurisdictions or +future capital gains, as well as tax credits.",positive +"Our valuation allowances primarily relate to foreign deferred tax assets, including substantially all of our foreign net operating loss +carryforwards as of December 31, 2022.",positive +"Our foreign net operating loss carryforwards for income tax purposes as of December 31, 2022 were +approximately $10.4 billion before tax effects and certain of these amounts are subject to annual limitations under applicable tax law.",negative +"If not utilized, a +portion of these losses will begin to expire in 2023.",neutral +"Tax Contingencies +We are subject to income taxes in the U.S. (federal and state) and numerous foreign jurisdictions.",negative +"Significant judgment is required in evaluating +our tax positions and determining our provision for income taxes.",positive +"During the ordinary course of business, there are many transactions and +calculations for which the ultimate tax determination is uncertain.",positive +"We establish reserves for tax-related uncertainties based on estimates of whether, +and the extent to which, additional taxes will be due.",negative +"These reserves are established when we believe that certain positions might be challenged +despite our belief that our tax return positions are fully supportable.",positive +"We adjust these reserves in light of changing facts and circumstances, such as the +outcome of tax audits.",positive +"The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered +appropriate. +64Table of Contents +The reconciliation of our tax contingencies is as follows (in millions): + December 31, + 2020 2021 2022 +Gross tax contingencies – January 1 $ 3,923 $ 2,820 $ 3,242 +Gross increases to tax positions in prior periods 88",positive +"403 274 +Gross decreases to tax positions in prior periods (465) (354) (172) +Gross increases to current period tax positions 507 507 706 +Settlements with tax authorities (1,207) (60) (20) +Lapse of statute of limitations (26) (74) (28) +Gross tax contingencies – December 31 (1) $ 2,820 $ 3,242 $ 4,002 + ___________________ +(1)As of December 31, 2022, we had approximately $4.0 billion of accrued tax contingencies of which $2.2 billion, if fully recognized, would +decrease our effective tax rate.",positive +"As of December 31, 2021 and 2022, we had accrued interest and penalties, net of federal income tax benefit, related to tax contingencies of +$110 million and $103 million.",neutral +"Interest and penalties, net of federal income tax benefit, recognized for the years ended December 31, 2020, 2021, +and 2022 were $(48) million, $28 million, and $(7) million.",neutral +"We are under examination, or may be subject to examination, by the Internal Revenue Service for the calendar year 2016 and thereafter.",negative +"These +examinations may lead to ordinary course adjustments or proposed adjustments to our taxes or our net operating losses with respect to years under +examination as well as subsequent periods.",negative +"We are also subject to taxation in various states and other foreign jurisdictions including China, France, Germany, India, Japan, Luxembourg, +and the United Kingdom.",negative +"We are under, or may be subject to, audit or examination and additional assessments by the relevant authorities in respect of +these particular jurisdictions primarily for 2011 and thereafter.",positive +"We are currently disputing tax assessments in multiple jurisdictions, including with +respect to the allocation and characterization of income.",neutral +"In September 2022, the Luxembourg Tax Authority (“LTA”) denied the tax basis of certain intangible assets that we distributed from +Luxembourg to the U.S. in 2021.",positive +We believe the LTA’s position is without merit and intend to defend ourselves vigorously in this matter.,neutral +"In February 2023, we received a decision by the Indian Tax Authority (“ITA”) that tax applies to cloud services fees paid to the U.S.",neutral +"We will +need to remit taxes on the services in question, including for a portion of prior years, until this matter is resolved, which payments could be +significant in the aggregate.",positive +"We believe the ITA’s decision is without merit, we intend to defend our position vigorously, and we expect to recoup +taxes paid.",neutral +"If this matter is adversely resolved, we would reflect significant additional tax expense, including for taxes previously paid.",positive +"In October 2014, the European Commission opened a formal investigation to examine whether decisions by the tax authorities in Luxembourg +with regard to the corporate income tax paid by certain of our subsidiaries comply with European Union rules on state aid.",positive +"On October 4, 2017, the +European Commission announced its decision that determinations by the tax authorities in Luxembourg did not comply with European Union rules +on state aid.",neutral +"Based on that decision the European Commission announced an estimated recovery amount of approximately €250 million, plus interest, +for the period May 2006 through June 2014, and ordered Luxembourg tax authorities to calculate the actual amount of additional taxes subject to +recovery.",negative +"Luxembourg computed an initial recovery amount, consistent with the European Commission’s decision, which we deposited into escrow +in March 2018, subject to adjustment pending conclusion of all appeals.",positive +"In December 2017, Luxembourg appealed the European Commission’s +decision.",neutral +"In May 2018, we appealed.",neutral +"On May 12, 2021, the European Union General Court annulled the European Commission’s state aid decision.",positive +"In July 2021, the European Commission appealed the decision to the European Court of Justice.",neutral +"We will continue to defend ourselves vigorously in +this matter.",neutral +"Changes in tax laws, regulations, administrative practices, principles, and interpretations may impact our tax contingencies.",neutral +"Due to various +factors, including the inherent complexities and uncertainties of the judicial, administrative, and regulatory processes in certain jurisdictions, the +timing of the resolution of income tax controversies is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised +by the taxing authorities may differ from the amounts accrued.",positive +"It is reasonably possible that within the next twelve months we will receive additional +assessments by various tax authorities or possibly reach resolution of income tax controversies in one or more jurisdictions.",positive +"These assessments or +settlements could result in changes to our contingencies related to positions on prior years’ tax filings.",neutral +"The actual amount of any change could vary +significantly depending on the ultimate timing and nature of any settlements.",positive +"We cannot currently provide an estimate of the range of possible +outcomes.",neutral +"65Table of Contents +Note 10 — SEGMENT INFORMATION",neutral +"We have organized our operations into three segments: North America, International, and AWS.",neutral +"We allocate to segment results the operating +expenses “Fulfillment,” “Technology and content,” “Sales and marketing,” and “General and administrative” based on usage, which is generally +reflected in the segment in which the costs are incurred.",positive +"The majority of technology infrastructure costs are allocated to the AWS segment based on +usage.",neutral +The majority of the remaining non-infrastructure technology costs are incurred in the U.S. and are allocated to our North America segment.,neutral +There are no internal revenue transactions between our reportable segments.,neutral +"These segments reflect the way our chief operating decision maker +evaluates the Company’s business performance and manages its operations.",neutral +"North America +The North America segment primarily consists of amounts earned from retail sales of consumer products (including from sellers) and +subscriptions through North America-focused online and physical stores.",positive +This segment includes export sales from these online stores.,neutral +"International +The International segment primarily consists of amounts earned from retail sales of consumer products (including from sellers) and +subscriptions through internationally-focused online stores.",positive +"This segment includes export sales from these internationally-focused online stores +(including export sales from these online stores to customers in the U.S., Mexico, and Canada), but excludes export sales from our North America- +focused online stores.",neutral +"AWS +The AWS segment consists of amounts earned from global sales of compute, storage, database, and other services for start-ups, enterprises, +government agencies, and academic institutions.",negative +"Information on reportable segments and reconciliation to consolidated net income (loss) is as follows (in millions): + Year Ended December 31, + 2020 2021 2022 +North America +Net sales $ 236,282 $ 279,833 $ 315,880 +Operating expenses 227,631 272,562 318,727 +Operating income (loss) $ 8,651 $ 7,271 $ (2,847) +International +Net sales $ 104,412 $ 127,787 $ 118,007 +Operating expenses 103,695 128,711 125,753 +Operating income (loss) $ 717 $ (924)$ (7,746) +AWS +Net sales $ 45,370 $ 62,202 $ 80,096",neutral +"Operating expenses 31,839 43,670 57,255 +Operating income $ 13,531 $ 18,532 $ 22,841 +Consolidated +Net sales $ 386,064 $ 469,822 $ 513,983 +Operating expenses 363,165 444,943 501,735 +Operating income 22,899 24,879 12,248 +Total non-operating income (expense) 1,279 13,272 (18,184) +Benefit (provision) for income taxes (2,863) (4,791) 3,217 +Equity-method investment activity, net of tax 16 4 (3) +Net income (loss) $ 21,331 $ 33,364 $ (2,722) +66Table of Contents +Net sales by groups of similar products and services, which also have similar economic characteristics, is as follows (in millions): + Year Ended December 31, + 2020 2021 2022 +Net Sales: +Online stores (1) $ 197,346 $ 222,075 $ 220,004 +Physical stores (2) 16,227 17,075 18,963 +Third-party seller services (3) 80,461 103,366 117,716 +Subscription services (4) 25,207 31,768 35,218 +Advertising services (5) 19,773 31,160 37,739 +AWS 45,370 62,202 80,096 +Other (6) 1,680 2,176 4,247 +Consolidated $ 386,064 $ 469,822 $ 513,983 +___________________ +(1)Includes product sales and digital media content where we record revenue gross.",positive +"We leverage our retail infrastructure to offer a wide selection of +consumable and durable goods that includes media products available in both a physical and digital format, such as books, videos, games, music, +and software.",positive +These product sales include digital products sold on a transactional basis.,neutral +"Digital product subscriptions that provide unlimited +viewing or usage rights are included in “Subscription services.”",neutral +(2)Includes product sales where our customers physically select items in a store.,neutral +"Sales to customers who order goods online for delivery or pickup +at our physical stores are included in “Online stores.”",neutral +"(3)Includes commissions and any related fulfillment and shipping fees, and other third-party seller services.",negative +"(4)Includes annual and monthly fees associated with Amazon Prime memberships, as well as digital video, audiobook, digital music, e-book, and +other non-AWS subscription services.",negative +"(5)Includes sales of advertising services to sellers, vendors, publishers, authors, and others, through programs such as sponsored ads, display, and +video advertising.",neutral +"(6)Includes sales related to various other offerings, such as certain licensing and distribution of video content and shipping services, and our co- +branded credit card agreements.",positive +"Net sales are attributed to countries primarily based on country-focused online and physical stores or, for AWS purposes, the selling entity.",positive +"Net +sales attributed to countries that represent a significant portion of consolidated net sales are as follows (in millions): + Year Ended December 31, + 2020 2021 2022 +United States $ 263,520 $ 314,006 $ 356,113 +Germany 29,565 37,326 33,598 +United Kingdom 26,483 31,914 30,074 +Japan 20,461 23,071 24,396 +Rest of world 46,035 63,505 69,802 +Consolidated $ 386,064 $ 469,822 $ 513,983 +67Table of Contents +Total segment assets exclude corporate assets, such as cash and cash equivalents, marketable securities, other long-term investments, corporate +facilities, goodwill and other acquired intangible assets, and tax assets.",positive +"Technology infrastructure assets are allocated among the segments based on +usage, with the majority allocated to the AWS segment.",neutral +"Total segment assets reconciled to consolidated amounts are as follows (in millions): + December 31, + 2020 2021 2022 +North America (1) $ 108,405 $ 161,255 $ 185,268 +International (1) 42,212 57,983 64,666 +AWS (2) 47,574 63,835 88,491 +Corporate 123,004 137,476 124,250 +Consolidated $ 321,195 $ 420,549 $ 462,675 +___________________ +(1)North America and International segment assets primarily consist of property and equipment, operating leases, inventory, and accounts +receivable.",positive +(2)AWS segment assets primarily consist of property and equipment and accounts receivable.,positive +"Property and equipment, net by segment is as follows (in millions): + December 31, + 2020 2021 2022 +North America $ 54,912 $ 83,640 $ 90,076 +International 15,375 21,718 23,347 +AWS 32,151 43,245 60,324 +Corporate 10,676 11,678 12,968 +Consolidated $ 113,114 $ 160,281 $ 186,715 +Total net additions to property and equipment by segment are as follows (in millions): + Year Ended December 31, + 2020 2021 2022 +North America (1) $ 29,889 $ 37,397 $ 23,682 +International (1) 8,072 10,259 6,711 +AWS (2) 16,530 22,047 27,755 +Corporate 3,485 2,622 2,688 +Consolidated $ 57,976 $ 72,325 $ 60,836 +___________________ +(1)Includes property and equipment added under finance leases of $5.6 billion, $3.6 billion, and $422 million in 2020, 2021, and 2022, and under +build-to-suit lease arrangements of $2.7 billion, $5.6 billion, and $3.2 billion in 2020, 2021, and 2022.",neutral +"(2)Includes property and equipment added under finance leases of $7.7 billion, $3.5 billion, and $253 million in 2020, 2021, and 2022, and under +build-to-suit lease arrangements of $130 million, $51 million, and $20 million in 2020, 2021, and 2022.",neutral +"U.S. property and equipment, net and operating leases were $109.5 billion, $155.0 billion, and $180.0 billion, as of December 31, 2020, 2021, +and 2022, and non-U.S. property and equipment, net and operating leases were $41.2 billion, $61.3 billion, and $72.9 billion as of December 31, +2020, 2021, and 2022.",neutral +"Except for the U.S., property and equipment, net and operating leases in any single country were less than 10% of +consolidated property and equipment, net and operating leases.",negative +"Depreciation and amortization expense on property and equipment, including corporate property and equipment, are allocated to all segments +based on usage.",neutral +"Total depreciation and amortization expense, by segment, is as follows (in millions): + Year Ended December 31, + 2020 2021 2022 +North America $ 6,421 $ 9,234 $ 11,565 +International 2,215 3,022 3,483 +AWS 7,603 10,653 9,876 +Consolidated $ 16,239 $ 22,909 $ 24,924 68Table of Contents +Item 9.",neutral +"Changes in and Disagreements with Accountants On Accounting and Financial Disclosure +None. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures",neutral +"We carried out an evaluation required by the Securities Exchange Act of 1934 (the “1934 Act”), under the supervision and with the +participation of 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 Rule 13a-15(e) of the 1934 Act, as of December 31, 2022.",neutral +"Based on this evaluation, our principal executive +officer and principal financial officer concluded that, as of December 31, 2022, our disclosure controls and procedures were effective to provide +reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the 1934 Act is recorded, processed, +summarized, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is +accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow +timely decisions regarding required disclosure.",positive +"Management’s Report on Internal Control over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of +the 1934 Act.",positive +"Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2022 based on criteria +established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.",neutral +"As a result of this assessment, management concluded that, as of December 31, 2022, our internal control over financial reporting was effective in +providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in +accordance with generally accepted accounting principles.",positive +"Ernst & Young has independently assessed the effectiveness of our internal control over +financial reporting and its report is included below.",positive +"Changes in Internal Control Over Financial Reporting +There were no changes in our internal control over financial reporting during the quarter ended December 31, 2022 that materially affected, or +are reasonably likely to materially affect, our internal control over financial reporting.",neutral +"Limitations on Controls +Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving +their objectives as specified above.",positive +"Management does not expect, however, that our disclosure controls and procedures or our internal control over +financial reporting will prevent or detect all error and fraud.",neutral +"Any control system, no matter how well designed and operated, is based upon certain +assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met.",positive +"Further, no evaluation of controls can provide +absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company +have been detected. +69Table of Contents +Report of Independent Registered Public Accounting Firm +The Board of Directors and Shareholders +Amazon.com, Inc. +Opinion on Internal Control Over Financial Reporting +We have audited Amazon.com, Inc.’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal +Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO +criteria).",negative +"In our opinion, Amazon.com, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of +December 31, 2022, based on the COSO criteria.",positive +"We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the +consolidated balance sheets of the Company as of December 31, 2022 and 2021, and the related consolidated statements of operations, +comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022 and the related +notes and our report dated February 2, 2023 expressed an unqualified opinion thereon. +Basis for Opinion +The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the +effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial +Reporting.",positive +Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.,neutral +"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.",negative +We conducted our audit in accordance with the standards of the PCAOB.,neutral +"Those standards require that we plan and perform the audit to obtain +reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.",positive +"Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, +testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as +we considered necessary in the circumstances.",negative +We believe that our audit provides a reasonable basis for our opinion.,positive +"Definition and Limitations of Internal Control Over Financial Reporting +A company’s internal control over financial reporting is a process designed 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.",positive +"A company’s +internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, +accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are +recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and +expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide +reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have +a material effect on the financial statements.",positive +"Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.",neutral +"Also, projections of any +evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the +degree of compliance with the policies or procedures may deteriorate.",negative +"/s/ Ernst & Young LLP +Seattle, Washington +February 2, 2023 +70Table of Contents +Item 9B. Other Information +Not applicable.",negative +"Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not applicable.",negative +"PART III +Item 10.",neutral +"Directors, Executive Officers, and Corporate Governance +Information regarding our Executive Officers required by Item 10 of Part III is set forth in Item 1 of Part I “Business — Information About Our +Executive Officers.”",neutral +"Information required by Item 10 of Part III regarding our Directors and any material changes to the process by which security +holders may recommend nominees to the Board of Directors is included in our Proxy Statement relating to our 2023 Annual Meeting of Shareholders, +and is incorporated herein by reference.",neutral +"Information relating to our Code of Business Conduct and Ethics and, to the extent applicable, compliance +with Section 16(a) of the 1934 Act is set forth in our Proxy Statement relating to our 2023 Annual Meeting of Shareholders and is incorporated herein +by reference.",neutral +"To the extent permissible under Nasdaq rules, we intend to disclose amendments to our Code of Business Conduct and Ethics, as well +as waivers of the provisions thereof, on our investor relations website under the heading “Corporate Governance” at amazon.com/ir.",neutral +Item 11.,neutral +"Executive Compensation +Information required by Item 11 of Part III is included in our Proxy Statement relating to our 2023 Annual Meeting of Shareholders and is +incorporated herein by reference.",neutral +Item 12.,neutral +Security Ownership of Certain Beneficial Owners and Management and,positive +"Related Shareholder Matters +Information required by Item 12 of Part III is included in our Proxy Statement relating to our 2023 Annual Meeting of Shareholders and is +incorporated herein by reference.",neutral +Item 13.,neutral +"Certain Relationships and Related Transactions, and Director Independence +Information required by Item 13 of Part III is included in our Proxy Statement relating to our 2023 Annual Meeting of Shareholders and is +incorporated herein by reference.",positive +Item 14.,neutral +"Principal Accountant Fees and Services +Information required by Item 14 of Part III is included in our Proxy Statement relating to our 2023 Annual Meeting of Shareholders and is +incorporated herein by reference.",neutral +"71Table of Contents +PART IV +Item 15.",neutral +"Exhibits, Financial Statement Schedules +(a) List of Documents Filed as a Part of This Report: +(1) Index to Consolidated Financial Statements: +Report of Ernst & Young LLP, Independent Registered Public Accounting Firm +Consolidated Statements of Cash Flows for each of the three years ended December 31, 2022 +Consolidated Statements of Operations for each of the three years ended December 31, 2022 +Consolidated Statements of Comprehensive Income (Loss) for each of the three years ended December 31, 2022 +Consolidated Balance Sheets as of December 31, 2021 and 2022 +Consolidated Statements of Stockholders’ Equity for each of the three years ended December 31, 2022 +Notes to Consolidated Financial Statements +Report of Ernst & Young LLP, Independent Registered Public Accounting Firm +(2) Index to Financial Statement Schedules: +All schedules have been omitted because the required information is included in the consolidated financial statements or the notes +thereto, or because it is not required.",negative +"(3) Index to Exhibits +See exhibits listed under Part (b) below.",neutral +"(b) Exhibits: +Exhibit +Number Description +3.1 Amended and Restated Certificate of Incorporation of Amazon.com, Inc. (incorporated by reference to the Company’s Current Report +on Form 8-K, filed May 27, 2022).",neutral +"3.2 Amended and Restated Bylaws of Amazon.com, Inc. (incorporated by reference to the Company’s Current Report on Form 8-K, filed +January 6, 2023).",neutral +"4.1 Indenture, dated as of November 29, 2012, between Amazon.com, Inc. and Wells Fargo Bank, National Association, as trustee +(incorporated by reference to the Company’s Current Report on Form 8-K, filed November 29, 2012).",neutral +"4.2 Supplemental Indenture, dated as of April 13, 2022, among Amazon.com, Inc., Wells Fargo Bank, National Association, as prior +trustee, and Computershare Trust Company, National Association, as successor trustee, containing Form of 2.730% Note due 2024, +Form of 3.000% Note due 2025, Form of 3.300% Note due 2027, Form of 3.450% Note due 2029, Form of 3.600% Note due 2032, +Form of 3.950% Note due 2052, and Form of 4.100% Note due 2062 (incorporated by reference to the Company’s Current Report on +Form 8-K, filed April 13, 2022).",negative +"4.3 Officers’ Certificate of Amazon.com, Inc., dated as of December 5, 2014, containing Form of 2.600% Note due 2019, Form of 3.300% +Note due 2021, Form of 3.800% Note due 2024, Form of 4.800% Note due 2034, and Form of 4.950% Note due 2044 (incorporated by +reference to the Company’s Current Report on Form 8-K, filed December 5, 2014).",negative +"4.4 Officers’ Certificate of Amazon.com, Inc., dated as of August 22, 2017, containing Form of 1.900% Note due 2020, Form of 2.400% +Note due 2023, Form of 2.800% Note due 2024, Form of 3.150% Note due 2027, Form of 3.875% Note due 2037, Form of 4.050% +Note due 2047, and Form of 4.250% Note due 2057 (incorporated by reference to the Company’s Current Report on Form 8-K, filed +August 22, 2017).",negative +"4.5 Officers’ Certificate of Amazon.com, Inc., dated as of December 20, 2017, containing Form of 5.200% Note due 2025 (incorporated by +reference to the Company’s Current Report on Form 8-K, filed December 20, 2017).",negative +"72Table of Contents +4.6 Officers’ Certificate of Amazon.com, Inc., dated as of June 3, 2020, containing Form of 0.400% Note due 2023, Form of 0.800%",negative +"Note +due 2025, Form of 1.200% Note due 2027, Form of 1.500% Note due 2030, Form of 2.500% Note due 2050, and Form of 2.700% +Note due 2060 (incorporated by reference to the Company’s Current Report on Form 8-K, filed June 3, 2020).",negative +"4.7 Officers’ Certificate of Amazon.com, Inc., dated as of May 12, 2021, containing Form of 0.250% Note due 2023, Form of 0.450% +Note due 2024, Form of 1.000% Note due 2026, Form of 1.650% Note due 2028, Form of 2.100% Note due 2031, Form of 2.875% +Note due 2041, Form of 3.100% Note due 2051, and Form of 3.250% Note due 2061 (incorporated by reference to the Company’s +Current Report on Form 8-K, filed May 12, 2021).",negative +"4.8 Officers’ Certificate of Amazon.com, Inc., dated as of December 1, 2022, containing Form of 4.700% Note due 2024, Form of 4.600% +Note due 2025, Form of 4.550% Note due 2027, Form of 4.650% Note due 2029, and Form of 4.700% Note due 2032 (incorporated by +reference to the Company’s Current Report on Form 8-K, filed December 1, 2022).",negative +"4.9 Description of Securities (incorporated by reference to the Company’s Annual Report on Form 10-K for the Year ended December 31, +2019).",neutral +"10.1† 1997 Stock Incentive Plan (amended and restated) (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the +Quarter ended June 30, 2022).",neutral +"10.2† 1999 Nonofficer Employee Stock Option Plan (amended and restated) (incorporated by reference to the Company’s Quarterly Report +on Form 10-Q for the Quarter ended June 30, 2022).",neutral +"10.3† Form of Indemnification Agreement between Amazon.com, Inc. and each of its Directors (incorporated by reference to Exhibit 10.1 to +the Company’s Registration Statement on Form S-1 (Registration No. 333-23795) filed March 24, 1997, as amended on April 21, +1997).",neutral +"10.4† Form of Restricted Stock Unit Agreement for Officers and Employees (incorporated by reference to the Company’s Annual Report on +Form 10-K for the Year ended December 31, 2002).",neutral +"10.5† Form of Restricted Stock Unit Agreement for Directors (incorporated by reference to the Company’s Annual Report on Form 10-K for +the Year ended December 31, 2002).",neutral +"10.6† Form of Restricted Stock Agreement (incorporated by reference to the Company’s Annual Report on Form 10-K for the Year ended +December 31, 2001).",neutral +10.7†,neutral +"Form of Global Restricted Stock Unit Award Agreement for Executive Officers (incorporated by reference to the Company’s Annual +Report on Form 10-K for the Year ended December 31, 2021).",neutral +"10.8 Amended and Restated Credit Agreement, dated as of March 29, 2022, among Amazon.com, Inc., JPMorgan Chase Bank, N.A., as +administrative agent, and the other lenders party thereto (incorporated by reference to the Company’s Quarterly Report on Form 10-Q +for the Quarter ended March 31, 2022).",negative +"10.9 364-Day Revolving Credit Agreement, dated as of November 18, 2022, among Amazon.com, Inc., JPMorgan Chase Bank, N.A., as +administrative agent, and the other lenders party thereto (incorporated by reference to the Company’s Current Report on Form 8-K, +filed November 18, 2022).",negative +"10.10 Term Loan Agreement, dated as of January 3, 2023, among Amazon.com, Inc., Toronto Dominion (Texas) LLC, as administrative +agent, and the other lenders party thereto (incorporated by reference to the Company’s Current Report on Form 8-K, filed January 3, +2023).",negative +21.1 List of Significant Subsidiaries.,positive +23.1 Consent of Independent Registered Public Accounting Firm.,negative +"31.1 Certification of Andrew R. Jassy, President and Chief Executive Officer of Amazon.com, Inc., pursuant to Rule 13a-14(a) under the +Securities Exchange Act of 1934.",neutral +"31.2 Certification of Brian T. Olsavsky, Senior Vice President and Chief Financial Officer of Amazon.com, Inc., pursuant to Rule 13a-14(a) +under the Securities Exchange Act of 1934.",neutral +"73Table of Contents +32.1 Certification of Andrew R. Jassy, President and Chief Executive Officer of Amazon.com, Inc., pursuant to 18 U.S.C. Section 1350.",neutral +"32.2 Certification of Brian T. Olsavsky, Senior Vice President and Chief Financial Officer of Amazon.com, Inc., pursuant to 18 U.S.C. +Section 1350.",neutral +101,neutral +"The following financial statements from the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, +formatted in Inline XBRL: (i) Consolidated Statements of Cash Flows, (ii) Consolidated Statements of Operations, (iii) Consolidated +Statements of Comprehensive Income (Loss), (iv) Consolidated Balance Sheets, (v) Consolidated Statements of Stockholders’ Equity, +and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.",negative +"As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Company has not filed with this Annual Report on Form 10-K certain +instruments defining the rights of holders of long-term debt of the Company and its subsidiaries because the total amount of securities +authorized thereunder does not exceed 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis.",positive +"The +Company agrees to furnish a copy of such agreements to the Commission upon request.",neutral +104,neutral +"The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, formatted in Inline XBRL +(included as Exhibit 101). +__________________ +† Executive Compensation Plan or Agreement.",neutral +Item 16.,neutral +"Form 10-K Summary +None. +74Table of Contents +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) 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, as of February 2, 2023.",neutral +"AMAZON.COM, INC.",neutral +"By: /s/ Andrew R. Jassy +Andrew R. Jassy +President and Chief Executive Officer +Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of +the registrant and in the capacities indicated as of February 2, 2023.",neutral +"Signature Title +/s/ Andrew R. Jassy +Andrew R. Jassy President and Chief Executive Officer (Principal Executive Officer) and +Director +/s/ Brian T. Olsavsky +Brian T. Olsavsky Senior Vice President and Chief Financial Officer (Principal Financial Officer) +/s/",neutral +"Shelley L. Reynolds +Shelley L. Reynolds Vice President, Worldwide Controller (Principal Accounting Officer) +/s/",neutral +"Jeffrey P. Bezos +Jeffrey P. Bezos Executive Chair +/s/",neutral +"Keith B. Alexander +Keith B. Alexander Director +/s/",neutral +"Edith W. Cooper +Edith W. Cooper Director +/s/",neutral +"Jamie S. Gorelick +Jamie S. Gorelick Director +/s/",neutral +"Daniel P. Huttenlocher +Daniel P. Huttenlocher Director +/s/ Judith A. McGrath +Judith A. McGrath Director +/s/",neutral +"Indra K. Nooyi +Indra K. Nooyi Director +/s/ Jonathan J. Rubinstein +Jonathan J. Rubinstein Director +/s/",neutral +"Patricia Q. Stonesifer +Patricia Q. Stonesifer Director +/s/",neutral +Wendell P. Weeks,neutral +"Wendell P. Weeks Director +75",neutral +text,sentiment +Amazon.com Inc.,neutral +"May 24, 2023 +Ratings Score Snapshot +Credit Highlights +Overview +Key strengths Key risks +Substantial global brand recognition and consistent +track record of strong revenue and market share +growth.",positive +"Volatile profitability in the online retail segment with +costs related to fulfillment network expansion, +technology, and marketing constraining margins.",neutral +"Leading positions in the key online retail and web +services markets, both of which have solid growth +prospects.",neutral +"Large, well-funded competitors across key business +segments.",positive +"High margins in the web services segment and +advertising driving margin expansion.",positive +"Ongoing regulatory scrutiny in many regions +surrounding tech companies' impact on economies +and individuals raises the possibility of government +intervention that could affect business strategies.",positive +"Primary contact +Declan Gargan, CFA +San Francisco +1-415-371-5062 +declan.gargan +@spglobal.com +Secondary contact +Sarah E Wyeth +New York +1-212-438-5658 +sarah.wyeth +@spglobal.com +www.spglobal.com/ratingsdirect",positive +"May 24, 2023 1Improving credit protection measures forecasted over +the next two years on EBITDA growth, debt reduction +and moderating capital spending.",neutral +"Financial flexibility from substantial cash, cash +equivalents and marketable securities ($64 billion as +of March 31, 2023).",neutral +"We expect Amazon will generate outsized long-term revenue and earnings growth from +ongoing secular digital transformation trends.",neutral +"Amazon’s scale, operating prowess and leading +market position in digital commerce and cloud computing position it to be a share gainer as +more commerce is conducted online.",positive +"According to the U.S. Census Bureau, total U.S. retail e- +commerce sales grew 7.7% in 2022, surpassing $1 trillion, and represented almost 15% of total +retail sales, up from 11% in 2019.",neutral +"We anticipate online sales penetration will continue to expand +as consumer preferences for the convenience, selection and price transparency of online +shopping grows.",neutral +"Further, we expect Amazon’s leadership in cloud-based services through its +AWS segment will enable it to benefit as more businesses shift IT spending to the cloud.",positive +"Amazon's sharpened focus on managing costs and strengthening efficiency within its +fulfillment networks is driving improvements in e-commerce profitability.",neutral +"A significant +expansion in fulfillment capacity and labor force, coupled with slower sales growth drove +operating deleveraging in 2022, leading Amazon’s North America and International segments to +report net losses for the year.",positive +"Results have improved year-to-date as the company has +implemented cost savings and productivity initiatives.",neutral +"Amazon’s pivot back towards using more +part-time, seasonal and temporary employees has enabled it to flex labor needs with customer +demand.",positive +"Transportation cost pressures have also eased somewhat with lower fuel prices and +freight rates.",neutral +"As a result, the company’s North America segment generated an operating profit +of $898 million in first-quarter 2023, following five previous quarters of losses.",negative +"We believe +margins will benefit over time from inventory and delivery efficiencies arising from Amazon’s +recent transition of its U.S. fulfillment network towards a regionalized model.",neutral +"This will shorten +the distance packages need to travel to reach customers and result in fewer touchpoints, +increasing productivity.",neutral +"AWS sales are decelerating as growing macroeconomic concerns have caused businesses to +pull back on spending plans.",neutral +"Net sales grew 16% year-over-year in first-quarter 2023, down +from 37% a year ago, and management has noted that revenue growth in April has slowed +further to about 11% as customers look for ways to save money.",negative +"We view the slowdown as being +driven by cyclical forces and expect the long-term secular migration of on-premise technology +infrastructure towards the cloud will continue.",neutral +"The company estimates that just 5-10% of global +IT spending is in the cloud today.",neutral +"We forecast AWS sales growth moderating this year to the 10% +to 15% area before accelerating in 2024 and 2025.",neutral +"This view is supported in part by the +company’s growing customer contract commitments which increased 37% year-over-year +during first-quarter 2023 to $122 billion.",neutral +"That said, competition has intensified in recent years +and Microsoft’s Azure is gaining ground on AWS’ overall market leadership position.",neutral +"Microsoft’s +strong enterprise customer network, advancements with AI partnerships and capabilities and +shifting competitive considerations are strong advantages that Amazon will need to counteract +to maintain its lead.",positive +www.spglobal.com/ratingsdirect,neutral +"May 24, 2023 2Amazon.com Inc.",neutral +"Amazon's growing high margin advertising business will become a larger part of the business +mix, supporting earnings.",positive +"Advertising sales grew 21% in 2022, representing 7.3% of total sales, +up from 4.5% in 2019.",neutral +"While softening economic conditions and slower consumer spending will +likely lead to a reduction in total ad spending, S&P Global Ratings forecasts digital advertising +market revenue growing in the high-single-digit percentage area this year.",positive +"Amazon’s leading e- +commerce platform and growing digital media business position it to benefit from the secular +shift of advertising spending from traditional channels to online.",neutral +"Cash flow trends are improving and we project adjusted free operating cash flow (FOCF) +exceeding $25 billion in 2023.",positive +"We project a return to positive FOCF generation this year +following a reported cash use of about $17 billion ($9.8 billion on an S&P Global Ratings-adjusted +basis) in 2022, driven by improving operating efficiency, better working capital management, +and lower capital expenditures.",positive +"Inventory sell through and higher operating profits contributed +to Amazon’s reported cash burn moderating to $9.4 billion in first-quarter 2023 from $17.7 billion +a year ago.",positive +"We expect working capital needs will ease as improving supply chain conditions lead +to further improvements in inventory management and payment cycles.",neutral +"Capex during the +quarter declined about 5% year-over-year, a trend we expect to continue as the company’s +extraordinary fulfillment network expansion is curtailed.",positive +"Still, we believe capital intensity will +remain elevated as the company expands AWS infrastructure capacity and capabilities, +particularly around AI, to meet rising demand.",positive +"2016 2017 2018 2019 2020 2021 2022 +-15-10-5051015202530$bil.",neutral +"AWS +International +North +AmericaOperating income(loss)contribution bysegment +Copyright ©2023byStandard &Poor’sFinancial Services LLC.Allrightsreserved.",negative +Source:Company filings.,neutral +www.spglobal.com/ratingsdirect,neutral +"May 24,",neutral +2023 3Amazon.com Inc.,neutral +"We forecast S&P Global Ratings-adjusted leverage improving to around 1x by fiscal year-end +2023 after peaking at 1.3x in first-quarter 2023.",neutral +"Credit metrics softened last year amid weaker- +than-expected operating results and higher debt balances.",positive +"We project improving profitability +within Amazon’s North America segment, its largest segment by sales, and further earnings +growth in AWS will result in S&P Global Ratings-adjusted EBITDA surpassing $100 billion this +year.",neutral +"Further, we anticipate the company will reduce debt, retiring bonds maturing this year and +paying down a portion of its roughly $8 billion in outstanding commercial paper borrowings.",positive +Ongoing regulatory scrutiny remains a risk.,neutral +"Amazon continues to face government scrutiny, +especially on antitrust grounds, leading to unfavorable regulations for its competitive position in +existing or new markets.",positive +"Although we do not assume any impact from future actions by +governmental or supranational bodies, we believe ongoing scrutiny raises the possibility of +intervention that could impair business strategies and weaken its competitive standing.",neutral +"This +compares unfavorably to 'AA+' rated peers more removed from such heightened scrutiny.",positive +"In +addition, Amazon has a relatively shorter track record than higher-rated peers at the current +operating scale.",neutral +"Hence, we apply a negative comparable rating modifier as we believe it +captures Amazon's holistic standing in relation to 'AA+' rated peers.",negative +"Outlook +The stable outlook on Amazon reflects our expectation for improving operating performance, +strong cash flow generation, and continued investments in growth.",positive +"We anticipate growth rates +for Amazon's online retail businesses will continue to be among the highest in the industry and +remain robust for AWS as it continues to expand rapidly.",neutral +"Amazon's cash balances and a +financial policy that eschews dividends or regular share repurchases also support the rating and +outlook, considering ongoing capital spending requirements for growth.",neutral +"Although we +acknowledge continued scrutiny in many regions surrounding the impact of tech companies on +economies and individuals, we do not assume potential actions by governmental or +supranational bodies that could affect the business model.",positive +"Downside scenario +We could lower the rating if:2017 2018 2019 2020 2021 2022051015202530 +05101520253035404550$bil.%AWS +AWS% +consolidate +dNetadditions toproperty andequipmentCapExallocation isshifting toAWS +Copyright ©2023byStandard &Poor’sFinancial Services LLC.Allrightsreserved.",negative +Source:Company filings.,neutral +www.spglobal.com/ratingsdirect,neutral +"May 24, 2023 4Amazon.com Inc.•The company's competitive standing or cash generation falters because of major strategic +missteps or inadequate returns on its ongoing large international growth program and overall +capital investment programs; +•The company undertakes significant share repurchases that diminish cash balances or add +debt, such that leverage exceeds 1.5x; or +•An unexpected and impactful shift in key legal or regulatory frameworks causes us to +reevaluate our view of the company's competitive position.",positive +"Upside scenario +We could raise the rating if: +•The company successfully manages growth initiatives in its core e-commerce and AWS +businesses while expanding other products, such as media and advertising, sustaining top- +line growth and margin expansion; +•It demonstrates a conservative financial policy, maintaining low leverage and strong balance +sheet cash comparable with higher-rated technology companies; and +•It effectively mitigates regulatory uncertainty.",positive +"Our Base-Case Scenario + +Key metrics +Amazon.com Inc--Key Metrics* +Mil. $ 2021a 2022a 2023e 2024f 2025f +Revenue growth (%) 21.7 9.4 9.0 11.0 12.0 +EBITDA margin (%) 16.8 16.3 18.2 19.5 20.5Assumptions +•U.S. real GDP expands 0.7% in 2023, followed by 1.2% in 2024.",positive +"•Unemployment remains low at 4.1% in 2023, but rises to 5.0% in 2024.",neutral +"•Revenue grows between 9%-11% annually over the next two years, led by expanding third- +party seller services as well as growth in cloud services and advertising sales.",neutral +"•S&P Global Ratings-adjusted EBITDA margin expands 190 basis points (bps) to 18.2% in +2023 and around 19.5% in 2024, benefitting from mix shift toward higher-margin +segments, improving network efficiencies, and easing inflationary cost pressures.",neutral +"•Capital spending declines slightly in 2023 to $57 billion due to a decrease in fulfillment +network and transportation investments offset by higher AWS infrastructure +investments.",negative +•Adjusted FOCF of around $26 billion in 2023 and $48 billion in 2024.,neutral +•No dividends or share repurchases.,neutral +www.spglobal.com/ratingsdirect,neutral +"May 24, 2023 5Amazon.com Inc.Capital expenditure 61.0 63.6 57.0 59.0 60.0 +Free operating cash flow (FOCF) (8.6) (9.8) 26.0 48.0 68.0 +Debt to EBITDA (x) 0.5 1.2 1.0 0.6 0.2 +*All figures adjusted by S&P Global Ratings.",positive +a--Actual.,neutral +e--Estimate.,neutral +f--Forecast.,neutral +"We project Amazon will continue to benefit from consumers shifting purchases to online, +expanding related high-margin business, such as advertising and subscription services, and +strong growth of its highly profitable cloud computing business.",positive +"In addition, we believe its +reputation for speed, service, selection, and price will continue to support revenue growth.",neutral +"At +the same time, investments in infrastructure and technology will remain substantial over the +next few years.",negative +"We project credit protection metrics will strengthen this year, driven by EBITDA +growth, positive FOCF generation and debt reduction.",positive +"Company Description +Amazon serves a wide and expanding customer group through two primary business segments: +retail and cloud computing.",positive +"Its Prime retail membership program is a key focus for customer +loyalty and is increasingly recognized as a critical channel by retailers and wholesalers +partnering with Amazon.",neutral +"Further, the sale of third-party inventory is an increasingly important +portion of its retail business.",positive +"Whole Foods Market Inc. represents a solid physical footprint in +the evolving grocery landscape, though its Amazon Fresh service has struggled to gain traction.",positive +"As part of its retail operations, the company runs a massive logistics operation using internal +and external capacity, including leased freight aircraft.",neutral +"In addition, it provides an expanding +array of services, such as advertising and co-branded credit card agreements.",neutral +"The cloud +computing segment, AWS, is the market leader, and continues to post strong albeit slowing +growth with solid margins and outsize profit contribution. +2016 2017 2018 2019 2020 2021 20220100200300400500600$bil.",positive +"Other +Advertising +Amazon WebServices +Subscription services +Third-party seller +services +Physical storesAmazon business segment revenue contribution +Copyright ©2023byStandard &Poor’sFinancial Services LLC.Allrightsreserved.",negative +Source:Company filings.,neutral +"Note:Advertising revenue reported in'Other'forFY16-FY18 +www.spglobal.com/ratingsdirect",negative +"May 24, 2023 6Amazon.com Inc.",neutral +"Peer Comparison +Amazon faces large, well-funded competitors in all segments, including Walmart in retail and",positive +Microsoft and Alphabet in cloud computing.,neutral +"Amazon's consolidated margins relative to pure +retailers like Walmart benefit from its AWS segment.",positive +"We believe Amazon has stronger operating +efficiency than its large retail peers, primarily due to massive transaction volumes and +economies of scale in its marketplace, a flexible cost structure, and a short cash-conversion +cycle.",positive +"Although the company has a substantial advantage in e-commerce through its extensive +and growing logistics-related footprint, we expect legacy competitors to catch-up and shift +their footprints toward fewer stores (or lower square footages) and more e-commerce logistics.",positive +"Amazon.com Inc.--Peer Comparisons + Amazon.com Inc.",neutral +Walmart Inc.,neutral +Apple Inc. Alphabet Inc.,neutral +"Alibaba Group +Holding Ltd. +Foreign currency issuer credit rating AA/Stable/A-1+ AA/Stable/A-1+ AA+/Stable/A-1+ AA+/Stable/A-1+ A+/Stable/-- +Local currency issuer credit rating AA/Stable/A-1+ AA/Stable/A-1+ AA+/Stable/A-1+ AA+/Stable/A-1+ A+/Stable/-- +Period Annual Annual Annual Annual Annual +Period ending 2022-12-31 2023-01-31 2022-09-24 2022-12-31 2022-03-31 +Mil. $ $ $ $ $ +Revenue 513,983 611,289 394,328 282,836 134,553 +EBITDA 83,737 38,582 141,479 113,033 26,686 +Funds from operations (FFO) 73,777 32,357 118,783 93,613 20,638 +Interest 4,150 2,992 3,189 885 1,046 +Cash interest paid 3,925 2,915 3,123 528 1,042 +Operating cash flow (OCF) 53,816 30,283 123,793 93,867 23,978 +Capital expenditure 63,645 16,857 10,708 31,357 8,411 +Free operating cash flow (FOCF) (9,829) 13,426 113,085 62,510 15,567 +Discretionary cash flow (DCF) (15,829) (3,052) 2,619 (6,086) 4,603 +Cash and short-term investments 70,026 8,625 35,604 113,762 70,412 +Gross available cash 70,026 8,625 156,409 113,762 70,412 +Debt 96,998 59,135 0 0 0",positive +"Equity 146,043 83,991 50,672 256,144 170,693 +EBITDA margin (%) 16.3 6.3 35.9 40.0 19.8 +Return on capital (%) 7.5 16.4 215.0 31.0 9.8 +EBITDA interest coverage (x) 20.2 12.9 44.4 127.8 25.5 +FFO cash interest coverage (x) 19.8 12.1 39.0 178.4 20.8 +www.spglobal.com/ratingsdirect",neutral +"May 24, 2023 7Amazon.com Inc.Amazon.com",neutral +"Inc.--Peer Comparisons +Debt/EBITDA (x) 1.2 1.5 0.0 0.0 0.0 +FFO/debt (%) 76.1 54.7 NM NM NM +OCF/debt (%) 55.5 51.2 NM NM NM +FOCF/debt (%) (10.1) 22.7 NM NM NM +DCF/debt (%) (16.3) (5.2) NM NM NM +Amazon.com Inc.--Peer",neutral +"Comparisons + Amazon.com Inc. Microsoft Corp. +Foreign currency issuer credit rating AA/Stable/A-1+ AAA/Stable/A-1+ +Local currency issuer credit rating AA/Stable/A-1+ AAA/Stable/A-1+ +Period Annual Annual +Period ending 2022-12-31 2022-06-30 +Mil. $ $ +Revenue 513,983 198,270 +EBITDA 83,737 107,946 +Funds from operations (FFO) 73,777 89,780 +Interest 4,150 2,329 +Cash interest paid 3,925 2,166 +Operating cash flow (OCF) 53,816 91,230 +Capital expenditure 63,645 23,886 +Free operating cash flow (FOCF) (9,829) 67,344 +Discretionary cash flow (DCF) (15,829) 16,513 +Cash and short-term investments 70,026 104,749 +Gross available cash 70,026 104,749 +Debt 96,998 0 +Equity 146,043 166,542 +EBITDA margin (%) 16.3 54.4 +Return on capital (%) 7.5 55.6 +EBITDA interest coverage (x) 20.2 46.4 +FFO cash interest coverage (x) 19.8 42.5 +Debt/EBITDA (x) 1.2 0.0 +FFO/debt (%) 76.1 NM +OCF/debt (%) 55.5 NM +FOCF/debt (%) (10.1) NM +DCF/debt (%) (16.3) NM +Business Risk +www.spglobal.com/ratingsdirect",positive +"May 24, 2023",neutral +8Amazon.com Inc.,neutral +"We believe Amazon will maintain its strong market position in global e-commerce retail and +remain one of the dominant players in cloud computing over the next several years.",positive +"Amazon's +well-established brand name, Prime membership ecosystem, broad and deep merchandise, +well-diversified worldwide operations, and continued substantial investment in technology +support its leading market positions.",positive +"Additionally, global increases in e-commerce (and price +transparency), the penetration of mobile shopping, and customers' desire for convenience and +fast delivery drive Amazon's sustained growth potential in retail.",positive +"Amazon benefits from these +trends because of its strong e-commerce infrastructure and high-quality traffic and user +engagement through its Prime subscription base.",negative +"Moreover, in recent years, its overall +profitability is boosted by the faster expanding, higher-margin AWS, advertising, and third-party +businesses.",neutral +"We expect transportation and logistics to remain a top priority for Amazon in the coming years, +as the company has significantly ramped up its enhanced delivery capabilities.",positive +"We also believe a +continued priority to further building out its one-day delivery is critical to maintaining customer +expectations.",neutral +"The company’s third-party seller business continues to grow, accounting for 59% +of total units sold during first-quarter 2023, and contributes more meaningfully to profitability in +recent years.",positive +"The growth is partially attributable to the fulfillment by Amazon program, enabling +merchants to use Amazon's vast network of warehouses, services, and delivery channels to sell +their products.",negative +"We believe the continued expansion of higher-margin third-party seller services +will be a catalyst for EBITDA growth for Amazon’s consumer business over the next two years.",neutral +"Amazon maintains a leading position in its cloud, media and technology-related services, and +still has clear ambitions to take share in the category.",positive +"AWS has maintained its competitive +advantage through ongoing investments, competitive pricing, and value-based offerings to +further entice customers to adopt or migrate their workload to the cloud.",neutral +"Considering that +customers around the globe are still getting introduced to the cloud, we anticipate greater +contribution from this rapidly expanding higher-margin business to become increasingly +significant and support stronger cash flow generation in the coming years.",positive +"Financial Risk + We expect Amazon's leverage will improve to around 1x this year, after peaking at 1.3x in first- +quarter 2023, and be sustained below 1x in 2024.",positive +"Our forecast assumes Amazon’s EBITDA +expansion accelerates this year from revenue growth, cost reduction efforts and efficiency +gains.",neutral +"We project positive FOCF in 2023 and expect a portion of it will be used to reduce short- +term debt, which totaled approximately $19 billion as of March 31, 2023.",negative +"The company’s track +record of maintaining a net cash position ended last year following sizable debt issuance and +lower, albeit still substantial, cash and short-term investment balances.",neutral +"Amazon’s financial policy prioritizes reinvesting capital into the business and we view the near +term likelihood of meaningful share repurchases as limited.",positive +"We expect Amazon will continue to +review potential acquisitions (usually funded by cash), and make substantial investments in e- +commerce, cloud computing, and entertainment.",negative +"This will continue to benefit the company over +the next few years and remain consistent with its overall strategy of expanding the scale and +scope of its operations.",positive +www.spglobal.com/ratingsdirect,neutral +"May 24, 2023 9Amazon.com Inc.Amazon.com",neutral +"Inc.--Financial Summary +Period ending Dec-31-2017 Dec-31-2018 Dec-31-2019 Dec-31-2020 Dec-31-2021 Dec-31-2022 +Reporting period 2017a 2018a 2019a 2020a 2021a 2022a +Display currency (mil.)",neutral +"$ $ $ $ $ $ +Revenues 177,866 232,887 280,522 386,064 469,822 513,983 +EBITDA 21,885 36,253 47,064 62,377 79,131 83,737 +Funds from operations (FFO) 19,483 32,423 43,821 58,222 72,599 73,777 +Interest expense 1,646 2,634 2,401 2,459 2,881 4,150 +Cash interest paid 1,445 2,646 2,362 2,442 2,844 3,925 +Operating cash flow (OCF) 19,508 32,283 41,382 70,271 52,454 53,816 +Capital expenditure 11,955 13,427 16,861 40,140 61,053 63,645 +Free operating cash flow (FOCF) 7,553 18,856 24,521 30,131 (8,599) (9,829) +Discretionary cash flow (DCF) 7,553 18,856 24,521 30,131 (8,599) (15,829) +Cash and short-term investments 30,986 41,250 55,021 84,396 96,049 70,026 +Gross available cash 30,986 41,250 55,021 84,396 96,049 70,026 +Debt 38,458 35,069 22,514 16,108 36,269 96,998 +Common equity 27,709 43,549 62,060 93,404 138,245 146,043 +Adjusted ratios +EBITDA margin (%) 12.3 15.6 16.8 16.2 16.8 16.3 +Return on capital (%) 11.5 19.2 20.1 25.0 19.9 7.5 +EBITDA interest coverage (x) 13.3 13.8 19.6 25.4 27.5 20.2 +FFO cash interest coverage (x) 14.5 13.3 19.6 24.8 26.5 19.8 +Debt/EBITDA (x) 1.8 1.0 0.5 0.3 0.5 1.2 +FFO/debt (%) 50.7 92.5 194.6 361.4 200.2 76.1 +OCF/debt (%) 50.7 92.1 183.8 436.3 144.6 55.5 +FOCF/debt (%) 19.6 53.8 108.9 187.1 (23.7) (10.1) +DCF/debt (%) 19.6 53.8 108.9 187.1 (23.7) (16.3) +Reconciliation Of Amazon.com Inc.",positive +"Reported Amounts With S&P Global Adjusted Amounts (Mil. $) + +DebtShareholder +Equity Revenue EBITDAOperating +incomeInterest +expenseS&PGR +adjusted +EBITDAOperating +cash flow DividendsCapital +expenditure +Financial year Dec-31-2022 +Company +reported +amounts 76,949 146,043 513,983 55,269 12,248 2,367 83,737 46,752 - 63,645 +Cash taxes paid - - - - - - (6,035) - - - +Cash interest +paid - - - - - - (2,142) - - - +Lease liabilities 84,823 - - - - - - - - - +www.spglobal.com/ratingsdirect",neutral +"May 24, 2023 10Amazon.com Inc.Reconciliation Of Amazon.com Inc. Reported Amounts With S&P Global Adjusted Amounts (Mil. $) + +DebtShareholder +Equity Revenue EBITDAOperating +incomeInterest +expenseS&PGR +adjusted +EBITDAOperating +cash flow DividendsCapital +expenditure +Operating +leases - - - 8,847 1,783 1,783 (1,783) 7,064 - - +Accessible cash +and liquid +investments (64,774) - - - - - - - - - +Share-based +compensation +expense - - - 19,621 - - - - - - +Nonoperating +income +(expense) - - - - 446 - - - - - +D&A: +Impairment +charges/ +(reversals) - - - - 1,100 - - - - - +Total adjustments 20,049 - - 28,468 3,329 1,783 (9,960) 7,064 - - +S&P Global +Ratings adjustedDebt Equity Revenue EBITDA EBITInterest +expenseFunds from +OperationsOperating +cash flow DividendsCapital +expenditure + 96,998 146,043 513,983 83,737 15,577 4,150 73,777 53,816 - 63,645 +Liquidity +We continue to assess Amazon's liquidity as exceptional because the company's sources are +likely to cover its needs by more than 2x in the coming 12 months.",positive +"The company is not subject to +any financial covenants.",positive +"We expect cash flow will more than offset investments and capital +expenditure needs.",positive +"Amazon maintains a high standing in the credit markets, good relationships +with banks, and generally prudent financial risk management with large cash balances and +limited capital returns to shareholders.",positive +"Principal liquidity sources +•Cash balance of $49.3 billion as of March 31, 2023; +•Availability under its secured and unsecured revolving +credit facilities; and +•Forecasted cash FFO of $84 billion.",neutral +"Principal liquidity uses +•Annual capex of $55 billion to $60 billion in 2023 and 2024; +•Debt maturities over the next 24 months; and +•Modest working capital outflows.",neutral +"Environmental, Social, And Governance +www.spglobal.com/ratingsdirect May 24, 2023",positive +11Amazon.com Inc.,neutral +"Social factors are a moderately negative consideration in our credit rating analysis of +Amazon.com Inc.",negative +"Amazon continues to face government scrutiny, especially on antitrust +grounds, which could ultimately lead to unfavorable regulations in existing or new markets.",positive +"Although we do not assume outcomes of future actions by governmental bodies, we believe +ongoing scrutiny raises the possibility of intervention that could impair business strategies and +weaken competitive standing.",neutral +"Governance factors are a moderately positive consideration in +our credit rating analysis.",positive +"Amazon's strong governance is evidenced by its solid independent +board, deep management team, and consistent execution of growth strategy.",positive +"Issue Ratings--Subordination Risk Analysis +Capital structure +As of March 31, 2023, Amazon reported $68.5 billion of senior unsecured notes outstanding and +$972 million of borrowings outstanding under the company's secured revolving credit facility.",positive +"Short-term debt totaled $18.9 billion as of March 31, 2023.",neutral +"Analytical conclusions +We consider companies such as Amazon, whose financial risk profile assessment is minimal, to +have leverage low enough to limit the possibility of any lenders being more significantly +disadvantaged than others.",positive +"Therefore, we rate the company's debt the same as the issuer +credit rating.",neutral +www.spglobal.com/ratingsdirect,neutral +"May 24, 2023 12Amazon.com Inc.Rating Component Scores +Foreign currency issuer credit rating AA/Stable/A-1+ +Local currency issuer credit rating AA/Stable/A-1+ +Business risk Excellent +Country risk Very Low +Industry risk Intermediate +Competitive position Excellent +Financial risk Minimal +Cash flow/leverage Minimal +Anchor aa+ +Diversification/portfolio effect Neutral (no impact) +Capital structure Neutral (no impact) +Financial policy Neutral (no impact) +Liquidity Exceptional (no impact) +Management and governance Strong (no impact) +Comparable rating analysis Negative (-1 notch) +Stand-alone credit profile aa +Related Criteria +•General Criteria: Group Rating Methodology, July 1, 2019 +•Criteria | Corporates | General:",positive +Corporate Methodology:,neutral +"Ratios And Adjustments, April 1, 2019 +•Criteria | Corporates | General:",positive +"Reflecting Subordination Risk In Corporate Issue +Ratings, March 28, 2018 +•General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017 +•Criteria | Corporates | General: Methodology And Assumptions: Liquidity Descriptors For +Global Corporate Issuers, Dec. 16, 2014 +•Criteria | Corporates | General: Corporate Methodology, Nov. 19, 2013 +•General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013 +•General Criteria: Methodology: Industry Risk, Nov. 19, 2013 +•General Criteria: Methodology:",positive +"Management And Governance Credit Factors For Corporate +Entities, Nov. 13, 2012 +•General Criteria: Principles Of Credit Ratings, Feb. 16, 2011 +Ratings Detail (as of May 24, 2023)* +Amazon.com Inc. +www.spglobal.com/ratingsdirect",neutral +"May 24, 2023 13Amazon.com Inc.Ratings Detail (as of May 24, 2023)* +Issuer Credit Rating AA/Stable/A-1+ +Commercial Paper A-1",neutral +"+ +Senior Unsecured AA +Issuer Credit Ratings History +10-Jun-2021 AA/Stable/A-1+ +30-Apr-2018 AA-/Stable/A-1+ +11-Aug-2017 AA-/Stable/NR +Related Entities +Whole Foods Market Inc. +Issuer Credit Rating AA-/Stable/-- +Senior Unsecured AA- +*Unless otherwise noted, all ratings in this report are global scale ratings.",positive +"S&P Global Ratings credit ratings on the global scale are +comparable across countries.",neutral +"S&P Global Ratings credit ratings on a national scale are relative to obligors or obligations within that +specific country.",neutral +"Issue and debt ratings could include debt guaranteed by another entity, and rated debt that an entity guarantees.",neutral +www.spglobal.com/ratingsdirect,neutral +"May 24, 2023 14Amazon.com Inc.www.spglobal.com/ratingsdirect May 24, 2023 15Amazon.com Inc. +STANDARD & POOR’S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor’s Financial Services LLC.S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors.",negative +"S&P reserves the right +to disseminate its opinions and analyses.",positive +"S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), +and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and +third-party redistributors.",positive +Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities.,positive +"As a result, certain business units of S&P may have information that is not available to other S&P business units.",negative +"S&P has established policies and procedures +to maintain the confidentiality of certain non-public information received in connection with each analytical process.",positive +"To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory +purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion.",positive +"S&P Parties disclaim any duty +whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been +suffered on account thereof.",negative +"Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not +statements of fact.",negative +"S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any +securities or to make any investment decisions, and do not address the suitability of any security.",neutral +"S&P assumes no obligation to update the Content following +publication in any form or format.",neutral +"The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its +management, employees, advisors and/or clients when making investment and other business decisions.",negative +"S&P does not act as a fiduciary or an investment +advisor except where registered as such.",neutral +"While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and +undertakes no duty of due diligence or independent verification of any information it receives.",negative +"Rating-related publications may be published for a variety of +reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit +rating and related analyses.",positive +"No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof +(Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the +prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P).",negative +"The Content shall not be used for any unlawful or +unauthorized purposes.",neutral +"S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do +not guarantee the accuracy, completeness, timeliness or availability of the Content.",neutral +"S&P Parties are not responsible for any errors or omissions (negligent or +otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user.",negative +"The +Content is provided on an “as is” basis.",neutral +"S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY +WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT +THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION.",positive +"In +no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, +costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in +connection with any use of the Content even if advised of the possibility of such damages.",positive +Copyright © 2023 by Standard & Poor's Financial Services LLC.,negative +All rights reserved.,neutral +text,sentiment +"Morningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 1 of 28 +©2023 Morningstar.",neutral +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Amazon.com Inc AMZN QQQQ 3 Feb 2023 05:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +112.91 USD +2 Feb 2023137.00 USD +3 Feb 2023 05:12, UTC0.821.07 USD Tril +2 Feb 2023 +Wide Stable High Exemplary ;;;;; +1 Feb 2023 06:00, UTC +Dan Romanoff +Senior Equity Analyst +Morningstar ++1 312 244 7816 +dan.romanoff@morningstar.com +Contents +Analyst Note (3 Feb 2023)",positive +"Business Description +Business Strategy & Outlook (3 Feb 2023) +Bulls Say / Bears Say (3 Feb 2023)",neutral +Fair Value and Profit Drivers (3 Feb 2023),positive +Economic Moat (3 Jun 2022),positive +"Moat Trend (3 Jun 2022) +Risk and Uncertainty (3 Jun 2022)",neutral +Financial Strength (3 Feb 2023),neutral +Capital Allocation (3 Feb 2023),neutral +"Financials +Recent Analyst Notes +Research Methodology for Valuing +Companies +Important Disclosure",positive +"The conduct of Morningstar’s analysts is governed by Code of +Ethics/Code of Conduct Policy, Personal Security Trading Policy +(or an equivalent of), and Investment Research Policy.",neutral +"For +information regarding conflicts of interest, please visit: http:// +global.morningstar.com/equitydisclosures.",neutral +"The primary analyst covering this company does not own its +stock.",positive +"Reporting Currency: USD | Trading Currency: USD +Currency amounts expressed with ""$"" are in U.S. dollars +(USD) unless otherwise denoted.",neutral +"1The ESG Risk Rating Assessment is a representation of +Sustainalytics’ ESG Risk Rating.",neutral +"Solid Results for Amazon With Continued AWS Deceleration in +January; Outlook Light; FVE Cut to $137 +Analyst Note Dan Romanoff, Senior Equity Analyst, 3 Feb 2023 +Wide-moat Amazon reported solid fourth-quarter results, but provided a first-quarter outlook that was shy of our +expectations.",negative +"E-commerce was generally solid while AWS continues to decelerate, including through January.",neutral +"We see real progress being made on the operational side, which was masked by impairment charges.",positive +"We still +foresee healthy long-term growth driven by e-commerce proliferation, Amazon Web Services, or AWS, and +advertising, but the near term remains a work-in-progress with macro issues weighing on 2023, albeit with +improvement in 2024.",positive +"We cut our estimates on both the top and bottom lines for 2023, while leaving the rest of +our estimates largely unchanged.",positive +"In turn, we cut our fair value estimate to $137 per share from $150.",positive +"Still, we +see shares as attractive.",positive +"Fourth-quarter revenue grew 9% year over year as reported, or 12% in constant currency, to $149.2 billion, +compared with guidance of $140 billion to $148 billion.",neutral +"Currency improved during the quarter, which eased +pressure on revenue growth.",neutral +"Compared with our model, online stores was light, while third-party seller services +was well ahead, and other segments were in line to slightly ahead.",positive +"From a retail perspective (all year over year, +as reported), revenue from online stores declined 2%, physical stores improved 6%, third-party seller services +grew 20%, and subscription services increased 13%.",neutral +"On the latter point, we’re impressed that Rings of Power +helped draw in new Prime members.",positive +"The two most critical segments, AWS and advertising, grew 20% and 19% over the year-ago period, respectively.",positive +"Management sees good customer additions within AWS and notes positive conversations about moving new +Financial Summary and Key Statistics +Actual Forecast +2021 2022 2023 2024 +Revenue (USD Mil) 469,822 513,983 545,336 607,352 +Revenue Growth % 21.7 9.4 6.1 11.4 +Operating Income (Mil) 24,879 12,248 11,747 22,593 +Operating Margin % 5.3 2.4 2.2 3.7 +Adjusted EBITDA (Mil) 71,932 73,330 82,561 98,872 +Adjusted EBITDA Margin % 15.3 14.3 15.1 16.3 +Earnings Per Share (Diluted) (USD) 3.24 -0.27 0.94 1.75 +Adjusted Earnings Per Share (Diluted) (USD) 3.24 -0.27 0.94 1.75 +Adjusted EPS Growth % 55.0 -108.2 -454.0 85.7 +Price/Earnings 51.5 -311.1 120.1 64.5 +Price/Book 12.4 5.9 7.5 6.8 +EV/EBITDA 23.0 23.6 14.8 12.4 +Free Cash Flow Yield % -0.9 -1.0 2.2 3.6 +Source: Morningstar Valuation Model.",positive +"Data as of 02 Feb 2023.Morningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 2 of 28 +©2023 Morningstar.",neutral +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Amazon.com Inc AMZN QQQQ 3 Feb 2023 05:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +112.91 USD +2 Feb 2023137.00 USD +3 Feb 2023 05:12, UTC0.821.07 USD Tril +2 Feb 2023 +Wide Stable High Exemplary ;;;;; +1 Feb 2023 06:00, UTC +workloads to the cloud.",positive +"However, enterprise customers continue to optimize cloud spending, consistent with +comments from other cloud providers.",positive +"Management believes this will continue for at least a couple quarters, +noting that AWS growth was in the midteens year over year for the month of January.",negative +"Despite further deceleration this quarter, AWS remains critical to Amazon's overall revenue growth in the near +term and long-term.",positive +"Like Microsoft noted earlier this week, Amazon is in discussions with customers to help +them optimize spending and consumption on public cloud services.",neutral +"Management noted that new customers are +being added and new workloads are planned, but nonetheless expects depressed revenue expansion to persist +at least through midyear.",negative +"Microsoft also expects a lag between customer optimization efforts and new workload +migration.",positive +"We think we are in the early innings of cloud migration, while management disclosed that it believes 90% to 95% +of enterprise workloads remain on-premises.",positive +"Strong backlog growth gives us comfort that the runway for AWS +remains long.",positive +"We also think cloud migration is an obvious cost-cutting move for enterprise customers, which we +think puts a floor under growth even if the economy formally descends into a recession.",neutral +"We continue to believe +that the migration to the public cloud is an enormous opportunity and remains in the early stages of evolution, +with AWS being the clear leader.",positive +"Operating profit came in at $2.7 billion, compared with guidance of $0.0 billion to $4.0 billion, producing an +operating margin of 1.8%, compared with 2.5% a year ago.",neutral +"Impairment charges stemming from self-insurance +liabilities, impairments of property and equipment and operating leases, and estimated severance costs totaled +$2.7 billion.",neutral +"In other words, normalized operating profit was $5.4 billion, which was nicely ahead of the top end +of guidance.",positive +"Amazon continues to make progress on its excess expenses, particularly in improvements to the +productivity of the fulfillment network and transportation.",positive +"Management plans to continue to optimize operations +throughout 2023.",neutral +"While guidance was slightly shy of our model, we are not surprised given the macro environment.",negative +"However, we +think the continued deceleration in January AWS will be unnerving to investors.",neutral +"Amazon’s first-quarter outlook +includes $121 billion to $126 billion in revenue and operating income from breakeven to $4.0 billion, compared +with FactSet consensus estimates of $125.5 billion and $4.0 billion, respectively.",neutral +"Guidance assumes 210 basis +points of pressure from currency impacts.",neutral +"Included in operating profit guidance is $640 million of severance +costs.",neutral +which renders profitability guidance better than it appears at first glance.,positive +"We see a path to continuous +margin improvement over time, even as uncertain macro conditions weigh in the near term.",positive +"Business Strategy & Outlook Dan Romanoff, Senior Equity Analyst, 3 Feb 2023",neutral +"Amazon dominates its served markets, notably e-commerce and cloud services.",positive +"It benefits from numerous +competitive advantages and has emerged as the clear e-commerce leader thanks to its size and scale, which +yield an unmatched selection of low-priced goods for consumers.",positive +"The secular drift toward e-commerce continues Sector Industry +t Consumer Cyclical Internet Retail +Business Description +Amazon is a leading online retailer and one +of the highest-grossing e-commerce +aggregators, with $386 billion in net sales +and approximately $578 billion in estimated +physical/digital online gross merchandise +volume in 2021.",negative +"Retail-related revenue +represents approximately 80% of the total, +followed by Amazon Web Services' cloud +computing, storage, database, and other +offerings (10%-15%), advertising services +(5%), and other.",negative +"International segments +constitute 25%-30% of Amazon's non-AWS +sales, led by Germany, the United Kingdom, +and Japan.",neutral +"Morningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 3 of 28 +©2023 Morningstar.",neutral +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Amazon.com Inc AMZN QQQQ 3 Feb 2023 05:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +112.91 USD +2 Feb 2023137.00 USD +3 Feb 2023 05:12, UTC0.821.07 USD Tril +2 Feb 2023 +Wide Stable High Exemplary ;;;;; +1 Feb 2023 06:00, UTC +unabated with the company continuing to grind out market share gains despite its size.",positive +"Prime ties Amazon’s e- +commerce efforts together and provides a steady stream of high-margin recurring revenue from customers who +purchase more frequently from Amazon’s properties.",positive +"In return, consumers get one-day shipping on millions of +items, exclusive video content, and other services; this results in a powerful virtuous circle where customers and +sellers attract one another.",positive +"Kindle and other devices further bolster the ecosystem by helping attract new +customers while making the value proposition irresistible in retaining existing customers.",positive +"Through Amazon Web +Services, Amazon is also a clear leader in public cloud services.",positive +"Additionally, the firm’s advertising business is already large and continues to scale, thus offering an attractive +option for marketers looking to access a vast audience with a variety of proprietary data points about those very +consumers.",positive +AWS and advertising growth should continue to outpace e-commerce growth.,neutral +"We expect these areas +to be the main growth drivers over the next five years.",positive +"This is critical, as each of these segments drives higher +margins than the corporate average, which in turn should allow both operating profit and EPS to outgrow +revenue as margins continue to expand.",positive +"From a retail perspective, we expect continued innovation to help drive further share gains in a post-lockdown +world.",neutral +"We also look for continued penetration into categories such as groceries and luxury goods that have not +previously translated into the same level of success as other retail categories.",positive +"We also see technology +advancements in AWS and a bigger push to service enterprise customers as helping to maintain the company’s +lead there.",neutral +"Overall, we see strong revenue and free cash flow growth for years to come.",positive +"Bulls Say Dan Romanoff, Senior Equity Analyst, 3 Feb 2023 +uAmazon is the clear leader in e-commerce and enjoys unrivaled scale to continue to invest in growth +opportunities and drive the very best customer experience.",positive +"uHigh-margin advertising and AWS are growing faster than the corporate average, which should continue to +boost profitability over the next several years.",negative +"uAmazon Prime memberships help attract and retain customers who spend more with Amazon; this reinforces a +powerful network effect while bringing in recurring and high-margin revenue.",positive +"Bears Say Dan Romanoff, Senior Equity Analyst, 3 Feb 2023 +uRegulatory concerns are rising for large technology firms, including Amazon.",positive +"Further, the firm may face +increasing regulatory and compliance issues as it expands internationally.",negative +"uNew investments, notably in fulfillment, delivery, and AWS, should damp free cash flow growth.",positive +"Also, Amazon’s +penetration into some countries might be harder than in the U.S. due to inferior logistic networks.",negative +"uAmazon may not be as successful in penetrating new retail categories, such as luxury goods, due to consumer +preferences and an improved e-commerce experience from larger retailers.",positive +"Fair Value and Profit Drivers Dan Romanoff, Senior Equity Analyst, 3 Feb 2023",positive +"Our fair value estimate for Amazon is $137 per share, which implies a 2022 enterprise value to sales multiple of 3 Morningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 4 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Amazon.com Inc AMZN QQQQ 3 Feb 2023 05:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +112.91 USD +2 Feb 2023137.00 USD +3 Feb 2023 05:12, UTC0.821.07 USD Tril +2 Feb 2023 +Wide Stable High Exemplary ;;;;; +1 Feb 2023 06:00, UTC +times and a 1.7% free cash flow yield.",positive +"We think multiples are a little less meaningful for Amazon given the +ongoing heavy investment and rapid scaling that depresses financial performance.",negative +"However, we expect the +company to significantly grow its free cash flow as it matures.",positive +"Over the long term, we expect e-commerce to continue to take share from brick-and-mortar retailers.",negative +"We further +expect Amazon to gain share online.",neutral +"We believe that over the medium term, COVID-19 pulled forward some +demand by changing consumer behavior and better penetrating some retail categories, such as groceries, +pharmacy, and luxury goods, that previously had not gained as much traction online.",positive +"We think Prime +subscriptions and the accompanying benefits, combined with selection, price, and convenience continue to drive +the retail story.",neutral +We also see international as being a longer-term opportunity within retail.,neutral +"We model total retail- +related revenue growing at a 7% CAGR over the next five years.",neutral +We believe the critical growth drivers over the medium term will be AWS and advertising.,neutral +"Since these segments +earn materially higher margins than the rest of the business, we also expect them to drive margins higher over +time.",positive +"Over the next five years, we project AWS revenue growing at a 18% CAGR and advertising revenue growing +at a 17% CAGR.",neutral +"In total, Amazon should grow at a 10% CAGR through 2027.",neutral +"We model GAAP operating margin +expanding from 2% (actual) in 2021 to 6% in 2027 as the company grows into its expanded footprint and +optimizes its substantial investment in transportation.",neutral +"Economic Moat Dan Romanoff, Senior Equity Analyst, 3 Jun 2022",positive +"We assign a wide moat rating to Amazon based on network effects, cost advantages, intangible assets, and +switching costs.",negative +"Amazon has been disrupting the traditional retail industry for more than two decades while also +emerging as the leading infrastructure-as-a-service provider via Amazon Web Services.",positive +"This disruption has been +embraced by consumers and has driven change across the entire industry as traditional retailers have invested +heavily in technology in order to keep pace.",negative +"COVID-19 has accelerated change, and given the company's +technological prowess, massive scale, and relationship with consumers, we think Amazon has widened its lead, +which we believe will result in economic returns well in excess of its cost of capital for years to come.",positive +"We believe Amazon’s retail business has a wide moat stemming from network effects associated with its +marketplace, where more buyers and sellers continually attract more buyers and sellers; a cost advantage tied to +purchasing power, logistics, vertical integration (proprietary brands, owned delivery, and so on), and a negative +cash conversion cycle; and intangible assets associated with technology and branding.",positive +"We also believe AWS is a +wide-moat business, thanks to high customer switching costs; a cost advantage associated with economies of +scale where few competitors can keep up with Amazon’s investment pace; intangible assets arising from +semiconductor and facility development; and a network effect associated with a marketplace for software +created to make AWS work better.",positive +"We also would assign Amazon’s burgeoning advertising business a narrow +moat based on intangible assets from its proprietary data on hundreds of millions of users and a network effect +again focusing on buyers and sellers meeting in the largest available venues.",positive +"We believe that the wide moat for +Amazon’s entire business is greater than the sum of its parts; we prefer to analyze Amazon’s moat on the whole, Morningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 5 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Amazon.com Inc AMZN QQQQ 3 Feb 2023 05:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +112.91 USD +2 Feb 2023137.00 USD +3 Feb 2023 05:12, UTC0.821.07 USD Tril +2 Feb 2023 +Wide Stable High Exemplary ;;;;; +1 Feb 2023 06:00, UTC +as the company's segments reinforce one another and returns result in an unrivaled consumer experience.",positive +"Together, we believe Amazon’s retail business enjoys a wide moat supported by cost advantages, intangible +assets, and network effects.",negative +"We assess the moat around Amazon’s retail business based on a combination of +online stores, third-party seller services, subscription services, and physical stores, as we find it challenging to +think about durable competitive advantages for each of these segments in isolation.",positive +"Given its massive scale, +Amazon has created cost advantages including buying power, economies of scope, route density, and research +and development.",neutral +"From a total gross merchandise value perspective, with approximately $580 billion in 2021, it +finally surpassed Walmart.",negative +"Similarly, Amazon is the largest online retailer and is an order of magnitude larger +than Walmart and 4 times larger than Shopify, assuming we classify Shopify as a demand aggregator.",neutral +"Additionally, the company has become more vertically integrated over time and most recently has built out its +own transportation network.",positive +"Size dictates certain scales of efficiency, but we think Amazon is the definition of +operational excellence.",positive +These advantages are related and reinforce one another in a virtuous circle.,neutral +"Low prices and an unmatched +selection have come to define the company in consumer’s minds, giving rise to intangible assets from branding +and technology (search capabilities and recommendation engine).",neutral +"Product searches are more likely to begin on +Amazon at this point than they are Google.",positive +"Amazon has become the only demand aggregator at scale in the U.S. +because of its wide selection, intelligent recommendation algorithms, low prices, and convenience, which +combine into a powerful business model.",positive +We also believe Amazon’s retail business benefits from network effects.,neutral +"The sheer number of consumers +shopping on Amazon makes it attractive to third party sellers, while the marketplace expands the selection +available to shoppers and makes Amazon a more attractive online destination for consumers.",positive +"In fact, 50%-55% of +total goods sold by Amazon are through its third-party marketplace.",neutral +"At the heart of third-party seller services is +the commission Amazon collects from the independent seller.",neutral +"However, these services also include Fulfillment by +Amazon, distribution facility storage, shipping, payment processing, and other related items.",negative +"To improve the consumer experience and more tightly tie users to Amazon, the company has moved increasingly +into content.",positive +"Consumers can now have Prime Video, Music Unlimited, Kindle Unlimited, Prime Gaming, and other +similar subscription services.",negative +"The company even produces original content for Prime Video to help reinforce the +notion that consumers can get anything they need from Amazon.",positive +"We view the Kindle, Echo, Fire, and other +Amazon original devices as interesting on their own merits, but think the underlying point is to once again draw +in more consumers to Amazon’s retail properties and engage those customers that are already within the +ecosystem.",positive +Amazon’s hardware helps to enable Amazon’s services.,neutral +"The Kindle, for example, dovetails perfectly +with Kindle Unlimited, which for a $9.99 monthly subscription, allows users to read from a selection of more than +one million book titles.",positive +The company even offers a direct-to-Kindle book publishing service.,positive +"The common thread that weaves throughout Amazon’s retail business is Amazon Prime, which for $139 per year +allows users unlimited free shipping on millions of stock-keeping units, including same-day or one-day shipping Morningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 6 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Amazon.com Inc AMZN QQQQ 3 Feb 2023 05:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +112.91 USD +2 Feb 2023137.00 USD +3 Feb 2023 05:12, UTC0.821.07 USD Tril +2 Feb 2023 +Wide Stable High Exemplary ;;;;; +1 Feb 2023 06:00, UTC +on many items, access to Prime Video and Prime Music, and a variety of other benefits.",positive +"We view Prime +subscriptions and the differentiated user experience they offer as critical to attracting and retaining customers.",neutral +"Prime memberships generate high cash flow that can be reinvested in further improving the user experience on +the technology, content, and delivery fronts.",positive +"Prime customers are very sticky and tend to purchase from Amazon +more frequently and across more retail categories.",positive +"We think content combined with Prime subscriptions actually +build a switching cost that consumers would need to overcome, although these switching costs might not last for +decades in order to warrant it as a moat source.",neutral +"Advertising is tangentially related to Amazon’s retail operations in that it takes place on Amazon’s own online +properties.",positive +"Advertising is growing rapidly and is likely the segment with the highest operating margins in +Amazon’s portfolio, likely in excess of 30%, which is would be directionally comparable to margins earned by +Facebook when it was a similarly sized business (other was $21 billion in revenue in 2020, compared with $18 +billion in revenue for Facebook in 2015).",negative +"We believe advertising dollars flow to where the eyeballs are and where +information is known about the online user, which fits in very well with Amazon’s strengths.",positive +"We therefore expect +advertising to grow rapidly over the next several years and continue to boost the company’s overall profitability.",neutral +"Looking at advertising in isolation, we would likely give it a narrow moat rating based on intangible assets arising +from proprietary technology (data), and network effects, although assigning a moat rating here is difficult +because Amazon doesn’t disclose much about this business.",negative +"That said, we can see Amazon’s advertising +becoming a wide-moat business as it becomes more established and more details are disclosed.",positive +"We think +Amazon’s advertising business is attractive to advertisers because there is proprietary information about the +consumers and real-time data about when they are searching for a particular product, and Amazon already +enjoys substantial traffic.",positive +"We expect this business to continue to grow rapidly and offer an attractive alternative +to platforms from social network and internet search providers.",positive +"Amazon Web Services enjoys a wide moat supported by switching costs, network effects, intangible assets, and +cost advantages.",negative +"Amazon was a pioneer in public cloud infrastructure as a service and platform as a service and +retains a substantial lead over its closest rival, Microsoft.",neutral +"AWS has driven profitability for the entire company; +although it represents 10%-15% of revenue, it generates 60%-65% of total operating profit dollars for Amazon.",neutral +We also expect AWS to remain a key growth driver for the company over the next decade.,neutral +"AWS differs from the company’s e-commerce operations in that it is enterprise-facing rather than consumer- +facing.",neutral +"Enterprise customers rely on AWS for core IT infrastructure, which represents significant switching costs +in terms of the time and expense of integrating applications with core software elements, such as the database, +and dedicates a user to a specific set of software development tools.",positive +"Ultimately, the operational risks to changing +mission-critical technology infrastructure is high, which is why core elements such as ERP systems and cloud +providers are rarely changed.",positive +"Further, we believe it is cheaper initially for companies to move workloads to the cloud, as there are fewer up- +front costs and a lower bar to clear for maintenance and administration.",positive +"Additionally, Amazon has devoted Morningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 7 of 28 +©2023 Morningstar.",neutral +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Amazon.com Inc AMZN QQQQ 3 Feb 2023 05:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +112.91 USD +2 Feb 2023137.00 USD +3 Feb 2023 05:12, UTC0.821.07 USD Tril +2 Feb 2023 +Wide Stable High Exemplary ;;;;; +1 Feb 2023 06:00, UTC +significant R&D resources to adding advanced features to the platform.",positive +"Along those lines, AWS offers scale +advantages to clients in that it is cheaper and faster to set up IT infrastructure in the cloud compared with +undertaking the same effort independently.",positive +"Customers also benefit from the ability to scale up compute power +for burst requirements, paying for only what they need and having it available effectively on-demand.",positive +"We have +seen some of the largest technology companies in the world simply fail to keep pace with Amazon’s massive +investments in IaaS over the years, and AWS’ cost advantage over its rivals is obvious.",negative +"Those firms struggle to +compete in a meaningful way against AWS.",positive +"Amazon has amassed significant technology and process knowledge, which we believe is an intangible asset for +the firm as a whole and also for AWS.",positive +These assets could also apply to the logistics aspect of the retail business.,neutral +"The company expanded its distribution network by roughly 50% in 2020 while managing through a global +pandemic.",negative +"Given the size of its footprint, this is a monumental achievement and speaks to the company’s ability +to quickly plan, construct, and expand facilities based on specific needs.",positive +"The knowledge base to quickly and +efficiently bring massive server farms on line for AWS is similarly impressive and only comes from the experience +of previously building hyperscale data centers.",positive +"Additionally, the firm designs its own semiconductors, which are +used to power its server arrays, and also developed proprietary robotic automation technology used in its +fulfillment centers.",positive +"As with other large software companies, we see a network effect within AWS’ ecosystem for third-party +software, although we view this as more of secondary moat source.",positive +"The large ecosystem of AWS users has +benefited from the software development efforts of those same users, as they turn around and offer applications +written on AWS for AWS users.",positive +"Thus, users help attract other users to AWS.",negative +"We see Microsoft and Salesforce in +particular as the best comparable examples in software of creating network effects.",positive +"We think network effects, intangible assets, cost advantages, and switching combine to form a powerful moat for +all of Amazon.",positive +"We think many of these areas reinforce one another and see little difficulty in Amazon continuing +to deliver returns on invested capital well in excess of its cost of capital over the long term.",positive +"Moat Trend Dan Romanoff, Senior Equity Analyst, 3 Jun 2022",neutral +We assign Amazon a stable moat trend rating.,neutral +"From an e-commerce perspective, we believe the trend skews +positive because of secular shifts to online commerce from traditional brick-and-mortar retailers.",positive +"After more than +20 years of online shopping, this is not necessarily sneaking up on investors.",positive +"However, new or less penetrated +retail categories can help fuel this long-term trend.",negative +"We highlight groceries, apparel, pharmacy, and furniture as +some examples of areas that are gaining traction for online commerce—and for Amazon—from a small base.",negative +"Online grocery shopping, in particular, has seen an uptick in demand due to COVID-19; we think there will be a +lasting impact, while luxury items are likely still a long-term project but an opportunity for Amazon nonetheless.",positive +"On the flip side, we see larger retailers getting their e-commerce houses in order and foresee greater e- +commerce competition over time.",positive +"We also see “buy online, pick up in store” and contactless curbside pickup as +innovations being made by physical stores.",neutral +"While the selection, low cost, and Prime member benefits would push Morningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 8 of 28 +©2023 Morningstar.",neutral +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Amazon.com Inc AMZN QQQQ 3 Feb 2023 05:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +112.91 USD +2 Feb 2023137.00 USD +3 Feb 2023 05:12, UTC0.821.07 USD Tril +2 Feb 2023 +Wide Stable High Exemplary ;;;;; +1 Feb 2023 06:00, UTC +us to declare a positive moat trend, the general competition for shopping attention and discretionary dollars +keeps our moat trend rating stable for cost advantages, network effects, and intangible assets.",positive +"We do not view +Amazon’s expansion into physical retail, either via its own stores or via Whole Foods, as a sign that Amazon’s +retail moat is skewing positive.",positive +We believe the moat trend for AWS is also stable.,neutral +AWS has grown rapidly and is the clear public cloud leader.,positive +"That said, its largest competitor, Microsoft’s Azure, has narrowed the gap over the last several years in terms of +features, services, and sheer size.",neutral +"We view this more as the natural evolution of the competitive landscape and +not as shortcomings of AWS.",positive +"Indeed, the company has clearly continued to invest in AWS and add to the service.",positive +"We continue to believe that AWS will be a core growth engine for Amazon’s revenue and profitability over the +next decade, as the public cloud market opportunity remains substantial.",neutral +"Given the lack of disclosure surrounding the advertising business, we assign a stable trend to this segment.",neutral +"However, given its rapid rise, we believe more optimism is possibly warranted.",positive +"As advertising dollars continue to +shift to online channels, Amazon has clearly benefited in a meaningful way.",positive +"The company has added to its offsite +capabilities, while the onsite inventory remains the key driver, as advertisers value eyeballs and data.",neutral +"We believe +that Amazon’s advertising business is growing approximately as fast as Facebook revenue was growing when +Facebook was the size of Amazon’s other business and is growing considerably faster than Google was at the +same scale.",positive +"Overall, we see clear share gains in online advertising, which we think are a result of years of +investing in and building out the firm’s advertising platform, but the opaque disclosures around the business +keep us from definitively identifying a positive moat trend around its proprietary data and technology.",positive +"Risk and Uncertainty Dan Romanoff, Senior Equity Analyst, 3 Jun 2022",neutral +"We believe that the uncertainty for Amazon is high and that despite being an e-commerce leader, the company +faces a variety of risks.",positive +"Amazon must protect its leading online retailing position, which can be challenging as consumer preferences +change, especially post-COVID-19 (as consumers may revert to prior behaviors), and traditional retailers bolster +their online presence.",positive +"Maintaining an e-commerce edge has pushed the company to make investments in +nontraditional areas, such as producing content for Prime Video and building out its own transportation network.",positive +"Similarly, the company must also maintain an attractive value proposition for its third-party sellers.",positive +"Some of these +investment areas have raised investor questions in the past, and we expect management to continue to invest +according to its strategy, despite periodic margin pressure from increased spending.",negative +The company must also continue to invest in new offerings.,positive +"AWS, transportation, and physical stores (both +Amazon branded and Whole Foods) are three notable areas of investment.",positive +"These decisions require capital +allocation and management focus and may play out over a period of years rather than quarters.",neutral +"Continued international expansion will likely require similar investment and management attention but will also +increase exposure to different regulatory environments.",neutral +"Some countries have instituted or may institute +protectionist policies.",neutral +"Even domestically over the last several years, lawmakers from both parties have Morningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 9 of 28 +©2023 Morningstar.",neutral +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Amazon.com Inc AMZN QQQQ 3 Feb 2023 05:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +112.91 USD +2 Feb 2023137.00 USD +3 Feb 2023 05:12, UTC0.821.07 USD Tril +2 Feb 2023 +Wide Stable High Exemplary ;;;;; +1 Feb 2023 06:00, UTC +increasingly focused on the amount of market power large technology companies have accrued.",positive +"Antitrust, data +privacy, and section 230 have been repeatedly invoked.",neutral +"From an environmental, social, and governance perspective, data breaches and service outages are a concern for +any type of cloud service provider.",positive +"As a retailer, Amazon has personal information for hundreds of millions of +consumers around the world, while AWS hosts proprietary mission-critical data for enterprises.",neutral +"Financial Strength Dan Romanoff, Senior Equity Analyst, 3 Feb 2023",neutral +We believe Amazon is financially sound.,positive +"Revenue is growing rapidly, margins are expanding, the company has +unrivaled scale, and the balance sheet is in great shape.",positive +"In our view, the marketplace will remain attractive to +third-party sellers, as Prime continues to tightly weave consumers to Amazon.",positive +"We also see AWS and advertising +driving overall corporate growth and continued margin expansion.",neutral +"As of Dec. 31, 2022, Amazon had $70.0 billion in cash and marketable securities, offset by $67.2 billion in debt.",neutral +"We also expect free cash flow generation, which suffered during COVID-19 as the company invested heavily in +facility expansion, content creation, and its transportation network, to return to more normal levels over the next +couple of years.",positive +"Given that the company is still in a rapid growth and heavy investment phase, we do not expect it to pay +dividends or repurchase shares.",negative +"The company is acquisitive, but given its size, we characterize all acquisitions +throughout its history as tuck-in, including the largest deal of $14 billion for Whole Foods in 2017 and the $8 +billion MGM deal in 2022.",positive +"We expect the focus to remain on growth, including heavy investment for AWS and +delivery.",negative +"Capital Allocation Dan Romanoff, Senior Equity Analyst, 3 Feb 2023",neutral +We assign Amazon an Exemplary capital allocation rating.,neutral +"The rating reflects our assessments of a sound balance +sheet, exceptional investments, and appropriate shareholder distributions.",positive +"We think reinvestment in the business +is most likely to be the key driver of total shareholder returns and is therefore appropriately prioritized over other +capital returns such as dividends and buybacks, which Amazon does not offer.",positive +The balance sheet is sound with a net cash position.,positive +"We expect the balance sheet to remain sound as the +company has typically maintained a conservative position and has historically generated substantial free cash +flow from AWS and advertising to fund growth throughout the business.",positive +"Management’s record of investing in areas that investors were initially skeptical of but were ultimately vindicated +has been remarkable.",positive +Jeff Bezos founded the company in 1994 and led it until he stepped down as CEO in 2021.,negative +"He was succeeded by Andy Jassy, former CEO of AWS.",neutral +"Bezos remains actively involved with the company as +executive chair of the board, and Jassy has been at the company for 23 years and was a driving force behind the +foundation and growth of AWS.",negative +"We think Jassy will carry on Bezos' focus on the customer and continue to +explore areas that were ignored or not yet defined.",neutral +"Thus far, the results have been breathtaking.",positive +"From humble +beginnings, Bezos built Amazon into one of the largest companies in the world.",negative +"On the e-commerce side, the Morningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 10 of 28 +©2023 Morningstar.",neutral +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Amazon.com Inc AMZN QQQQ 3 Feb 2023 05:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +112.91 USD +2 Feb 2023137.00 USD +3 Feb 2023 05:12, UTC0.821.07 USD Tril +2 Feb 2023 +Wide Stable High Exemplary ;;;;; +1 Feb 2023 06:00, UTC +company has evolved from selling books to selling everything, including groceries, delivering purchases the same +day they are ordered, and moving into retail categories that were long thought to be beyond the reach of online +shopping.",positive +"The stickiness of Prime members, the financial stability of subscriptions, the tech world shakeup via +AWS, the Kindle—the innovation has been dramatic, and shareholders have been rewarded along the way.",negative +"Ultimately, we assess investment as exceptional.",positive +"Amazon’s capital deployment strategy centers around reinvesting in the business and making generally small +tuck-in acquisitions.",negative +"The company does not pay a dividend or repurchase shares, nor do we expect it to over the +next several years.",neutral +"KMorningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 11 of 28 +©2023 Morningstar.",neutral +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Amazon.com Inc AMZN QQQQ 3 Feb 2023 05:14, UTC +Price vs. Fair Value +050100150200Fair Value: 137.00 +3 Feb 2023 05:12, UTC +Last Close: 112.91 +Over Valued +Under Valued +2018 2019 2020 2021 2022",positive +"YTD +0.68 0.80 0.90 0.81 0.56 0.82 Price/Fair Value +28.43 23.03 76.26 2.38 -49.62 34.42 Total Return % +Morningstar Rating +Competitors +Amazon.com Inc AMZN Microsoft Corp MSFT Walmart Inc WMT eBay Inc EBAY +Fair Value +137.00 +Uncertainty : High +Last Close +112.91 +Fair Value +310.00 +Uncertainty : Medium +Last Close +264.60 +Fair Value +144.00 +Uncertainty : Medium +Last Close +143.62 +Fair Value +60.00 +Uncertainty : High +Last Close +51.66 +Economic Moat + Wide + Wide + Wide + Narrow +Moat Trend Stable Stable Stable Negative +Currency USD USD USD USD +Fair Value 137.00 3 Feb 2023 05:12, UTC 310.00 3 Feb 2023 05:12, UTC1 144.00 3 Feb 2023 05:12, UTC2 60.00 3 Feb 2023 05:12, UTC3 +1-Star Price 212.35 418.50 194.40 93.00 +5-Star Price 82.20 217.00 100.80 36.00 +Assessment Under Valued 2 Feb 2023",positive +"Under Valued 2 Feb 2023 Fairly Valued 2 Feb 2023 Under Valued 2 Feb 2023 +Morningstar Rating QQQQ3 Feb 2023 05:14, UTC QQQQ2 Feb 2023 22:29, UTC QQQ2 Feb 2023 22:29, UTC QQQQ2 Feb 2023 22:29, UTC +Analyst Dan Romanoff, Senior Equity Analyst Dan Romanoff, Senior Equity Analyst Zain Akbari, Equity Analyst Sean Dunlop, Equity Analyst +Capital Allocation Exemplary Exemplary Standard Standard +Price/Fair Value 0.82 0.85 1.00 0.86 +Price/Sales 2.24 9.72 0.66 3.01 +Price/Book 7.89 10.76 5.36 5.78 +Price/Earnings — 29.40 44.19 — +Dividend Yield — 0.96% 1.56% 1.70% +Market Cap 1,072.70 Bil 1,881.42 Bil 390.15 Bil 27.35 Bil +52-Week Range 81.43—170.83 213.43—315.95 117.27—160.77 35.92—60.66 +Investment Style Large Growth Large Growth Large Value Mid CoreMorningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 12 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Amazon.com Inc AMZN QQQQ 3 Feb 2023 05:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +112.91 USD +2 Feb 2023137.00 USD +3 Feb 2023 05:12, UTC0.821.07 USD Tril +2 Feb 2023 +Wide Stable High Exemplary ;;;;; +1 Feb 2023 06:00, UTC +Morningstar Valuation Model Summary +Financials as of 02 Feb 2023 Actual Forecast +Fiscal Year, ends 31 Dec 2020 2021 2022 2023 2024 2025 2026 2027 +Revenue (USD Mil) 386,064 469,822 513,983 545,336 607,352 673,289 743,075 817,464 +Operating Income (USD Mil) 22,899 24,879 12,248 11,747 22,593 31,173 40,795 51,909 +EBITDA (USD Mil) 48,150 59,175 53,709 58,929 72,548 82,747 95,782 109,458 +Adjusted EBITDA (USD Mil) 57,358 71,932 73,330 82,561 98,872 100,798 115,392 130,688 +Net Income (USD Mil) 21,331 33,364 -2,722 9,797 18,329 25,372 33,167 42,364 +Adjusted Net Income (USD Mil) 21,331 33,364 -2,722 9,797 18,329 25,372 33,167 42,364 +Free Cash Flow To The Firm (USD Mil) 18,358 -35,416",positive +"-31,177 22,568 13,990 25,176 34,251 44,055 +Weighted Average Diluted Shares Outstanding (Bil) 10 10 10 10 11 11 11 11 +Earnings Per Share (Diluted) (USD) 2.09 3.24 -0.27 0.94 1.75 2.42 3.16 4.03 +Adjusted Earnings Per Share (Diluted) (USD) 2.09 3.24 -0.27 0.94 1.75 2.42 3.16 4.03 +Dividends Per Share (USD) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 +Margins & Returns as of 02 Feb 2023 Actual Forecast +3 Year Avg 2020 2021 2022 2023 2024 2025 2026 2027",positive +"5 Year Avg +Operating Margin % 4.5 5.9 5.3 2.4 2.2 3.7 4.6 5.5 6.4 4.5 +EBITDA Margin % — 12.5 12.6 10.5 10.8 12.0 12.3 12.9 13.4 — +Adjusted EBITDA Margin % 14.8 14.9 15.3 14.3 15.1 16.3 15.0 15.5 16.0 15.6 +Net Margin %",neutral +"4.0 5.5 7.1 -0.5 1.8 3.0 3.8 4.5 5.2 3.7 +Adjusted Net Margin % 4.0 5.5 7.1 -0.5 1.8 3.0 3.8 4.5 5.2 3.7 +Free Cash Flow To The Firm Margin % -2.9 4.8 -7.5 -6.1 4.1 2.3 3.7 4.6 5.4 4.0 +Growth & Ratios as of 02 Feb 2023 Actual Forecast +3 Year CAGR 2020 2021 2022 2023 2024 2025 2026 2027 5 Year CAGR +Revenue Growth % 22.4 37.6 21.7 9.4 6.1 11.4 10.9 10.4 10.0 9.7 +Operating Income Growth % -5.6 57.5 8.6 -50.8 -4.1",positive +"92.3 38.0 30.9 27.2 33.5 +EBITDA Growth % 0.0 — — — — — — — — 0.0 +Adjusted EBITDA Growth % 19.3 32.8 25.4 1.9 12.6 19.8 2.0 14.5 13.3 12.3 +Earnings Per Share Growth",neutral +"% -161.4 — — — — — — — — — +Adjusted Earnings Per Share Growth",neutral +% -161.4 81.8 55.0,neutral +"-108.2 -454.0 85.7 38.4 30.7 27.7 — +Valuation as of 02 Feb 2023 Actual Forecast +2020 2021 2022 2023 2024 2025 2026 2027 +Price/Earnings 77.9 51.5 -311.1 120.1 64.5 46.7 35.7 28.0 +Price/Sales 2.4 3.5 3.3 2.1 1.9 1.7 1.6 1.4 +Price/Book 17.8 12.4 5.9 7.5 6.8 5.9 5.1 4.3 +Price/Cash Flow 35.5 -111.2 -100.5 46.6 28.2 26.2 21.0 17.3 +EV/EBITDA 16.3 23.0 23.6 14.8 12.4 12.1 10.6 9.3 +EV/EBIT 40.9",neutral +"66.4 141.4 104.0 54.1 39.2 29.9 23.5 +Dividend Yield % — — — — — — — — +Dividend Payout",neutral +"% 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 +Free Cash Flow Yield % 2.8 -0.9 -1.0 2.2 3.6 3.8 4.8 5.8 +Operating Performance / Profitability as of 02 Feb 2023 Actual Forecast +Fiscal Year, ends 31 Dec 2020 2021 2022 2023 2024 2025 2026 2027 +ROA % 7.8 9.0 -0.6 2.1 3.6 4.6 5.5 6.3 +ROE % 27.4 28.8 -1.9 6.5 11.1 13.6 15.4 16.7 +ROIC",positive +"% 30.3 25.6 12.3 13.6 15.8 14.2 15.0 16.4Morningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 13 of 28 +©2023 Morningstar.",neutral +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Amazon.com Inc AMZN QQQQ 3 Feb 2023 05:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +112.91 USD +2 Feb 2023137.00 USD +3 Feb 2023 05:12, UTC0.821.07 USD Tril +2 Feb 2023 +Wide Stable High Exemplary ;;;;; +1 Feb 2023 06:00, UTC +Financial Leverage Actual Forecast +Fiscal Year, ends 31 Dec 2020 2021 2022 2023 2024 2025 2026 2027 +Debt/Capital % 25.4 26.1 31.5 30.3 27.7 23.8 19.8 17.3 +Assets/Equity 3.4 3.0 3.2 3.1 3.0 2.9 2.7 2.6 +Net Debt/EBITDA -1.1 -0.8 -0.1 -0.4 -0.6",positive +-0.8,neutral +"-1.1 -1.3 +Total Debt/EBITDA 0.6 0.7 0.9 0.8 0.7 0.6 0.5 0.4 +EBITDA/ Net Interest Expense 34.8 39.8 31.0 33.6 40.7 42.8 51.8 63.9 +Key Valuation Drivers as of 02 Feb 2023 +Cost of Equity % 9.0 +Pre-Tax Cost of Debt % 5.5 +Weighted Average Cost of Capital % 8.8 +Long-Run Tax Rate % 21.0 +Stage II EBI Growth Rate % 8.4 +Stage II Investment Rate % -47.2 +Perpetuity Year 20",negative +"Additional estimates and scenarios available for download at https://pitchbook.com/. Discounted Cash Flow Valuation as of 02 Feb 2023 +USD Mil +Present Value Stage I 317,062 +Present Value Stage II 601,448 +Present Value Stage III 494,586 +Total Firm Value 1,413,096 +Cash and Equivalents 70,026 +Debt -67,150 +Other Adjustments 1 +Equity Value 1,415,973 +Projected Diluted Shares 10 +Fair Value per Share (USD) 137.00Morningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 14 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Amazon.com Inc AMZN QQQQ 3 Feb 2023 05:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +112.91 USD +2 Feb 2023137.00 USD +3 Feb 2023 05:12, UTC0.821.07 USD Tril +2 Feb 2023 +Wide Stable High Exemplary ;;;;; +1 Feb 2023 06:00, UTC +Income Statement (USD) Actual Forecast +Fiscal Year, ends 31 Dec 2020 2021 2022 2023 2024 2025 2026 2027 +Revenue (Mil)386,064 469,822 513,983 545,336 607,352 673,289 743,075 817,464 +Cost of Goods Sold (Mil) 233,307 272,344 288,831 313,568 348,013 383,775 421,695 461,867 +Gross Profit (Mil) 152,757 197,478 225,152 231,768 259,339 289,514 321,380 355,597 +Selling, General, Administrative & Other Expenses (Mil) 129,932 172,537 211,641 219,530 236,260 257,870 280,139 303,279 +Advertising & Marketing Expenses — — — — — — — — +Research & Development — — — — — — — — +Depreciation & Amortization (if reported separately) — — — — — — — — +Adjusted Operating Income (Mil) 22,899 24,879 12,248 11,747 22,593 31,173 40,795 51,909 +Financial Non-Cash (Gains)/Losses (Mil) 0 0 0 0 0 0 0 0 +Irregular Cash (Gains)/Losses (Mil) 0 0 0 0 0 0 0 0 +Operating Income (Mil) 22,899 24,879 12,248 11,747 22,593 31,173 40,795 51,909 +Net Interest Expense (Mil) -1,279 -13,272",positive +"18,184",neutral +"-654 -607 -943 -1,189 -1,717 +Income Tax Expense (Mil) 2,863 4,791 -3,217 2,604 4,872 6,744 8,817 11,261 +After-Tax Items (Mil) 0 0 0 0 0 0 0 0 +(Minority Interest) (Mil) 16 4 -3 0 0 0 0 0 +Net Income (Mil) 21,331 33,364 -2,722 9,797 18,329 25,372 33,167 42,364 +Adjusted Net Income (Mil) 21,331 33,364 -2,722 9,797 18,329 25,372 33,167 42,364 +Weighted Average Diluted Shares Outstanding (Bil) 10 10 10 10 11 11 11 11 +Diluted Earnings",positive +"Per Share 2.09 3.24 -0.27 0.94 1.75 2.42 3.16 4.03 +Diluted Adjusted Earnings Per Share 2.09 3.24 -0.27 0.94 1.75 2.42 3.16 4.03 +Dividends Per Common Share (USD)0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 +EBITDA (Mil) 48,150 59,175 53,709 58,929 72,548 82,747 95,782 109,458 +Adjusted EBITDA (Mil) 57,358 71,932 73,330 82,561 98,872 100,798 115,392 130,688Morningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 15 of 28 +©2023 Morningstar.",negative +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Amazon.com Inc AMZN QQQQ 3 Feb 2023 05:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +112.91 USD +2 Feb 2023137.00 USD +3 Feb 2023 05:12, UTC0.821.07 USD Tril +2 Feb 2023 +Wide Stable High Exemplary ;;;;; +1 Feb 2023 06:00, UTC +Key Cash Flow Items (USD) Actual Forecast as of 2 Feb +Fiscal Year, ends 31 Dec 2020 2021 2022 2023 2024 2025 2026 2027 +Cash from Working Capital (Mil) 31,549 -1,313 1,893 5,171 6,951 9,542 10,110 10,739 +(Capital Expenditures) (Mil) -40,141",positive +"-61,053 -63,645",neutral +"-61,078 -60,735",neutral +"-60,596 -63,161 -65,397 +Depreciation (Mil) 25,251 34,296 41,461 46,419 49,196 50,901 54,319 56,896 +Amortization (Mil) — — — 763 759 673 669 654 +Net New (Investment), Organic (Mil) -1,409",positive +"-46,368 -43,070 13,524 -3,618 876 2,354 3,393 +(Purchases)/Sales of Companies & Assets (Mil) 2,771 3,672",neutral +"-2,992 -1,000 -1,000",neutral +"-1,000 -1,000 -1,000 +Net New (Investment), Total (Mil) 1,362 -42,696 -46,062 12,524",positive +"-4,618 -124 1,354 2,393 +Other Non-Cash Items, From Cash Flows (Mil) -2,653 -14,169",negative +"17,426 763 759 673 669 654 +Free Cash Flow to the Firm (Mil) 18,358 -35,416",positive +"-31,177 22,568 13,990 25,176 34,251 44,055 +Balance Sheet (USD) Actual Forecast +Fiscal Year, ends 31 Dec 2020 2021 2022 2023 2024 2025 2026 2027 +Assets +Cash and Equivalents (Mil) 42,122 36,220 53,888 77,628 90,887 112,619 142,768 188,179 +Inventory (Mil) 23,795 32,640 34,405 37,800 41,952 46,263 50,834 55,677 +Accounts Receivable (Mil) 24,542 32,891 42,360 37,352 41,599 46,116 50,896 55,991 +Net Property, Plant and Equipment (Mil) 113,114 160,281 186,715 201,384 212,933 222,639 231,491 240,003 +Goodwill (Mil) 15,017 15,371 20,288 20,538 20,788 21,038 21,288 21,538 +Other Intangibles (Mil) 0 0 0",negative +-63,neutral +"-123 -96 -65 -19 +Other Operating Assets (Mil) 60,331 83,317 108,881 95,434 103,250 111,093 118,892 126,707 +Non-Operating Assets (Mil) 0 0 0 0 0 0 0 0 +Total Assets (Mil) 321,195 420,549 462,675 486,209 527,425 575,810 632,242 704,214 +Liabilities +Accounts Payable (Mil) 72,539 78,664 79,600 88,057 95,346 105,144 115,533 126,539 +Debt (Mil) 31,816 48,744 67,150 67,804 66,593 62,404 57,362 57,362 +Other Operating Liabilities (Mil) 123,436 154,896 169,882 174,507 191,316 208,720 226,638 245,239 +Non-Operating Liabilities (Mil) 0 0 0 0 0 0 0 0 +Total Liabilities (Mil) 227,791 282,304 316,632 330,368 353,255 376,268 399,533 429,140 +Equity +Shareholders' Equity (Mil) 93,404 138,245 146,043 155,841 174,171 199,542 232,709 275,074 +Minority Interest (Mil) 0 0 0 0 0 0 0 0 +Total Equity (Mil) 93,404 138,245 146,043 155,841 174,171 199,542 232,709 275,074Morningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 16 of 28 +©2023 Morningstar.",negative +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Amazon.com Inc AMZN QQQQ 3 Feb 2023 05:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +112.91 USD +2 Feb 2023137.00 USD +3 Feb 2023 05:12, UTC0.821.07 USD Tril +2 Feb 2023 +Wide Stable High Exemplary ;;;;; +1 Feb 2023 06:00, UTC +Management & Ownership +Management Activity as of 31 Mar 2022 +Name Position Share Held Report Date* Insider Activity +Wendell P. Weeks",positive +"Independent Director 1,935 31 Mar 2022 380 +Andrew R. Jassy Director, President and Chief Executive Officer 1,988,380 31 Dec 2022 302,569 +Jeffrey P. Bezos Executive Chairman of the Board 992,633,688 31 Dec 2022 4,586,455 +Patricia Q. Stonesifer Independent Director 46,220 31 Dec 2022 14,299 +Shelley L. Reynolds Vice President, Worldwide Controller, and Principal Accounting Officer 129,200 31 Dec 2022 22,953 +Jamie S. Gorelick Independent Director 28,836 31 Dec 2022 5,756 +Jonathan J. Rubinstein Lead Independent Director 124,880 31 Dec 2022 14,299 +Edith W. Cooper Independent Director 6,180 31 Dec 2022 3,800 +David A. Zapolsky Senior Vice President, General Counsel and Secretary 133,220 31 Dec 2022 105,042 +Brian T. Olsavsky Senior Vice President and Chief Financial Officer 148,260 31 Dec 2022 109,733 +Fund Ownership as of 31 Jan 2023 +Top Owners % of Shares Held % of Fund Assets Change (k) Portfolio Date +Vanguard US Total Market Shares ETF 2.59 2.04 2,696,043 31 Dec 2022 +Vanguard Total Stock Market Index Fund 2.59 1.92 2,696,043 31 Dec 2022 +Vanguard Instl",positive +"Ttl Stck Mkt Idx Tr 2.53 2.76 3,585,594 30 Sep 2022 +Vanguard 500 Index Fund 2.01 2.31 2,076,427 31 Dec 2022 +Invesco QQQ Trust 1.00 6.72 -461,136 31 Jan 2023 +Concentrated Holders +Amazon (AMZN)",neutral +"Yield Shares Prps ETF 0.00 — 235 31 Jan 2023 +Tarpon US Equities",neutral +"I FIA IE 0.00 27.02 42 30 Sep 2022 +iShares S&P 500 Cnsmr Discr Sect ETF 0.01 25.15 0 30 Jan 2023 +ProFund VP Consumer Services 0.00 24.94 382 30 Sep 2022 +Consumer Discret Sel Sect SPDR® Fd 0.34 24.83 -125,349 31 Jan 2023 +Institutional Transactions as of 31 Jan 2023 +Top 5 Buyers % of Shares Held % of Fund Assets Shrs Bought/Sold (k) Portfolio Date +FMR Inc 2.96 3.56 16,008,843 30 Sep 2022 +T. Rowe Price Investment Management,Inc. 0.15 1.42 15,772,420 30",positive +"Sep 2022 +Wellington Management Company LLP 0.72 1.77 14,685,084 30 Sep 2022 +Vanguard Group Inc 6.88 2.33 12,456,995 30 Sep 2022 +Susquehanna International Group, LLP 0.24 0.73 9,597,517 30 Sep 2022 +Top 5 Sellers +T. Rowe Price Associates, Inc. 2.77 5.24 -29,369,893 30 Sep 2022 +Allianz Asset Management AG 0.07 1.69 -10,580,148 30 Sep 2022 +HHG PLC 0.32 2.73 -6,377,103",positive +"30 Sep 2022 +JPMorgan Chase & Co 0.99 1.63 -6,254,171 30 Sep 2022 +BlackRock Inc 5.71 2.24 -5,331,976 30 Sep 2022 +*Represents the date on which the owner's name, position, and common shares held were reported by the holder or issuer.",negative +"Morningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 17 of 28 +©2023 Morningstar.",neutral +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Amazon.com Inc AMZN QQQQ 3 Feb 2023 05:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +112.91 USD +2 Feb 2023137.00 USD +3 Feb 2023 05:12, UTC0.821.07 USD Tril +2 Feb 2023 +Wide Stable High Exemplary ;;;;; +1 Feb 2023 06:00, UTC +Comparable Company Analysis",positive +These companies are chosen by the analyst and the data are shown by nearest calendar year in descending market capitalization order.,neutral +"Valuation Analysis as of 02 Feb 2023 Price/Earnings EV/EBITDA Price/Free Cash Flow Price/Book Price/Sales +Company/Ticker 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E)",neutral +"Microsoft Corp MSFT 28.5 24.6 22.0 17.8 15.8 14.2 27.5 23.0 20.4 9.6 8.0 6.7 9.4 8.5 7.7 +Walmart Inc WMT 23.4 21.3 19.3 12.1 11.5 10.8 25.8 26.3 23.1 5.1 4.9 4.6 0.6 0.6 0.6 +eBay Inc EBAY 14.0 12.6 12.3 8.7 10.3 10.4 17.9 18.3 13.6 4.5 9.8 8.6 3.8 2.9 3.0 +Average 22.0 19.5 17.9 12.9 12.5 11.8 23.7 22.5 19.0 6.4 7.6 6.6 4.6 4.0 3.8 +Amazon.com Inc AMZN -311.1 120.1 64.5 23.6 14.8 12.4 -100.0 46.5 28.2 5.9 7.5 6.8 3.3 2.1 1.9 +Returns Analysis as of 02 Feb 2023 ROIC",negative +%,neutral +Adjusted ROIC % Return on Equity % Return on Assets %,neutral +"Dividend Yield % +Company/Ticker 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E)",neutral +"Microsoft Corp MSFT 33.2 34.2 35.4 46.1 48.4 50.8 37.3 35.2 33.0 17.9 18.3 18.0 1.0 1.1 1.2 +Walmart Inc WMT 15.0 15.7 16.3 12.1 12.7 13.3 12.5 23.2 24.4 4.1 7.1 7.6 1.6 1.7 1.9 +eBay Inc EBAY 31.3 84.2 34.9 94.6 280.2 109.1 204.0 -23.4 56.5 59.3 -6.8 9.9 1.1 1.7 1.9 +Average 26.5 44.7 28.9 50.9 113.8 57.7 84.6 11.7 38.0 27.1 6.2 11.8 1.2 1.5 1.7 +Amazon.com Inc AMZN 12.3 13.6 15.8 11.4 12.6 14.7 -1.9 6.5 11.1 -0.6 2.1 3.6 — — — +Growth Analysis as of 02 Feb 2023 Revenue Growth % EBIT Growth % EPS Growth % FCF Growth % DPS Growth % +Company/Ticker 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) +Microsoft Corp MSFT 5.5 10.4 10.7 2.7 12.7 11.7 1.0 15.5 12.0 122.2 -8.7 38.7 8.1 7.5 6.9 +Walmart Inc WMT 6.0 3.3 3.2 -6.6 7.1 7.8 -5.0 9.7 10.9 -24.4 2.3 13.5 1.8 9.5 12.5 +eBay Inc EBAY 1.5 -6.6 -3.2 7.8 -17.5",negative +-1.1,neutral +-28.8,neutral +"-13.6 2.4 113.2 -58.7 -59.3 12.5 22.2 11.5 +Average 4.3 2.4 3.6 1.3 0.8 6.1 -10.9 3.9 8.4 70.3 -21.7 -2.4 7.5 13.1 10.3 +Amazon.com Inc AMZN 9.4 6.1 11.4 -50.8",negative +-4.1 92.3,neutral +-108.2,neutral +-454.0 85.7 -12.0,neutral +"-172.4 -38.0 — — — +Profitability Analysis as of 02 Feb 2023 Gross Margin % EBITDA Margin % Operating Margin % Net Margin % FCF Margin % +Company/Ticker 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E)",neutral +"Microsoft Corp MSFT 68.5 68.6 69.0 51.9 52.8 53.2 40.9 41.8 42.2 33.2 34.5 34.7 34.2 37.0 37.8 +Walmart Inc WMT 24.3 25.0 25.1 6.0 6.1 6.3 4.0 4.2 4.3 2.8 2.9 3.0 2.5 2.4 2.6 +eBay Inc EBAY 74.6 72.7 72.9 37.7 32.7 33.5 28.1 24.8 25.3 30.2 23.5 22.3 21.2 15.8 21.9 +Average 55.8 55.4 55.7 31.9 30.5 31.0 24.3 23.6 23.9 22.1 20.3 20.0 19.3 18.4 20.8 +Amazon.com Inc AMZN 43.8 42.5 42.7 14.3 15.1 16.3 2.4 2.2 3.7 -0.5 1.8 3.0 -3.3 4.5 6.7 +Leverage Analysis as of 02 Feb 2023 Debt/Equity % Debt/Total Cap % EBITDA/Net Int.",negative +"Exp Total Debt/EBITDA Asset/Equity +Company/Ticker 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) +Microsoft Corp MSFT 21.4 17.3 13.8 17.6 14.7 12.1 -559.4 — NM 0.4 0.3 0.3 2.0 1.9 1.8 +Walmart Inc WMT 58.9 57.4 55.7 37.1 36.5 35.8 20.4 20.0 21.3 1.2 1.2 1.1 3.2 3.2 3.2 +eBay Inc EBAY 92.9 268.6 248.7 48.2 72.9 71.3 14.6 13.6 13.0 2.3 2.5 2.4 2.7 5.9 5.6 +Average 57.7 114.4 106.1 34.3 41.4 39.7 -174.8 16.8 17.1 1.3 1.3 1.3 2.6 3.7 3.5 +Amazon.com Inc AMZN 46.0 43.5 38.2 31.5 30.3 27.7 31.0 33.6 40.7 0.9 0.8 0.7 3.2 3.1 3.0 +Liquidity Analysis as of 02 Feb 2023 Cash per Share Current Ratio Quick Ratio Cash/Short-Term Debt Payout",positive +"Ratio % +Company/Ticker 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E) 2022 2023(E) 2024(E)",neutral +"Microsoft Corp MSFT 18.9 22.4 28.8 2.1 2.2 2.4 2.1 2.2 2.4 62.8 55.5 60.5 28.8 26.8 25.6 +Walmart Inc WMT 5.1 4.5 4.2 0.9 0.9 0.8 0.3 0.2 0.2 — — — 61.2 36.5 37.0 +eBay Inc EBAY 2.4 0.9 0.4 2.0 0.8 0.8 2.0 0.8 0.8 1.2 0.4 0.2 3.5 -33.0 29.1 +Average 7.9 8.8 10.5 1.5 1.2 1.3 1.3 1.0 1.1 16.0 22.5 21.9 23.4 7.6 22.9 +Amazon.com Inc AMZN 5.3 7.4 8.7 0.9 1.0 1.1 0.7 0.8 0.8 — 34.0 27.1 0.0 0.0 0.0Morningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 18 of 28 +©2023 Morningstar.",negative +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Amazon.com Inc AMZN QQQQ 3 Feb 2023 05:14, UTC +Competitors Price vs. Fair Value +Microsoft Corp MSFT +0100200300400Fair Value: 310.00 +25 Jan 2023 04:36, UTC +Last Close: 264.60 +Over Valued +Under Valued +2018 2019 2020 2021 2022 YTD +0.78 1.02 0.95 0.97 0.75 0.85",positive +"Price/Fair Value +20.75 57.12 42.37 52.24 -27.94 10.33 Total Return % +Morningstar Rating +Total Return % as of 2 Feb 2023.",neutral +Last Close as of 2 Feb 2023.,neutral +"Fair Value as of 25 Jan 2023 04:36, UTC.",positive +"Walmart Inc WMT +050100150200Fair Value: 144.00 +31 Jan 2023 09:02, UTC +Last Close: 143.62 +Over Valued +Under Valued +2018 2019 2020 2021 2022",neutral +"YTD +0.99 1.13 1.16 1.00 1.02 1.00 Price/Fair Value +-3.56 29.86 23.12 1.90 -0.46 1.29 Total Return % +Morningstar Rating +Total Return % as of 2 Feb 2023.",neutral +Last Close as of 2 Feb 2023.,neutral +"Fair Value as of 31 Jan 2023 09:02, UTC.Morningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 19 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Amazon.com Inc AMZN QQQQ 3 Feb 2023 05:14, UTC +Competitors Price vs. Fair Value (Continued) +eBay Inc EBAY +050100150200Fair Value: 60.00 +6 Nov 2022 22:59, UTC +Last Close: 51.66 +Over Valued +Under Valued +2018 2019 2020 2021 2022 YTD +0.78 0.95 0.91 0.92 0.69 0.86",positive +"Price/Fair Value +-25.62 30.64 40.93 33.77 -36.32 24.57 Total Return % +Morningstar Rating +Total Return % as of 2 Feb 2023.",neutral +Last Close as of 2 Feb 2023.,neutral +"Fair Value as of 6 Nov 2022 22:59, UTC.Morningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 20 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Amazon.com Inc AMZN QQQQ 3 Feb 2023 05:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +112.91 USD +2 Feb 2023137.00 USD +3 Feb 2023 05:12, UTC0.821.07 USD Tril +2 Feb 2023 +Wide Stable High Exemplary ;;;;; +1 Feb 2023 06:00, UTC +Recent Analyst Notes +Near-Term Pressure Not Unique to Amazon; Well-Positioned for Long-Term Growth; FVE Cut to $150 Dan +Romanoff,Senior Equity Analyst,28 Oct 2022 +Amazon reported disappointing third-quarter results and provided investors with soft fourth-quarter guidance, +with the performance of AWS being our greatest near-term concern.",positive +"This quarter stings, as this was supposed to +be the quarter where Amazon had finally lapped pandemic-fueled issues.",neutral +"We continue to believe long-term +growth driven by e-commerce proliferation, AWS, and advertising, but the near term is clouded by a variety of +macroeconomic issues, including currency headwinds, high inflation, soaring energy costs, and deceleration in +AWS.",positive +"We can look through these issues but we believe they are likely to persist throughout 2023, which +decreases our confidence over the medium term as well.",neutral +"We are lowering our growth and profitability +assumptions, and in turn our fair value estimate drops to $150 per share, from $192 previously.",positive +"Still, we are not +ready to throw in the towel on Amazon and we see shares as attractive, but clearly the company has still not +found stable footing on its path out of the pandemic.",positive +"Third-quarter revenue grew 15% year over year as reported, +or 19% in constant currency, to $127.1 billion, compared with guidance of $125 billion to $130 billion.",neutral +"Currency +continued to worsen throughout the quarter, which crimped revenue growth.",neutral +"From a retail perspective, online +stores grew 7% year over year as reported, physical stores improved 10%, third-party seller services grew 18%, +and subscription services increased 9%.",neutral +"Prime Day was held in the third quarter of 2022, compared with the +second quarter in 2022, which resulted in an artificial 400 basis points of revenue growth for Amazon this +quarter.",negative +"The two most critical segments, AWS and advertising, grew 27% and 25% over the year-ago period, +respectively.",positive +"AWS enjoyed strong backlog growth, but was proactively helping customers manage cloud +computing costs as the economy slows.",positive +"Compared with our model, online stores, subscription services, and AWS +drove the revenue miss.",neutral +"Amazon Shows Signs of Life With Solid Results and Guidance; FVE $192 Dan Romanoff,Senior Equity +Analyst,29 Jul 2022 +Amazon reported good second-quarter top-line and bottom-line results which were ahead of FactSet consensus +expectations and provided an encouraging revenue outlook for the third quarter.",positive +"While AWS remains a +tremendous opportunity and performed well once again, the more important takeaway this quarter is that retail- +related businesses, especially third-party seller services, are coming back and even delivered some upside +compared with our expectations.",positive +"We are not ready to declare victory for the company just yet, but we are +encouraged by results and note that the pandemic-fueled growth surge is now removed from prior-year +comparisons, so growth should optically improve going forward.",negative +"We are maintaining our $192 fair value estimate +for wide-moat Amazon.",positive +"Even with shares up as much as 14% after hours, we continue to view shares as +attractive, as Amazon remains one of our top picks.",positive +"Second-quarter revenue grew 7% year over year as reported, +or 10% in constant currency, to $121.2 billion, compared with guidance of $116 billion to $121 billion.",neutral +"The Morningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 21 of 28 +©2023 Morningstar.",neutral +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Amazon.com Inc AMZN QQQQ 3 Feb 2023 05:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +112.91 USD +2 Feb 2023137.00 USD +3 Feb 2023 05:12, UTC0.821.07 USD Tril +2 Feb 2023 +Wide Stable High Exemplary ;;;;; +1 Feb 2023 06:00, UTC +currency headwind was 120 basis points worse than what was called for within guidance.",positive +"For perspective, the +comparison last year was 27% growth, so still challenging.",positive +"In short, the top-line performance is showing +improvement and was solid.",neutral +"From a retail perspective, online stores declined 3% year over year, physical stores +improved 12%, third-party seller services grew 9%, and subscription services increased 10%.",neutral +"Increases on Prime +membership fees and third-party seller fees helped revenue while Prime member churn was better than +expected.",positive +Unit growth was 1%.,neutral +"The two most critical segments, AWS and advertising, grew 33% and 18% over +the year-ago period, respectively.",positive +"Compared with our model, third-party seller services and AWS drove the +largest revenue outperformance.",neutral +"Amazon's Profitability Hit by Inflation, Excess Capacity; Guidance Doesn't Help; FVE Down to $3,850 Dan +Romanoff,Senior Equity Analyst,29 Apr 2022",negative +"We are lowering our fair value estimate to $3,850 per share, from $4,100, for wide-moat Amazon after it reported +a mixed quarter and issued worse than expected guidance for the second quarter.",positive +"The highlight of results was +strength in AWS, which continues to benefit from the ongoing shift of enterprise workloads to the cloud.",neutral +"While +revenue was ahead of the guidance midpoint, first-party sales suffered its second straight quarter of year-over- +year contraction, which we believe is a first but is not a surprise.",positive +"Operating margin was a concern, as inflation, +excess labor, and excess capacity ate into profitability, which came in just above the low end of guidance and +was well short of our expectations.",neutral +"Meanwhile, second-quarter guidance is well short of our model, as we think +profitability challenges will linger for a couple of quarters and perhaps into next year; Prime Day will move into +the third quarter, and demand levels have not yet normalized post-COVID-19.",neutral +"While we expect the second half of +the year to show improvements, we modestly lowered our growth and profitability estimates, particularly in the +near term, to account for guidance and heightened uncertainty.",positive +"First-quarter revenue grew 7% (8% in constant +currency) year over year to $116.4 billion, compared with guidance of $112 billion to $117 billion.",neutral +"Pandemic- +fueled growth last year in online stores and third-party seller services continued to slow to a 3% decline and 7% +growth year over year in the quarter, respectively, while physical stores continue to benefit from consumers +leaving their homes to shop and grew by 17% year over year.",negative +"Unit growth was flat, but we view this as a mix +issue as shopping habits normalize.",negative +"Amazon noted no consumer slowdown as macro factors such as inflation and +the Russian invasion loom large.",positive +"Compared with the year-ago period, subscription services slowed to 11% +growth, AWS posted strong 37% growth, and advertising decelerated to 23% growth.",positive +"Amazon Delivers Mixed Quarter, Light Guidance, and Prime Price Hike; FVE Steady at $4,100 Dan +Romanoff,Senior Equity Analyst,4 Feb 2022",positive +"We are maintaining our fair value estimate for wide-moat Amazon at $4,100 per share, and despite shares rising +14% after hours, we still view shares as undervalued.",positive +"We think the highlight of the quarter was Amazon's plan to +raise prices in the U.S. on Prime to $139 from $119, beginning on Feb. 18 for new members, underscoring +Amazon's pricing power and highlighting Prime as a revenue driver.",positive +"Meanwhile, Amazon will continue to invest Morningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 22 of 28 +©2023 Morningstar.",neutral +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Amazon.com Inc AMZN QQQQ 3 Feb 2023 05:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +112.91 USD +2 Feb 2023137.00 USD +3 Feb 2023 05:12, UTC0.821.07 USD Tril +2 Feb 2023 +Wide Stable High Exemplary ;;;;; +1 Feb 2023 06:00, UTC +heavily in Amazon Web Services, or AWS, fulfilment capacity and delivery, although we see these beginning to +ease in the second half of 2022.",positive +"Overall, we do not see issues with the long-term story as Amazon remains well +positioned to prosper from the secular shift toward e-commerce and the public cloud over the next +decade.",neutral +"Fourth-quarter revenue grew 9% (10% in constant currency) year over year to $137.4 billion, compared +with guidance of $130 billion to $140 billion.",neutral +"Pandemic-fueled growth last year in online stores and third-party +seller services continued to slow to a 1% decline and 11% growth year over year in the quarter, respectively, +while physical stores enjoyed the benefit of easing lockdowns and grew by 17% year over year.",positive +"The company +continues to suffer from labor issues and increasing shipping costs, although the impact from these items came +in as expected for the quarter.",negative +"Still, operating profit came in better than we anticipated and above the high end +of the guidance range.",positive +"Compared with the year-ago period, subscription services slowed to 15% growth, AWS +accelerated again to 40% growth, and advertising decelerated to 32% growth.",neutral +"Management broke out +advertising revenue as a distinct segment for the first time—we were pleased to see that it was 93% of the +""other"" segment and was higher than our prior estimates.",positive +"Performance of AWS remains impressive with a fourth +straight quarter of acceleration off of a $13 billion revenue base a year ago.",positive +"We continue to view advertising and +AWS as key long-term drivers for shares.",neutral +"Wage and Shipping Inflation Crimping Amazon’s Near-Term Margins; FVE Down to $4,100 Dan +Romanoff,Senior Equity Analyst,29",negative +"Oct 2021 +We are lowering our fair value estimate for wide-moat Amazon to $4,100 per share from $4,200, based mainly on +margin pressures arising from hiring and shipping challenges, which we think may pressure profitability in the +near term and, to a lesser extent, the long term.",positive +"That said, we see shares as attractive.",positive +"Amazon reported third- +quarter results that came in above the midpoints of its guidance range for both revenue and operating income +but were still shy of investor expectations.",negative +"Guidance for the fourth quarter was modestly below our expectations +but has little bearing on our long-term view.",negative +"Meanwhile, the company continues to rapidly add capacity in order +to meet customer demand and one day delivery, even as it roughly doubled its footprint during the past two +years.",negative +"We don’t see issues with the long-term story as Amazon remains well positioned to prosper from the +secular shift toward e-commerce and the public cloud over the next decade, but we do see a modest reset in +terms of growth and profitability through the next several quarters.",positive +"Third-quarter revenue grew 15% (15% in +constant currency) year over year to $110.8 billion, compared with FactSet consensus of $111.6 billion and +guidance of $106 billion to $112 billion.",neutral +"Surging growth last year in online stores and third-party seller services +slowed to 3% and 19% year over year gains in the third quarter, respectively, while physical stores accelerated to +13% growth.",neutral +This shift succinctly captures the dynamics of the end of COVID-driven lockdowns.,neutral +"On a year over +year basis, subscription services slowed to 24% growth, AWS accelerated to 39% growth, and other decelerated +to 50% growth.",negative +Performance of AWS was staggering with acceleration from a $12 billion base a year ago.,negative +"We +continue to view advertising (in “other”) and AWS as key long-term growth drivers for the firm.",negative +"Morningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 23 of 28 +©2023 Morningstar.",neutral +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Amazon.com Inc AMZN QQQQ 3 Feb 2023 05:14, UTC +Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat TMMoat Trend TM Uncertainty Capital Allocation ESG Risk Rating Assessment 1 +112.91 USD +2 Feb 2023137.00 USD +3 Feb 2023 05:12, UTC0.821.07 USD Tril +2 Feb 2023 +Wide Stable High Exemplary ;;;;; +1 Feb 2023 06:00, UTC +Amazon E-Commerce Growth Slows as COVID-19 Eases; Other Segments Still Strong; FVE Steady at $4,200 +Dan Romanoff,Senior Equity Analyst,30 Jul 2021 +Wide-moat Amazon reported second-quarter results that were within its guidance range but were slightly short +of investor expectations for both revenue and operating profit.",positive +"Guidance for the third quarter is also light +compared with FactSet consensus.",positive +"In short, consumers' online shopping levels are returning to more normal +levels as they shift some spending to other entertainment sources and offline shopping.",positive +"Meanwhile, the +company continues to add capacity at a breakneck pace in order to meet customer demand and one day delivery, +even as it roughly doubled its footprint during the last 18 months.",negative +"We see no cracks in the long-term story as +Amazon remains well positioned to prosper from the secular shift toward e-commerce and the public cloud over +the next decade.",neutral +"We note revenue weakness was limited to Amazon’s own online store segment, with other +segments performing well and overall profitability impressive despite lower revenue.",positive +"Our model changes are +fairly modest, thus we are maintaining our $4,200 per share fair value estimate and see shares as +undervalued.",positive +"Second-quarter revenue grew 27% (24% in constant currency) year over year to $113.1 billion, +compared with FactSet consensus of $115.3 billion and guidance of $110 billion to $116 billion.",neutral +"Meteoric growth +in online stores from the last four quarters slowed to a more pedestrian 16% year-over-year increase while +physical stores recovered from a year of declining revenue and grew 11% year over year.",positive +"Still, third party seller +services grew 38% year over year despite a marked slowdown, as the solution remains attractive to merchants.",positive +"Subscription services, AWS, and other remained strong, with year-over-year growth of 32%, 37%, and 88%, +respectively.",positive +We continue to view advertising (in “other”) and AWS as key long-term growth drivers for the firm.,negative +"In particular we see AWS as the clear leader in public cloud and we think Amazon’s advertising business offers a +unique value proposition for marketers.",positive +"Morningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 24 of 28 +©2023 Morningstar.",neutral +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Research Methodology for Valuing Companies +Morningstar Equity Research Star Rating Methodology +Overview +At the heart of our valuation system is a detailed projec- +tion of a company’s future cash flows, resulting from our +analysts’ research.",positive +"Analysts create custom industry and +company assumptions to feed income statement, balance +sheet, and capital investment assumptions into our glob- +ally standardized, proprietary discounted cash flow, or +DCF, modeling templates.",neutral +"We use scenario analysis, inde- +pth competitive advantage analysis, and a variety of other +analytical tools to augment this process.",negative +"Moreover, we +think analyzing valuation through discounted cash flows +presents a better lens for viewing cyclical companies, +high-growth firms, businesses with finite lives (e.g., +mines), or companies expected to generate negative +earnings over the next few years.",negative +"That said, we don’t dis- +miss multiples altogether but rather use them as support- +ing cross-checks for our DCF-based fair value estimates.",positive +"We also acknowledge that DCF models offer their own +challenges (including a potential proliferation of estim- +ated inputs and the possibility that the method may miss +shortterm market-price movements), but we believe these +negatives are mitigated by deep analysis and our +longterm approach.",positive +"Morningstar’s equity research group (”we,” “our”) be- +lieves that a company’s intrinsic worth results from the +future cash flows it can generate.",positive +"The Morningstar Rating +for stocks identifies stocks trading at a discount or premi- +um to their intrinsic worth—or fair value estimate, in +Morningstar terminology.",positive +"Five-star stocks sell for the +biggest risk adjusted discount to their fair values, where- +as 1-star stocks trade at premiums to their intrinsic worth.",positive +"Four key components drive the Morningstar rating: (1) our +assessment of the firm’s economic moat, (2) our estimate +of the stock’s fair value, (3) our uncertainty around that +fair value estimate and (4) the current market price.",positive +"This +process ultimately culminates in our singlepoint star rat- +ing.",neutral +1.,neutral +"Economic Moat +The concept of an economic moat plays a vital role not +only in our qualitative assessment of a firm’s long-term +investment potential, but also in the actual calculation of +our fair value estimates.",positive +"An economic moat is a structural +feature that allows a firm to sustain excess profits over a long period of time.",negative +"We define economic profits as re- +turns on invested capital (or ROIC) over and above our es- +timate of a firm’s cost of capital, or weighted average +cost of capital (or WACC).",negative +"Without a moat, profits are +more susceptible to competition.",positive +"We have identified five +sources of economic moats: intangible assets, switching +costs, network effect, cost advantage, and efficient scale.",positive +"Companies with a narrow moat are those we believe are +more likely than not to achieve normalized excess returns +for at least the next 10 years.",neutral +"Wide-moat companies are +those in which we have very high confidence that excess +returns will remain for 10 years, with excess returns more +likely than not to remain for at least 20 years.",positive +"The longer +a firm generates economic profits, the higher its intrinsic +value.",positive +"We believe low-quality, no-moat companies will +see their normalized returns gravitate toward the firm’s +cost of capital more quickly than companies with moats.",positive +"When considering a company's moat, we also assess +whether there is a substantial threat of value destruction, +stemming from risks related to ESG, industry disruption, +financial health, or other idiosyncratic issues.",negative +"In this con- +text, a risk is considered potentially value destructive if its +occurrence would eliminate a firm’s economic profit on a +cumulative or midcycle basis.",negative +"If we deem the probability +of occurrence sufficiently high, we would not characterize +the company as possessing an economic moat.",positive +"To assess the sustainability of excess profits, analysts +perform ongoing assessments of the moat trend.",neutral +"A firm’s +moat trend is positive in cases where we think its sources +of competitive advantage are growing stronger; stable +where we don’t anticipate changes to competitive ad- +vantages over the next several years; or negative when +we see signs of deterioration.",negative +2.,neutral +"Estimated Fair Value +Combining our analysts’ financial forecasts with the +firm’s economic moat helps us assess how long returns +on invested capital are likely to exceed the firm’s cost of +capital.",positive +"Returns of firms with a wide economic moat rat- +ing are assumed to fade to the perpetuity period over a +longer period of time than the returns of narrow-moat +firms, and both will fade slower than no-moat firms, in- +creasing our estimate of their intrinsic value.",positive +Our model is divided into three distinct stages:,positive +"Stage I: Explicit Forecast +In this stage, which can last five to 10 years, analysts +make full financial statement forecasts, including items +such as revenue, profit margins, tax rates, changes in +workingcapital accounts, and capital spending.",positive +"Based on +these projections, we calculate earnings before interest, +after taxes (EBI) and the net new investment (NNI) to de- +rive our annual free cash flow forecast.",positive +Stage II:,neutral +"Fade +The second stage of our model is the period it will take +the company’s return on new invested capital—the re- +turn on capital of the next dollar invested (“RONIC”)—to +decline (or rise) to its cost of capital.",positive +"During the Stage II +period, we use a formula to approximate cash flows in +lieu of explicitly modeling the income statement, balance +sheet, and cash flow statement as we do in Stage I.",negative +"The +length of the second stage depends on the strength of +the company’s economic moat.",positive +"We forecast this period to +last anywhere from one year (for companies with no eco- +nomic moat) to 10–15 years or more (for wide-moat com- +panies).",positive +"During this period, cash flows are forecast using +four assumptions: an average growth rate for EBI over the +period, a normalized investment rate, average return on +new invested capital (RONIC), and the number of years +until perpetuity, when excess returns cease.",negative +"The invest- +ment rate and return on new invested capital decline un- +til a perpetuity value is calculated.",positive +"In the case of firms +that do not earn their cost of capital, we assume marginal +ROICs rise to the firm’s cost of capital (usually attribut- +able to less reinvestment), and we may truncate the +second stage.",negative +Stage III:,neutral +"Perpetuity +Once a company’s marginal ROIC hits its cost of capital, +we calculate a continuing value, using a standard per- +petuity formula.",neutral +"At perpetuity, we assume that any +growth or decline or investment in the business neither +creates nor destroys value and that any new investment +provides a return in line with estimated WACC.",positive +"Because a dollar earned today is worth more than a dollar +earned tomorrow, we discount our projections of cash +flows in stages I, II, and III to arrive at a total present +value of expected future cash flows.",positive +"Because we are +modeling free cash flow to the firm—representing cash +available to provide a return to all capital providers—we +discount future cash flows using the WACC, which is a +weighted average of the costs of equity, debt, and pre- +ferred stock (and any other funding sources), using ex- +pected future proportionate long-term, market-value +weights.",positive +3.,neutral +"Uncertainty Around That Fair Value EstimateMorningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 25 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Research Methodology for Valuing Companies +Morningstar Equity Research Star Rating Methodology + Morningstar’s Uncertainty Rating is designed to capture +the range of potential outcomes for a company’s intrinsic +value.",positive +"This rating is used to assign the margin of safety +required before investing, which in turn explicitly drives +our stock star rating system.",neutral +"The Uncertainty Rating is +aimed at identifying the confidence we should have in as- +signing a fair value estimate for a given stock.",positive +"Our Uncertainty Rating is meant to take into account any- +thing that can increase the potential dispersion of future +outcomes for the intrinsic value of a company, and any- +thing that can affect our ability to accurately predict +these outcomes.",positive +"The rating begins with a suggested rat- +ing produced by a quantitative process based on the trail- +ing 12-month standard deviation of daily stock returns.",neutral +"An analyst overlay is then applied, with analysts using +the suggested rating, historical rating data, and their own +knowledge of the company to inform them as they make +the final Uncertainty Rating decision.",positive +"Ultimately, the rat- +ing decision rests with the analyst.",neutral +"Analysts take into ac- +count many characteristics when making their final de- +cision, including cyclical factors, operational and financial +factors such as leverage, company-specific events, ESG +risks, and anything else that might increase the potential +dispersion of future outcomes and our ability to estimate +those outcomes.",positive +"Our recommended margin of safety—the discount to fair +value demanded before we’d recommend buying or +selling the stock—widens as our uncertainty of the es- +timated value of the equity increases.",positive +"The more uncertain +we are about the potential dispersion of outcomes, the +greater the discount we require relative to our estimate of +the value of the firm before we would recommend the +purchase of the shares.",positive +"In addition, the Uncertainty Rat- +ing provides guidance in portfolio construction based on +risk tolerance.",neutral +"Our Uncertainty Ratings are: Low, Medium, High, Very +High, and Extreme.",positive +"Margin of Safety +Qualitative Analysis +Uncertainty Ratings QQQQQ Rating QRating +Low 20% Discount 25% Premium +Medium 30% Discount 35% Premium +High 40% Discount 55% Premium +Very High 50% Discount 75%",positive +"Premium +Extreme 75% Discount 300% Premium",negative +"Our uncertainty rating is based on the interquartile range, +or the middle 50% of potential outcomes, covering the +25th percentile–75th percentile.",neutral +"This means that when a +stock hits 5 stars, we expect there is a 75% chance that +the intrinsic value of that stock lies above the current +market price.",neutral +"Similarly, when a stock hits 1 star, we ex-pect there is a 75% chance that the intrinsic value of that +stock lies below the current market price.",neutral +4.,neutral +Market Price,neutral +"The market prices used in this analysis and noted in the +report come from exchange on which the stock is listed +which we believe is a reliable source.",neutral +"For more details about our methodology, please go to +https://shareholders.morningstar.com +Morningstar Star Rating for Stocks +Once we determine the fair value estimate of a stock, we +compare it with the stock’s current market price on a +daily basis, and the star rating is automatically re-calcu- +lated at the market close on every day the market on +which the stock is listed is open.",positive +"Our analysts keep close +tabs on the companies they follow, and, based on thor- +ough and ongoing analysis, raise or lower their fair value +estimates as warranted.",positive +"Please note, there is no predefined distribution of stars.",neutral +"That is, the percentage of stocks that earn 5 stars can +fluctuate daily, so the star ratings, in the aggregate, can +serve as a gauge of the broader market’s valuation.",neutral +"When there are many 5-star stocks, the stock market as a +whole is more undervalued, in our opinion, than when +very few companies garner our highest rating.",positive +"We expect that if our base-case assumptions are true the +market price will converge on our fair value estimate over time generally within three years (although it is im- +possible to predict the exact time frame in which market +prices may adjust).",positive +"Our star ratings are guideposts to a broad audience and +individuals must consider their own specific investment +goals, risk tolerance, tax situation, time horizon, income +needs, and complete investment portfolio, among other +factors.",positive +"The Morningstar Star Ratings for stocks are defined be- +low: +QQQQQ",neutral +"We believe appreciation beyond a fair risk ad- +justed return is highly likely over a multiyear time frame.",positive +"Scenario analysis developed by our analysts indicates +that the current market price represents an excessively +pessimistic outlook, limiting downside risk and maximiz- +ing upside potential.",negative +QQQQ,neutral +"We believe appreciation beyond a fair risk-ad- +justed return is likely.",positive +"QQQ Indicates our belief that investors are likely to re- +ceive a fair risk-adjusted return (approximately cost of +equity).",positive +"QQ We believe investors are likely to receive a less than +fair risk-adjusted return.",positive +"Q Indicates a high probability of undesirable risk-adjus- +ted returns from the current market price over a multiyear Morningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 26 of 28 +©2023 Morningstar.",positive +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Research Methodology for Valuing Companies +time frame, based on our analysis.",positive +"Scenario analysis by +our analysts indicates that the market is pricing in an ex- +cessively optimistic outlook, limiting upside potential and +leaving the investor exposed to Capital loss.",neutral +"Other Definitions +Last Price: Price of the stock as of the close of the mar- +ket of the last trading day before date of the report.",negative +"Capital Allocation Rating: Our Capital Allocation (or +Stewardship)",neutral +"Rating represents our assessment of the +quality of management’s capital allocation, with particu- +lar emphasis on the firm’s balance sheet, investments, +and shareholder distributions.",negative +"Analysts consider compan- +ies’ investment strategy and valuation, balance sheet +management, and dividend and share buyback policies.",neutral +"Corporate governance factors are only considered if they +are likely to materially impact shareholder value, though +either the balance sheet, investment, or shareholder dis- +tributions.",neutral +"Analysts assign one of three ratings: ""Exem- +plary"", ""Standard"", or ""Poor"".",negative +"Analysts judge Capital Alloc- +ation from an equity holder’s perspective.",neutral +"Ratings are de- +termined on a forward looking and absolute basis.",positive +"The +Standard rating is most common as most managers will +exhibit neither exceptionally strong nor poor capital alloc- +ation.",positive +"Capital Allocation (or Stewardship) analysis published pri- +or to Dec. 9, 2020, was determined using a different pro- +cess.",neutral +"Beyond investment strategy, financial leverage, and +dividend and share buyback policies, analysts also con- +sidered execution, compensation, related party transac- +tions, and accounting practices in the rating.",neutral +"Capital Allocation Rating: Our Capital Allocation (or +Stewardship)",neutral +"Rating represents our assessment of the +quality of management’s capital allocation, with particu- +lar emphasis on the firm’s balance sheet, investments, +and shareholder distributions.",negative +"Analysts consider compan- +ies’ investment strategy and valuation, balance sheet +management, and dividend and share buyback policies.",neutral +"Corporate governance factors are only considered if they +are likely to materially impact shareholder value, though +either the balance sheet, investment, or shareholder dis- +tributions.",neutral +"Analysts assign one of three ratings: ""Exem- +plary"", ""Standard"", or ""Poor"".",negative +"Analysts judge Capital Alloc- +ation from an equity holder’s perspective.",neutral +"Ratings are de- +termined on a forward looking and absolute basis.",positive +"The +Standard rating is most common as most managers will +exhibit neither exceptionally strong nor poor capital alloc- +ation.",positive +"Capital Allocation (or Stewardship) analysis published pri- +or to Dec. 9, 2020, was determined using a different pro- +cess.",neutral +"Beyond investment strategy, financial leverage, and +dividend and share buyback policies, analysts also con-sidered execution, compensation, related party transac- +tions, and accounting practices in the rating.",neutral +"Sustainalytics ESG Risk Rating Assessment: The ESG +Risk Rating Assessment is provided by Sustainalytics; a +Morningstar company.",neutral +"Sustainalytics’ ESG Risk Ratings measure the degree to +which company’s economic value at risk is driven by en- +vironment, social and governance (ESG) factors.",positive +"Sustainalytics analyzes over 1,300 data points to assess a +company’s exposure to and management of ESG risks.",neutral +"In +other words, ESG Risk Ratings measures a company’s un- +managed ESG Risks represented as a quantitative score.",negative +"Unmanaged Risk is measured on an open-ended scale +starting at zero (no risk) with lower scores representing +less unmanaged risk and, for 95% of cases, the unman- +aged ESG Risk score is below 50.",negative +"Based on their quantitative scores, companies are +grouped into one of five Risk Categories (negligible, low, +medium, high, severe).",positive +"These risk categories are absolute, +meaning that a ‘high risk’ assessment reflects a compar- +able degree of unmanaged ESG risk across all subindus- +tries covered.",positive +"The ESG Risk Rating Assessment is a visual representa- +tion of Sustainalytics ESG Risk Categories on a 1 to 5 +scale.",neutral +"Companies with Negligible Risk = 5 Globes, Low +Risk = 4, Medium Risk = 3 Globes, High Risk = 2 Globes, +Severe Risk = 1 Globe.",positive +"For more information, please visit +sustainalytics.com/esg-ratings/ +Ratings should not be used as the sole basis in evaluating +a company or security.",positive +"Ratings involve unknown risks and +uncertainties which may cause our expectations not to +occur or to differ significantly from what was expected +and should not be considered an offer or solicitation to +buy or sell a security.",positive +"Risk Warning +Please note that investments in securities are subject to +market and other risks and there is no assurance or guar- +antee that the intended investment objectives will be +achieved.",negative +"Past performance of a security may or may not +be sustained in future and is no indication of future per- +formance.",negative +"A security investment return and an investor’s +principal value will fluctuate so that, when redeemed, an +investor’s shares may be worth more or less than their +original cost.",positive +"A security’s current investment performance +may be lower or higher than the investment performance +noted within the report.",positive +"Morningstar’s Uncertainty Rating +serves as a useful data point with respect to sensitivity +analysis of the assumptions used in our determining a fair +value price.",positive +"General Disclosure +Unless otherwise provided in a separate agreement, re- +cipients accessing this report may only use it in the coun- +try in which the Morningstar distributor is based.",positive +"Unless +stated otherwise, the original distributor of the report is +Morningstar Research Services LLC, a U.S.A. domiciled +financial institution.",positive +"This report is for informational purposes only and has no +regard to the specific investment objectives, financial +situation or particular needs of any specific recipient.",positive +"This +publication is intended to provide information to assist in- +stitutional investors in making their own investment de- +cisions, not to provide investment advice to any specific +investor.",positive +"Therefore, investments discussed and recom- +mendations made herein may not be suitable for all in- +vestors: recipients must exercise their own independent +judgment as to the suitability of such investments and re- +commendations in the light of their own investment ob- +jectives, experience, taxation status and financial posi- +tion.",positive +"The information, data, analyses and opinions presented +herein are not warranted to be accurate, correct, com- +plete or timely.",positive +"Unless otherwise provided in a separate +agreement, neither Morningstar, Inc. or the Equity Re- +search Group represents that the report contents meet all +of the presentation and/or disclosure standards applic- +able in the jurisdiction the recipient is located.",positive +"Except as otherwise required by law or provided for in a +separate agreement, the analyst, Morningstar, Inc. and +the Equity Research Group and their officers, directors +and employees shall not be responsible or liable for any +trading decisions, damages or other losses resulting from, +or related to, the information, data, analyses or opinions +within the report.",negative +"The Equity Research Group encourages +recipients recipients of this report to read all relevant is- +sue documents (e.g., prospectus) pertaining to the secur- +ity concerned, including without limitation, information +relevant to its investment objectives, risks, and costs be- +fore making an in vestment decision and when deemed +necessary, to seek the advice of a legal, tax, and/or",positive +"ac- +counting professional.",positive +"The Report and its contents are not directed to, or inten- +ded for distribution to or use by, any person or entity who +is a citizen or resident of or located in any locality, state, +country or other jurisdiction where such distribution, pub- +lication, availability or use would be contrary to law or +regulation or which would subject Morningstar, Inc. or its +affiliates to any registration or licensing requirements in +such jurisdiction.",negative +"Morningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 27 of 28 +©2023 Morningstar.",neutral +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Research Methodology for Valuing Companies +Where this report is made available in a language other +than English and in the case of inconsistencies between +the English and translated versions of the report, the Eng- +lish version will control and supersede any ambiguities +associated with any part or section of a report that has +been issued in a foreign language.",positive +"Neither the analyst, +Morningstar, Inc., or the Equity Research Group guaran- +tees the accuracy of the translations.",neutral +"This report may be distributed in certain localities, coun- +tries and/or jurisdictions (“Territories”) by independent +third parties or independent intermediaries and/or distrib- +utors (“Distributors”).",positive +"Such Distributors are not acting as +agents or representatives of the analyst, Morningstar, +Inc. or the Equity Research Group.",neutral +"In Territories where a +Distributor distributes our report, the Distributor is solely +responsible for complying with all applicable regulations, +laws, rules, circulars, codes and guidelines established by +local and/or regional regulatory bodies, including laws in +connection with the distribution third-party research re- +ports.",positive +"Conflicts of Interest +uNo interests are held by the analyst with respect to the +security subject of this investment research report.",negative +"uMorningstar, Inc. may hold a long position in the se- +curity subject of this investment research report that +exceeds 0.5% of the total issued share capital of the +security.",negative +"To determine if such is the case, please click +http://msi.morningstar.com and http://mdi.morning- +star.com +uAnalysts’ compensation is derived from Morningstar, +Inc.’s overall earnings and consists of salary, bonus +and in some cases restricted stock.",neutral +"uNeither Morningstar, Inc. or the Equity Research Group +receives commissions for providing research nor do +they charge companies to be rated.",neutral +"uNeither Morningstar, Inc. or the Equity Research Group +is a market maker or a liquidity provider of the security +noted within this report.",neutral +"uNeither Morningstar, Inc. or the Equity Research Group +has been a lead manager or co-lead manager over the +previous 12-months of any publicly disclosed offer of +financial instruments of the issuer.",negative +"uMorningstar, Inc.’s investment management group +does have arrangements with financial institutions to +provide portfolio management/investment advice some +of which an analyst may issue investment research re- +ports on.",neutral +"However, analysts do not have authority over +Morningstar’s investment management group’s busi- +ness arrangements nor allow employees from the in- +vestment management group to participate or influ- +ence the analysis or opinion prepared by them.",neutral +"Morningstar, Inc. is a publicly traded company (Ticker +Symbol: MORN) and thus a financial institution the se- +curity of which is the subject of this report may own umore than 5% of Morningstar, Inc.’s total outstanding +shares.",positive +"Please access Morningstar, Inc.’s proxy state- +ment, “Security Ownership of Certain Beneficial Own- +ers and Management” section https:// +shareholders.morningstar.com/investor-relations/fin- +ancials/sec-filings/default.aspx +uMorningstar, Inc. may provide the product issuer or its +related entities with services or products for a fee and +on an arms’ length basis including software products +and licenses, research and consulting services, data +services, licenses to republish our ratings and research +in their promotional material, event sponsorship and +website advertising.",positive +"Further information on Morningstar, Inc.’s conflict of in- +terest policies is available from https:// +shareholders.morningstar.com Also, please note analysts +are subject to the CFA Institute’s Code of Ethics and +Standards of Professional Conduct.",positive +"For a list of securities which the Equity Research Group +currently covers and provides written analysis on please +contact your local Morningstar office.",neutral +"In addition, for his- +torical analysis of securities covered, including their fair +value estimate, please contact your local office.",positive +"For Recipients in Australia: This Report has been issued +and distributed in Australia by Morningstar Australasia +Pty Ltd (ABN: 95 090 665 544; ASFL: 240892 ).",neutral +"Morning- +star Australasia Pty Ltd is the provider of the general ad- +vice (‘the Service’) and takes responsibility for the produc- +tion of this report.",positive +"The Service is provided through the re- +search of investment products.",neutral +"To the extent the Report contains general advice it has +been prepared without reference to an investor’s object- +ives, financial situation or needs.",positive +"Investors should con- +sider the advice in light of these matters and, if applic- +able, the relevant Product Disclosure Statement before +making any decision to invest.",positive +"Refer to our Financial Ser- +vices Guide (FSG) for more information at http:// +www.morningstar.com.au/fsg.pdf +For Recipients in New Zealand:",positive +"This report has been is- +sued and distributed by Morningstar Australasia Pty Ltd +and/or Morningstar Research Ltd (together ‘Morning- +star’).",neutral +"Morningstar is the provider of the regulated finan- +cial advice and takes responsibility for the production of +this report.",neutral +"To the extent the report contains regulated +financial advice it has been prepared without reference to +an investor’s objectives, financial situation or needs.",neutral +"In- +vestors should consider the advice in light of these mat- +ters and, if applicable, the relevant Product Disclosure +Statement before making any decision to invest.",positive +"Refer to +our Financial Advice Provider Disclosure Statement at +www.morningstar.com.au/s/fapds.pdf for more informa-tion.",positive +"For Recipients in Hong Kong: The Report is distributed +by Morningstar Investment Management Asia Limited, +which is regulated by the Hong Kong Securities and Fu- +tures Commission to provide services to professional in- +vestors only.",positive +"Neither Morningstar Investment Manage- +ment Asia Limited, nor its representatives, are acting or +will be deemed to be acting as an investment profession- +al to any recipients of this information unless expressly +agreed to by Morningstar Investment Management Asia +Limited.",negative +"For enquiries regarding this research, please con- +tact a Morningstar Investment Management Asia Limited +Licensed Representative at https://shareholders.morning- +star.com +For recipients in India:",negative +"This Investment Research is is- +sued by Morningstar Investment Adviser India Private +Limited.",negative +"Morningstar Investment Adviser India Private +Limited is registered with the Securities and Exchange +Board of India (Registration number INA000001357 ) and +provides investment advice and research.",negative +"Morningstar In- +vestment Adviser India Private Limited has not been the +subject of any disciplinary action by SEBI or any other leg- +al/regulatory body.",negative +"Morningstar Investment Adviser India +Private Limited is a wholly owned subsidiary of Morning- +star Investment Management LLC.",negative +"In India, Morningstar +Investment Adviser India Private Limited has one asso- +ciate, Morningstar India Private Limited, which provides +data related services, financial data analysis and software +development.",negative +"The Research Analyst has not served as an +officer, director or employee of the fund company within +the last 12 months, nor has it or its associates engaged in +market making activity for the fund company.",neutral +"*The Conflicts of Interest disclosure above also applies to +relatives and associates of Manager Research Analysts in +India # The Conflicts of Interest disclosure above also ap- +plies to associates of Manager Research Analysts in In- +dia.",neutral +"The terms and conditions on which Morningstar In- +vestment Adviser India Private Limited offers Investment +Research to clients, varies from client to client, and are +detailed in the respective client agreement.",positive +"For recipients in Japan: The Report is distributed by Ib- +botson Associates Japan, Inc., which is regulated by Fin- +ancial Services Agency.",neutral +"Neither Ibbotson Associates Ja- +pan, Inc., nor its representatives, are acting or will be +deemed to be acting as an investment professional to any +recipients of this information.",positive +For recipients in Singapore:,neutral +"For Institutional Investor +audiences only.",neutral +"Recipients of this report should contact +their financial professional in Singapore in relation to this +report.",positive +"Morningstar, Inc., and its affiliates, relies on cer- +tain exemptions (Financial Advisers Regulations, Section Morningstar Equity Company Report | Report as of 3 Feb 2023 05:20, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 28 of 28 +©2023 Morningstar.",neutral +All Rights Reserved.,neutral +"Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based.",positive +"The information, data, analyses and +opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or +accurate.",positive +The opinions expressed are as of the date written and are subject to change without notice.,negative +"Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or +other losses resulting from, or related to, the information, data, analyses or opinions or their use.",positive +"The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in +part, or used in any manner, without the prior written consent of Morningstar.",positive +"Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research +Services LLC, registered with and governed by the U.S. Securities and Exchange Commission.",positive +"To order reprints, call +1 312-696-6100.",neutral +"To license the research, call +1 312-696-6869.",neutral +"Please see important disclosures at +the end of this report.ß ®Research Methodology for Valuing Companies +32B and 32C) to provide its investment research to recipi- +ents in Singapore.",positive