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3M CO_10-Q_2023-07-25_66740-0000066740-23-000058.html

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ABBOTT LABORATORIES_10-Q_2023-08-03_1800-0001628280-23-027203.html

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ABBOTT LABORATORIES_10-Q_2023-11-01_1800-0001628280-23-035957.html

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ADOBE INC._10-Q_2023-09-27_796343-0000796343-23-000205.html

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ADVANCED MICRO DEVICES INC_10-Q_2023-08-02_2488-0000002488-23-000139.html

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ADVANCED MICRO DEVICES INC_10-Q_2023-11-01_2488-0000002488-23-000195.html

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AFLAC INC_10-Q_2023-08-02_4977-0000004977-23-000149.html

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AKAMAI TECHNOLOGIES INC_10-Q_2023-11-08_1086222-0001086222-23-000285.html

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ALBEMARLE CORP_10-Q_2023-08-02_915913-0000915913-23-000166.html

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ALBEMARLE CORP_10-Q_2023-11-01_915913-0000915913-23-000180.html

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ALEXANDRIA REAL ESTATE EQUITIES, INC._10-Q_2023-10-23_1035443-0001035443-23-000303.html

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ALIGN TECHNOLOGY INC_10-Q_2023-11-03_1097149-0001097149-23-000082.html

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ALLIANT ENERGY CORP_10-Q_2023-08-04_352541-0000352541-23-000091.html

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ALTRIA GROUP, INC._10-Q_2023-08-01_764180-0000764180-23-000113.html

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AMEREN CORP_10-Q_2023-11-09_1002910-0001002910-23-000112.html

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AMERICAN ELECTRIC POWER CO INC_10-Q_2023-07-27_4904-0000004904-23-000104.html

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AMERICAN EXPRESS CO_10-Q_2023-07-25_4962-0000004962-23-000028.html

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AMERICAN INTERNATIONAL GROUP, INC._10-Q_2023-08-02_5272-0000005272-23-000033.html

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AMERICAN TOWER CORP -MA-_10-Q_2023-10-26_1053507-0001053507-23-000161.html

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AMERIPRISE FINANCIAL INC_10-Q_2023-08-08_820027-0000820027-23-000082.html

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AMGEN INC_10-Q_2023-08-04_318154-0000318154-23-000053.html

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AMPHENOL CORP -DE-_10-Q_2023-07-28_820313-0001558370-23-012484.html

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ANALOG DEVICES INC_10-Q_2023-08-23_6281-0000006281-23-000179.html

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APA Corp_10-Q_2023-08-03_1841666-0001784031-23-000019.html

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APA Corp_10-Q_2023-11-02_1841666-0001784031-23-000025.html

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APPLIED MATERIALS INC -DE_10-Q_2023-08-24_6951-0000006951-23-000031.html

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ARCH CAPITAL GROUP LTD._10-Q_2023-08-02_947484-0000947484-23-000078.html

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ARCH CAPITAL GROUP LTD._10-Q_2023-11-09_947484-0000947484-23-000102.html

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ASSURANT, INC._10-Q_2023-11-02_1267238-0001267238-23-000052.html

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AT&T INC._10-Q_2023-07-27_732717-0000732717-23-000047.html

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ATMOS ENERGY CORP_10-Q_2023-08-02_731802-0000731802-23-000022.html

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AUTOMATIC DATA PROCESSING INC_10-K_2023-08-03_8670-0000008670-23-000030.html

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+Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsTabular dollars are presented in millions, except per share amountsThe following section discusses our year ended June 30, 2023 (“fiscal 2023”), as compared to year ended June 30, 2022 (“fiscal 2022”). A detailed review of our fiscal 2022 performance compared to our fiscal 2021 performance is set forth in Part II, Item 7 of our Form 10-K for the fiscal year ended June 30, 2022. FORWARD-LOOKING STATEMENTSThis document and other written or oral statements made from time to time by ADP may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature and which may be identified by the use of words like “expects,” “assumes,” “projects,” “anticipates,” “estimates,” “we believe,” “could” “is designed to” and other words of similar meaning, are forward-looking statements. These statements are based on management’s expectations and assumptions and depend upon or refer to future events or conditions and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed. Factors that could cause actual results to differ materially from those contemplated by the forward-looking statements or that could contribute to such difference include: ADP's success in obtaining and retaining clients, and selling additional services to clients; the pricing of products and services; the success of our new solutions; our ability to respond successfully to changes in technology, including artificial intelligence; compliance with existing or new legislation or regulations; changes in, or interpretations of, existing legislation or 26regulations; overall market, political and economic conditions, including interest rate and foreign currency trends and inflation; competitive conditions; our ability to maintain our current credit ratings and the impact on our funding costs and profitability; security or cyber breaches, fraudulent acts, and system interruptions and failures; employment and wage levels; availability of skilled associates; the impact of new acquisitions and divestitures; the adequacy, effectiveness and success of our business transformation initiatives; the impact of any uncertainties related to major natural disasters or catastrophic events; and supply-chain disruptions. ADP disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. These risks and uncertainties, along with the risk factors discussed under “Item 1A. Risk Factors,” and in other written or oral statements made from time to time by ADP, should be considered in evaluating any forward-looking statements contained herein.NON-GAAP FINANCIAL MEASURESIn addition to our U.S. GAAP results, we use adjusted results and other non-GAAP metrics to evaluate our operating performance in the absence of certain items and for planning and forecasting of future periods. Adjusted EBIT, adjusted EBIT margin, adjusted net earnings, adjusted diluted earnings per share, adjusted effective tax rate and organic constant currency are all non-GAAP financial measures. Please refer to the accompanying financial tables in the “Non-GAAP Financial Measures” section for a discussion of why ADP believes these measures are important and for a reconciliation of non-GAAP financial measures to their comparable GAAP financial measures.EXECUTIVE OVERVIEW Highlights from the year ended June 30, 2023 include:9%160 basis points17%Revenue GrowthEarnings Before Income Taxes Margin ExpansionDiluted EPS Growth10%130 basis points17%Organic Constant CurrencyRevenue GrowthAdjusted EBIT Margin ExpansionAdjusted Diluted EPS Growth 10%Employer ServicesNew Business Bookings Growth 6%PEO ServicesAverage Worksite Employee Growth$3.0BCash Returned via Shareholder Friendly Actions$1.9B Dividends | $1.1B Share RepurchasesWe are a leading global provider of cloud-based Human Capital Management (“HCM”) technology solutions to employers around the world. Our HCM solutions, which include both software and outsourcing services, are designed to help our clients manage their workforce through a dynamic business and regulatory landscape and the changing world of work. We continuously seek to enhance our leading HCM solutions to further support our clients. We see tremendous growth opportunity ahead as we focus on our three key Strategic Priorities: leading with best-in-class HCM technology, providing unparalleled expertise and outsourcing, and leveraging our global scale for the benefit of our clients. Executing on our Strategic Priorities will be critical to enabling our growth in the years ahead.During the fiscal year we drove strong progress across a number of key measures and in support of our overall Strategic Priorities. We crossed a major milestone, surpassing the 1 million client mark, driven by continued enhancements to our key solutions like RUN and Workforce Now. We continued the deployment of our unified User Experience to key portions of our portfolio such as the RUN mobile app. We were awarded Top HR Product for the 8th consecutive year at the annual HR Tech Conference, in recognition for our recently launched Intelligent Self Service Solution. And our HR Outsourcing businesses continued to grow, now with over 3 million worksite employees served. 27For fiscal 2023, we delivered solid revenue growth of 9%, 10% organic constant currency. Our pays per control metric, which represents the number of employees on ADP clients' payrolls in the United States when measured on a same-store-sales basis for a subset of clients ranging from small to large businesses, grew 4.7% for the year ended June 30, 2023 as compared to the year ended June 30, 2022. PEO average worksite employees increased 6% for the year ended June 30, 2023, as compared to the year ended June 30, 2022. Additionally, our strong ES new business bookings performance resulted in full year fiscal 2023 growth of 10%, and client satisfaction gains resulted in a full year ES client revenue retention rate of 92.2%, equal to the highest level we have ever reported. We believe these results are largely attributable to improvements made to our platforms and service over multiple years.We have a strong business model, generating significant cash flows with low capital intensity, and offer a suite of products that provide critical support to our clients’ HCM functions. We generate sufficient free cash flow to satisfy our cash dividend and our modest debt obligations, which enables us to absorb the impact of downturns and remain steadfast in our re-investments, longer term strategy, and commitments to shareholder friendly actions. We are committed to building upon our past successes by investing in our business through enhancements in research and development and by driving meaningful transformation in the way we operate. Our financial condition remains solid at June 30, 2023 and we remain well positioned to support our associates and our clients.RESULTS AND ANALYSIS OF CONSOLIDATED OPERATIONSTotal RevenuesFor the year ended June 30, respectively:Years EndedJune 30,20232022Total Revenues18,012.2 16,498.3 YoY Growth9 %10 % YoY Growth, Organic Constant Currency10 %10 %Revenues in fiscal 2023 increased due to new business started from New Business Bookings, an increase in zero-margin benefits pass-throughs, an increase in our pays per control, continued strong client retention, an increase in interest on funds held for clients, and an increase in pricing, partially offset by an unfavorable impact of one percentage point from foreign currency. Refer to “Analysis of Reportable Segments” for additional discussion of the changes in revenue for each of our reportable segments, Employer Services and Professional Employer Organization (“PEO”) Services. Total revenues in fiscal 2023 include interest on funds held for clients of $813.4 million, as compared to $451.8 million in fiscal 2022. The increase in interest earned on funds held for clients resulted from an increase in our average interest rate earned to 2.4% in fiscal 2023, as compared to 1.4% in fiscal 2022, coupled with an increase in our average client funds balances of 5.1% to $34.1 billion in fiscal 2023 as compared to fiscal 2022. 28Total ExpensesYears EndedJune 30, 20232022%ChangeCosts of revenues: Operating expenses$8,657.4 $8,252.6 5 %Systems development and programming costs844.8 798.6 6 %Depreciation and amortization451.2 410.7 10 %Total costs of revenues9,953.4 9,461.9 5 %Selling, general and administrative expenses3,551.4 3,233.2 10 %Interest expense253.3 81.9 209 %Total expenses$13,758.1 $12,777.0 8 %For the year ended June 30:Operating expenses increased due to an increase in our PEO Services zero-margin benefits pass-through costs to $3,800.9 million from $3,514.4 million for the years ended June 30, 2023 and 2022, respectively. Additionally, operating expenses increased due to increased costs to service our client base in support of our growing revenue, partially offset by the impact of foreign currency and a net reduction of $12.3 million in our estimated losses related to ADP Indemnity. Systems development and programming costs increased for fiscal 2023 due to increased investments and costs to develop, support, and maintain our new and existing products. Depreciation and amortization expenses increased due to the amortization of internally developed software products and new investments in purchased software. Selling, general and administrative expenses increased due to increased selling expenses as a result of investments in our sales organization, increased marketing expenses, and a reversal of COVID-19 credit loss reserves of $26.0 million in 2022, partially offset by the impact of foreign currency. Interest expense increased due to the increase in average interest rates on commercial paper issuances and reverse repurchases to 3.7% and 4.3% for the year ended June 30, 2023, as compared to 0.4% and 0.7% for the year ended June 30, 2022, respectively, also coupled with a higher volume of average commercial paper and reverse repurchase borrowings, as compared to the year ended June 30, 2022. Other (Income)/Expense, netYears ended June 30,20232022$ ChangeInterest income on corporate funds$(149.5)$(41.0)$108.5 Realized losses/(gains) on available-for-sale securities, net14.7 4.4 (10.3)Impairment of assets2.1 23.0 20.9 Gain on sale of assets— (7.5)(7.5)Non-service components of pension income, net(50.8)(61.7)(10.9)Other (income)/expense, net$(183.5)$(82.8)$100.7 Interest income on corporate funds increased in fiscal 2023, as compared to fiscal 2022, due to higher average interest rates of 2.4% for the year ended June 30, 2023, as compared to 1.0% for the year ended June 30, 2022, coupled with higher average investment balances for the year ended June 30, 2023 as compared to the year ended June 30, 2022. See Note 10 of our Consolidated Financial Statements for further details on non-service components of pension income, net.29In fiscal 2022, the Company recorded impairment charges of $23.0 million, which is comprised of $12.1 million related to software and customer lists which were determined to have no future use and impairment charges of $10.9 million related to operating right-of-use assets associated with exiting certain leases early. Earnings Before Income Taxes ("EBIT") and Adjusted EBIT For the year ended June 30, respectively:Years EndedJune 30,20232022YoY GrowthEBIT$4,437.6 $3,804.1 17 % EBIT Margin24.6 %23.1 %160 bpsAdjusted EBIT$4,467.9 $3,871.8 15 % Adjusted EBIT Margin24.8 %23.5 %130 bpsEarnings before income taxes increased due to the increases in revenues partially offset by the increases in expenses discussed above. Overall margin increased due to increases in revenues discussed above, and operating efficiencies for costs of servicing our clients on growing revenue, partially offset by increased selling expenses, increased interest expense, and increases in zero-margin pass through costs. Adjusted EBIT and Adjusted EBIT margin exclude interest income and interest expense that are not related to our client fundsextended investment strategy, and net charges, including gain on sale of assets related to our broad-based transformationinitiatives and the impact of net severance charges relating to these initiatives, as applicable, in the respective periods. Provision for Income TaxesThe effective tax rate in fiscal 2023 and 2022 was 23.1% and 22.5%, respectively. The increase in the effective tax rate is primarily due to an intercompany transfer of certain assets that resulted in a lower effective tax rate in fiscal 2022 and higher reserves for uncertain tax positions in fiscal 2023. Refer to Note 11, Income Taxes, within the Notes to the Consolidated Financial Statements for further discussion.Adjusted Provision for Income TaxesThe adjusted effective tax rate in fiscal 2023 and 2022 was 23.1% and 22.5%, respectively. The drivers of the adjusted effective tax rate are the same as the drivers of the effective tax rate discussed above.Net Earnings and Diluted EPS, Unadjusted and AdjustedFor the year ended June 30, respectively:Years EndedJune 30,20232022YoY GrowthNet earnings $3,412.0 $2,948.9 16 %Diluted EPS $8.21 $7.00 17 %Adjusted net earnings$3,419.5 $2,951.6 16 %Adjusted diluted EPS$8.23 $7.01 17 %30Adjusted net earnings and adjusted diluted EPS reflect the changes in components described above.Diluted EPS increased as a result of the increase in net earnings and the impact of fewer shares outstanding resulting from the repurchase of approximately 4.9 million shares during fiscal 2023 and 9.2 million shares during fiscal 2022, partially offset by the issuances of shares under our employee benefit plans.For fiscal 2023, adjusted net earnings and adjusted diluted EPS reflect the changes in components described above.ANALYSIS OF REPORTABLE SEGMENTSRevenuesYears EndedJune 30,% Change 20232022As ReportedOrganic Constant CurrencyEmployer Services$12,042.6 $10,967.7 10 %11 %PEO Services5,984.2 5,545.7 8 %8 %Other(14.6)(15.1)n/mn/m$18,012.2 $16,498.3 9 %10 %Earnings before Income TaxesYears EndedJune 30,% Change 20232022As ReportedEmployer Services$3,974.2 $3,406.3 17 %PEO Services 977.3 871.2 12 %Other(513.9)(473.4)n/m$4,437.6 $3,804.1 17 %MarginYears EndedJune 30, 20232022YoY GrowthEmployer Services33.0 %31.1 %190 bpsPEO Services16.3 %15.7 %60 bpsn/m - not meaningful31Employer ServicesRevenuesRevenues increased due to new business started from New Business Bookings, an increase in our pays per control of 5%, continued strong client retention, an increase in interest earned on funds held for clients, and an increase in pricing, partially offset by an unfavorable impact of one percentage point from foreign currency.Earnings before Income TaxesEmployer Services' earnings before income taxes increased in fiscal 2023 due to increased revenues discussed above, partially offset by increases in expenses. The increases in expenses were due to increased costs to service our client base in support of our growing revenue, increases in selling expenses, and investments and costs to develop, support, and maintain our new and existing products. MarginEmployer Services' margin increased due to increases in revenues discussed above, and operating efficiencies for costs of servicing our clients on growing revenue, partially offset by an increase in selling expenses.PEO ServicesRevenuesPEO RevenuesYears EndedChangeJune 30, 20232022$%PEO Services' revenues$5,984.2 $5,545.7 $438.5 8 %Less: PEO zero-margin benefits pass-throughs3,800.9 3,514.4 286.5 8 %PEO Services' revenues excluding zero-margin benefits pass-throughs$2,183.3 $2,031.3 $152.0 7 %PEO Services' revenues increased 8% for fiscal 2023 due to increases in average worksite employees of 6% for fiscal 2023, as compared to fiscal 2022, and due to an increase in zero-margin benefits pass-throughs.Earnings before Income TaxesPEO Services’ earnings before income taxes increased 12% in fiscal 2023 due to increases in revenues discussed above and a net reduction of $12.3 million in our estimated losses related to ADP Indemnity, partially offset by the increases in zero-margin benefits pass-throughs of $286.5 million for fiscal 2023.MarginPEO Services' overall margin increased for fiscal 2023 due to increases in revenues discussed above, lower state unemployment and workers compensation insurance costs, and changes in our estimated losses related to ADP Indemnity, partially offset by increases in selling expenses. 32ADP Indemnity provides workers’ compensation and employer’s liability deductible reimbursement insurance protection for PEO Services’ worksite employees up to $1 million per occurrence. PEO Services has secured a workers’ compensation and employer’s liability insurance policy that caps the exposure for each claim at $1 million per occurrence and has also secured aggregate stop loss insurance that caps aggregate losses at a certain level in fiscal years 2012 and prior from an admitted and licensed insurance company of AIG. We utilize historical loss experience and actuarial judgment to determine the estimated claim liability, and changes in estimated ultimate incurred losses are included in the PEO segment. Additionally, starting in fiscal year 2013, ADP Indemnity paid premiums to enter into reinsurance arrangements with ACE American Insurance Company, a wholly-owned subsidiary of Chubb Limited (“Chubb”), to cover substantially all losses incurred by the Company up to the $1 million per occurrence related to the workers' compensation and employer's liability deductible reimbursement insurance protection for PEO Services' worksite employees. Each of these reinsurance arrangements limits our overall exposure incurred up to a certain limit. The Company believes the likelihood of ultimate losses exceeding this limit is remote. During fiscal 2023, ADP Indemnity paid a premium of $284 million to enter into a reinsurance arrangement with Chubb to cover substantially all losses incurred by ADP Indemnity for the fiscal 2023 policy year up to $1 million per occurrence. ADP Indemnity recorded a pre-tax benefit of approximately $73 million in fiscal 2023 and a pre-tax benefit of approximately $61 million in fiscal 2022, which were primarily a result of changes in our estimated actuarial losses. ADP Indemnity paid a premium of $269 million in July 2023, to enter into a reinsurance agreement with Chubb to cover substantially all losses incurred by ADP Indemnity for fiscal 2024 policy year on terms substantially similar to the fiscal 2023 reinsurance policy.OtherThe primary components of “Other” are certain corporate overhead charges and expenses that have not been allocated to the reportable segments, including corporate functions, costs related to our transformation office, severance costs, non-recurring gains and losses, the elimination of intercompany transactions, and all other interest income and expense.Non-GAAP Financial MeasuresIn addition to our GAAP results, we use the adjusted results and other non-GAAP metrics set forth in the table below to evaluate our operating performance in the absence of certain items and for planning and forecasting of future periods: Adjusted Financial MeasuresU.S. GAAP MeasuresAdjusted EBITNet earnings Adjusted provision for income taxes Provision for income taxesAdjusted net earnings Net earnings Adjusted diluted earnings per share Diluted earnings per shareAdjusted effective tax rate Effective tax rateOrganic constant currencyRevenuesWe believe that the exclusion of the identified items helps us reflect the fundamentals of our underlying business model and analyze results against our expectations and against prior periods, and to plan for future periods by focusing on our underlying operations. We believe that the adjusted results provide relevant and useful information for investors because it allows investors to view performance in a manner similar to the method used by management and improves their ability to understand and assess our operating performance. The nature of these exclusions is for specific items that are not fundamental to our underlying business operations. Since these adjusted financial measures and other non-GAAP metrics are not measures of performance calculated in accordance with U.S. GAAP, they should not be considered in isolation from, as a substitute for, or superior to their corresponding U.S. GAAP measures, and they may not be comparable to similarly titled measures at other companies.33Years EndedJune 30,% Change20232022As ReportedNet earnings$3,412.0 $2,948.9 16 %Adjustments:Provision for income taxes1,025.6 855.2 All other interest expense (a)70.9 71.3 All other interest income (a)(50.5)(7.1)Transformation initiatives (b)8.7 3.5 Legal settlements (c)1.2 — Adjusted EBIT$4,467.9 $3,871.8 15 %Adjusted EBIT Margin24.8 %23.5 %Provision for income taxes$1,025.6 $855.2 20 %Adjustments:Transformation initiatives (d)2.2 0.8 Legal settlements0.2 — Adjusted provision for income taxes$1,028.0 $856.0 20 %Adjusted effective tax rate (e)23.1 %22.5 %Net earnings$3,412.0 $2,948.9 16 %Adjustments:Transformation initiatives (b)8.7 3.5 Income tax (benefit)/provision for transformation initiatives (d)(2.2)(0.8)Legal settlements (c)1.2 — Income tax (benefit)/provision for legal settlements (d)(0.2)— Adjusted net earnings$3,419.5 $2,951.6 16 %Diluted EPS$8.21 $7.00 17 %Adjustments:Transformation initiatives (b) (d)0.02 0.01 Legal settlements (c) (d)— — Adjusted diluted EPS$8.23 $7.01 17 %(a) In adjusted EBIT, we include the interest income earned on investments associated with our client funds extended investment strategy and interest expense on borrowings related to our client funds extended investment strategy as we believe these amounts to be fundamental to the underlying operations of our business model. The adjustments in the table above represent the interest income and interest expense that are not related to our client funds extended investment strategy and are labeled as “All other interest expense” and “All other interest income.”(b) In fiscal 2023, the charges include consulting costs relating to our company-wide transformation initiatives, partially offset by net reversals relating to severance. Unlike other severance charges which are not included as an adjustment to get to adjusted results, these specific charges relate to actions taken as part of our broad-based, company-wide transformation initiatives.(c) Represents net charges (reserves and insurance recovery) from legal matters during fiscal 2023.(d) The income tax (benefit)/provision was calculated based on the marginal rate in effect for the year ended June 30, 2023.(e) The Adjusted effective tax rate is calculated as our Adjusted provision for income taxes divided by the sum of our Adjusted net earnings plus our Adjusted provision for income taxes.The following table reconciles our reported growth rates to the non-GAAP measure of organic constant currency, which excludes the impact of acquisitions, the impact of dispositions, and the impact of foreign currency. The impact of acquisitions and dispositions is calculated by excluding the current year revenues of acquisitions until the one-year anniversary of the transaction and by excluding the prior year revenues of divestitures for the one-year period preceding the transaction. The impact of foreign currency is determined by calculating the current year results using foreign exchange rates consistent with the 34prior year. The PEO segment is not impacted by acquisitions, dispositions or foreign currency. Year EndedJune 30,2023Consolidated revenue growth as reported9 %Adjustments:Impact of acquisitions— %Impact of foreign currency1 %Consolidated revenue growth, organic constant currency10 %Employer Services revenue growth as reported10 %Adjustments:Impact of acquisitions— %Impact of foreign currency1 %Employer Services revenue growth, organic constant currency11 %FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCESAs of June 30, 2023, cash and cash equivalents were $2.1 billion, which were primarily invested in time deposits and money market funds.For corporate liquidity, we expect existing cash, cash equivalents, short-term and long-term marketable securities, cash flow from operations together with our $9.7 billion of committed credit facilities and our ability to access both long-term and short-term debt financing from the capital markets will be adequate to meet our operating, investing, and financing activities such as regular quarterly dividends, share repurchases, and capital expenditures for the foreseeable future. Our financial condition remains solid at June 30, 2023 and we have sufficient liquidity.For client funds liquidity, we have the ability to borrow through our financing arrangements under our U.S. short-term commercial paper program and our U.S., Canadian and United Kingdom short-term reverse repurchase agreements, together with our $9.7 billion of committed credit facilities and our ability to use corporate liquidity when necessary to meet short-term funding requirements related to client funds obligations. Please see “Quantitative and Qualitative Disclosures about Market Risk” for a further discussion of the risks related to our client funds extended investment strategy. See Note 8 of our Consolidated Financial Statements for a description of our short-term financing including commercial paper. Operating, Investing and Financing Cash FlowsOur cash flows from operating, investing, and financing activities, as reflected in the Statements of Consolidated Cash Flows are summarized as follows: Years ended June 30,20232022$ ChangeCash provided by (used in):Operating activities$4,207.6 $3,099.5 $1,108.1 Investing activities(2,517.3)(7,014.4)4,497.1 Financing activities(15,680.7)13,653.4 (29,334.1)Effect of exchange rate changes on cash, cash equivalents, restricted cash, and restricted cash equivalents(21.1)(98.7)77.6 Net change in cash, cash equivalents, restricted cash, and restricted cash equivalents$(14,011.5)$9,639.8 $(23,651.3)35Net cash flows provided by operating activities increased due to growth in our underlying business (net income adjusted for non-cash adjustments), and a net favorable change in the components of operating assets and liabilities primarily due to timing on collections of accounts receivable, and a decrease in incentive compensation payments, as compared to the year ended June 30, 2022.Net cash flows used in investing activities changed due to the timing of proceeds and purchases of corporate and client funds marketable securities of $4,570.2 million, offset by higher payments for capital expenditures in fiscal 2023, and the sale of property, plant, and equipment in fiscal 2022.Net cash flows used in financing activities changed due to a net decrease in the cash flow from client funds obligations of $29,759.5 million, which is due to the timing of impounds from our clients and payments to our clients' employees and other payees, an increase in dividends paid, and a net decrease in reverse repurchase agreements borrowing, offset by a decrease in repurchases of common stock in fiscal 2023.We purchased approximately 4.9 million shares of our common stock at an average price per share of $227.30 during fiscal 2023, as compared to purchases of 9.2 million shares at an average price per share of $214.40 during fiscal 2022. From time to time, the Company may repurchase shares of its common stock under its authorized share repurchase program. The Company considers several factors in determining when to execute share repurchases, including, among other things, actual and potential acquisition activity, cash balances and cash flows, issuances due to employee benefit plan activity, and market conditions. Capital Resources and Client Fund ObligationsWe have $3.0 billion of senior unsecured notes with maturity dates in 2025, 2028, and 2030. We may from time to time revisit the long-term debt market to refinance existing debt, finance investments including acquisitions for our growth, and maintain the appropriate capital structure. However, there can be no assurance that volatility in the global capital and credit markets would not impair our ability to access these markets on terms acceptable to us, or at all. See Note 9 of our Consolidated Financial Statements for a description of our notes.Our U.S. short-term funding requirements related to client funds are sometimes obtained on an unsecured basis through the issuance of commercial paper, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities. This commercial paper program provides for the issuance of up to $9.7 billion in aggregate maturity value. Our commercial paper program is rated A-1+ by Standard and Poor’s, Prime-1 (“P-1”) by Moody’s and F1+ by Fitch. These ratings denote the highest quality commercial paper securities. Maturities of commercial paper can range from overnight to up to 364 days. At June 30, 2023 and 2022, we had no commercial paper borrowing outstanding. Details of the borrowings under the commercial paper program are as follows:Years ended June 30,20232022Average daily borrowings (in billions)$3.4 $2.0 Weighted average interest rates3.7 %0.4 %Weighted average maturity (approximately in days)2 days1 dayOur U.S., Canadian, and United Kingdom short-term funding requirements related to client funds obligations are sometimes obtained on a secured basis through the use of reverse repurchase agreements, which are collateralized principally by government and government agency securities, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities. These agreements generally have terms ranging from overnight to up to five business days. We have successfully borrowed through the use of reverse repurchase agreements on an as-needed basis to meet short-term funding requirements related to client funds obligations. At June 30, 2023 and 2022, there were $105.4 million and $136.4 million, respectively, of outstanding obligations related to the reverse repurchase agreements. Details of the reverse repurchase agreements are as follows: Years ended June 30,20232022Average outstanding balances$1,279.9 $299.6 Weighted average interest rates4.3 %0.7 %We vary the maturities of our committed credit facilities to limit the refinancing risk of any one facility. We have a $4.25 billion, 364-day credit agreement that matures in June 2024 with a one year term-out option. In addition, we have a five-year $3.2 billion credit facility and a five-year $2.25 billion credit facility maturing in June 2026 and June 2028, respectively, each with an accordion feature under which the aggregate commitment can be increased by $500 million, subject to the availability 36of additional commitments. The primary uses of the credit facilities are to provide liquidity to the commercial paper program and funding for general corporate purposes, if necessary. We had no borrowings through June 30, 2023 under the credit facilities. We believe that we currently meet all conditions set forth in the revolving credit agreements to borrow thereunder, and we are not aware of any conditions that would prevent us from borrowing part or all of the $9.7 billion available to us under the revolving credit agreements. See Note 8 of our Consolidated Financial Statements for a description of our short-term financing including credit facilities.Our investment portfolio does not contain any asset-backed securities with underlying collateral of sub-prime mortgages, alternative-A mortgages, sub-prime auto loans or sub-prime home equity loans, collateralized debt obligations, collateralized loan obligations, credit default swaps, derivatives, auction rate securities, structured investment vehicles or non-investment grade fixed-income securities. We own AAA-rated senior tranches of primarily fixed rate auto loan, credit card, and equipment lease receivables, secured predominantly by prime collateral. All collateral on asset-backed securities is performing as expected through June 30, 2023. In addition, we own U.S. government securities which primarily include debt directly issued by Federal Farm Credit Banks and Federal Home Loan Banks. Our client funds investment strategy is structured to allow us to average our way through an interest rate cycle by laddering the maturities of our investments out to five years (in the case of the extended portfolio) and out to ten years (in the case of the long portfolio). This investment strategy is supported by our short-term financing arrangements necessary to satisfy short-term funding requirements relating to client funds obligations. See Note 4 of our Consolidated Financial Statements for a description of our corporate investments and funds held for clients.Capital expenditures for fiscal 2023 were $206.0 million, as compared to $177.1 million for fiscal 2022. We expect capital expenditures in fiscal 2024 to be between $200 million and $225 million.Contractual ObligationsOur contractual obligations at June 30, 2023 relate primarily to operating leases (Note 6) and other arrangements recorded in our balance sheet or disclosed in the notes to our financial statements, including benefit plan obligations (Note 10), liabilities for uncertain tax positions (Note 11), purchase obligations (Note 12), debt obligations (Note 9) and $263.5 million of interest payments of our debt, of which $64.3 million is expected to be paid within one year. In addition to the obligations described above, we had obligations for the remittance of funds relating to our payroll and payroll tax filing services. As of June 30, 2023, the obligations relating to these matters, which are expected to be paid in fiscal 2024, total $38,538.6 million and were recorded in client funds obligations on our Consolidated Balance Sheets. We had $36,333.6 million of cash and cash equivalents and marketable securities that were impounded from our clients to satisfy such obligations recorded in funds held for clients on our Consolidated Balance Sheets as of June 30, 2023.Separately, ADP Indemnity paid a premium of $269 million in July 2023 to enter into a reinsurance agreement with Chubb to cover substantially all losses incurred by ADP Indemnity for the fiscal 2024 policy year. At June 30, 2023, ADP Indemnity had total assets of $660.8 million to satisfy the actuarially estimated unpaid losses of $552.3 million for the policy years since July 1, 2003. ADP Indemnity paid claims of $0.8 million and $1.8 million, net of insurance recoveries, in fiscal 2023 and 2022, respectively. Refer to the “Analysis of Reportable Segments - PEO Services” above for additional information regarding ADP Indemnity. In the normal course of business, we also enter into contracts in which we make representations and warranties that relate to the performance of our services and products. We do not expect any material losses related to such representations and warranties. Quantitative and Qualitative Disclosures about Market RiskOur overall investment portfolio is comprised of corporate investments (cash and cash equivalents, short-term and long-term marketable securities) and client funds assets (funds that have been collected from clients but have not yet been remitted to the applicable tax authorities, client employees or other payees).Our corporate investments are invested in cash and cash equivalents and highly liquid, investment-grade marketable securities. These assets are available for our regular quarterly dividends, share repurchases, capital expenditures and/or acquisitions, as well as other corporate operating purposes. All of our short-term and long-term fixed-income securities are classified as available-for-sale securities.Our client funds assets are invested with safety of principal, liquidity, and diversification as the primary objectives. Consistent with those objectives, we also seek to maximize interest income and to minimize the volatility of interest income. Client funds 37assets are invested in highly liquid, investment-grade marketable securities, with a maximum maturity of 10 years at the time of purchase, and money market securities and other cash equivalents. We utilize a strategy by which we extend the maturities of our investment portfolio for funds held for clients and employ short-term financing arrangements to satisfy our short-term funding requirements related to client funds obligations. Our client funds investment strategy is structured to allow us to average our way through an interest rate cycle by laddering the maturities of our investments out to five years (in the case of the extended portfolio) and out to ten years (in the case of the long portfolio). As part of our client funds investment strategy, we use the daily collection of funds from our clients to satisfy other unrelated client funds obligations, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities. In circumstances where we experience a reduction in employment levels due to a slowdown in the economy, we may make tactical decisions to sell certain securities in order to reduce the size of the funds held for clients to correspond to client funds obligations. We attempt to minimize the risk of not having funds collected from a client available at the time such client’s obligation becomes due by generally impounding the client’s funds by the time we pay such client’s obligation. When we don’t impound client funds in advance of paying such client obligations, we are at risk of not recovering such funds or a material delay in such recovery. Through our clients funds investment strategy and client impounding processes, we have consistently maintained the required level of liquidity to satisfy all of our obligations.There are inherent risks and uncertainties involving our investment strategy relating to our client funds assets. Such risks include liquidity risk, including the risk associated with our ability to liquidate, if necessary, our available-for-sale securities in a timely manner in order to satisfy our client funds obligations. However, our investments are made with the safety of principal, liquidity, and diversification as the primary goals to minimize the risk of not having sufficient funds to satisfy all of our client funds obligations. We also believe we have significantly reduced the risk of not having sufficient funds to satisfy our client funds obligations by consistently maintaining access to other sources of liquidity, including our corporate cash balances, available borrowings under our $9.7 billion commercial paper program (rated A-1+ by Standard and Poor’s, P-1 by Moody’s, and F1+ by Fitch, the highest possible short-term credit ratings), our ability to engage in reverse repurchase agreement transactions and available borrowings under our $9.7 billion committed credit facilities. The reduced availability of financing during periods of economic turmoil, even to borrowers with the highest credit ratings, may limit our ability to access short-term debt markets to meet the liquidity needs of our business. In addition to liquidity risk, our investments are subject to interest rate risk and credit risk, as discussed below.We have established credit quality, maturity, and exposure limits for our investments. The minimum allowed credit rating at time of purchase for corporate, Canadian government agency and Canadian provincial bonds is BBB, for asset-backed securities is AAA, and for municipal bonds is A. The maximum maturity at time of purchase for BBB-rated securities is 5 years, and for single A rated, AA-rated and AAA-rated securities it is 10 years. Time deposits and commercial paper must be rated A-1 and/or P-1. Money market funds must be rated AAA/Aaa-mf.Details regarding our overall investment portfolio are as follows:Years ended June 30, 20232022Average investment balances at cost: Corporate investments$6,293.9 $4,241.3 Funds held for clients34,142.8 32,480.3 Total$40,436.7 $36,721.6 Average interest rates earned exclusive of realized losses/(gains) on: Corporate investments2.4 %1.0 %Funds held for clients2.4 %1.4 %Total2.4 %1.3 %Net realized losses/(gains) on available-for-sale securities14.7 4.4 38 As of June 30:Net unrealized pre-tax (losses)/gains on available-for-sale securities$(2,206.9)$(1,721.4)Total available-for-sale securities at fair value$29,764.9 $28,391.6 We are exposed to interest rate risk in relation to securities that mature, as the proceeds from maturing securities are reinvested. Factors that influence the earnings impact of interest rate changes include, among others, the amount of invested funds and the overall portfolio mix between short-term and long-term investments. This mix varies during the fiscal year and is impacted by daily interest rate changes. The annualized interest rate earned on our entire portfolio increased from 1.3% for fiscal 2022 to 2.4% for fiscal 2023. A hypothetical change in both short-term interest rates (e.g., overnight interest rates or the federal funds rate) and intermediate-term interest rates of 25 basis points applied to the estimated average investment balances and any related short-term borrowings would result in approximately an $14 million impact to earnings before income taxes over the ensuing twelve-month period ending June 30, 2024. A hypothetical change in only short-term interest rates of 25 basis points applied to the estimated average short-term investment balances and any related short-term borrowings would result in approximately an $5 million impact to earnings before income taxes over the ensuing twelve-month period ending June 30, 2024.We are exposed to credit risk in connection with our available-for-sale securities through the possible inability of the borrowers to meet the terms of the securities. We limit credit risk by investing in investment-grade securities, primarily AAA-rated and AA- rated securities, as rated by Moody’s, Standard & Poor’s, DBRS for Canadian dollar denominated securities, and Fitch for asset-backed and commercial-mortgage-backed securities. In addition, we limit amounts that can be invested in any security other than U.S. government and government agency, Canadian government, and United Kingdom government securities.We operate and transact business in various foreign jurisdictions and are therefore exposed to market risk from changes in foreign currency exchange rates that could impact our consolidated results of operations, financial position, or cash flows. We manage our exposure to these market risks through our regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. We may use derivative financial instruments as risk management tools and not for trading purposes.RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTSSee Note 1, Recently Issued Accounting Pronouncements, of Notes to the Consolidated Financial Statements for a discussion of recent accounting pronouncements.CRITICAL ACCOUNTING ESTIMATESOur Consolidated Financial Statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates, judgments, and assumptions that affect reported amounts of assets, liabilities, revenues, expenses and other comprehensive income. We continually evaluate the accounting policies and estimates used to prepare the Consolidated Financial Statements. See Note 1 - Summary of Significant Accounting Policies for additional information. The estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances. These estimates require levels of subjectivity and judgment, which could result in actual results differing from our estimates. The Company believes the following are its critical accounting estimates:Deferred Costs - Assets Recognized from the Costs to Obtain and Fulfill ContractsDescriptionIncremental costs of obtaining a contract (e.g., sales commissions) and cost incurred to implement clients on our solutions (e.g., direct labor) that are expected to be recovered are capitalized and amortized on a straight-line basis over the client retention period, depending on the business unit.Judgments and UncertaintiesThe Company has estimated the amortization periods for deferred costs by using its historical retention rates by business unit to estimate the pattern during which the service transfers. The expected client relationship period ranges from three to eight years.39Sensitivity of Estimate to ChangeAs the assumptions used to estimate the amortization period of the deferred costs could have a material impact on timing of recognition, we assess the amortization periods annually using historical retention rates. Actual retention rates were not materially different than those used in our calculation to determine the amortization period. We regularly review our deferred costs for impairment. There were no impairment losses incurred during the fiscal years ended June 30, 2023, June 30, 2022, or June 30, 2021.Goodwill. DescriptionGoodwill represents the excess of purchase price over the value assigned to the net tangible and identifiable intangible assets of businesses acquired. Goodwill is tested annually for impairment or more frequently when an event or circumstance indicates that goodwill might be impaired.Judgments and UncertaintiesThe Company’s annual goodwill impairment assessment as of June 30, 2023 was performed for all reporting units using a quantitative approach by comparing the fair value of each reporting unit to its carrying value. We estimated the fair value of each reporting unit using, as appropriate, the income approach, which is derived using the present value of future cash flows discounted at a risk-adjusted weighted-average cost of capital, and the market approach, which is based upon using market multiples of companies in similar lines of business. Significant assumptions used in determining the fair value of our reporting units include projected revenue growth rates, profitability projections, working capital assumptions, the weighted average cost of capital, the determination of appropriate market comparison companies, and terminal growth rates. Several of these assumptions including projected revenue growth rates and profitability projections are dependent on our ability to upgrade, enhance, and expand our technology and services to meet client needs and preferences. Sensitivity of Estimate to ChangeSome of the inherent estimates and assumptions used in determining the fair value of the reporting units are outside the control of management including the weighted-average cost of capital, tax rates, market comparisons, and terminal growth rates. While we believe we have made reasonable estimates and assumptions to calculate the fair value of the reporting units, it is possible a material change could occur. If our actual results are not consistent with our estimates and assumptions used to calculate fair value, it could result in material impairments of our goodwill. The assumptions used to assess impairment consider historical trends, macroeconomic conditions, and projections consistent with the Company’s operating strategy. Changes in these estimates can have a significant impact on the assessment of fair value which could result in material impairment losses.We completed our annual assessment of goodwill as of June 30, 2023 and determined that there was no impairment of goodwill. We performed a sensitivity analysis and determined that a one percentage point increase in the weighted-average cost of capital would not result in an impairment of goodwill for all reporting units and their fair values substantially exceeded their carrying values. Income TaxesDescriptionJudgment is required in addressing the future tax consequences of events that have been recognized in our Consolidated Financial Statements or tax returns (e.g., realization of deferred tax assets, changes in tax laws or interpretations thereof). A change in the assessment of the outcomes of such matters could materially impact our Consolidated Financial Statements. Judgments and UncertaintiesThe Company computes its provision for income taxes based on the statutory tax rates in the various jurisdictions in which it operates. Assumptions, judgment, and the use of estimates are required in determining if the “more likely than not” standard has been met when computing the provision for income taxes, deferred tax assets and liabilities, and uncertain tax positions. Sensitivity of Estimate to ChangeWhile the Company considers all of its tax positions fully supportable, the Company is occasionally challenged by various tax authorities regarding the amount of taxes due. If certain pending tax matters settle within the next twelve months, the total amount of unrecognized tax benefits may increase or decrease for all open tax years and jurisdictions. As of June 30, 2023 and 2022, the Company's liabilities for unrecognized tax benefits, which include interest and penalties, were $116.9 million and $98.1 million, respectively.40Item 7A. Quantitative and Qualitative Disclosures About Market RiskThe information called for by this item is provided under the caption “Quantitative and Qualitative Disclosures About Market Risk” under “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operation.”41

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+Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsWe are the leading retailer and distributor of automotive replacement parts and accessories in the Americas. We began operations in 1979 and at August 26, 2023, operated 6,300 stores in the U.S., 740 stores in Mexico and 100 stores in Brazil. Each store carries an extensive product line for cars, sport utility vehicles, vans and light duty trucks, including new and remanufactured automotive hard parts, maintenance items, accessories and non-automotive products. At August 26, 2023, in 5,682 of our domestic stores as well as the vast majority of our stores in Mexico and Brazil, we had a commercial sales program that provided commercial credit and prompt delivery of parts and other products to local, regional and national repair garages, dealers, service stations, fleet owners and other accounts. We also sell automotive hard parts, maintenance items, accessories and non-automotive products through www.autozone.com, and our commercial customers can make purchases through www.autozonepro.com. Additionally, we sell the ALLDATA brand of automotive diagnostic, repair, collision and shop management software through www.alldata.com. We also provide product information on our Duralast branded products through www.duralastparts.com. We do not derive revenue from automotive repair or installation services.Executive SummaryFor fiscal 2023, we achieved record net income of $2.5 billion, a 4.1% increase over the prior year, and sales growth of $1.2 billion, a 7.4% increase over the prior year. Our retail sales and commercial sales in our domestic and international markets grew this past year as we made progress on our initiatives aimed at improving our ability to say “Yes” to our customers more frequently.​Our business is impacted by various factors within the economy that affect both our consumer and our industry, including but not limited to inflation, fuel costs, wage rates, supply chain disruptions, hiring and other economic conditions. Given the nature of these macroeconomic factors, we cannot predict whether or for how long certain trends will continue, nor can we predict to what degree these trends will impact us in the future.​One macroeconomic factor affecting our customers and our industry is gas prices. We believe fluctuations in gas prices impact our customers’ level of disposable income. With approximately 11 billion gallons of unleaded gas consumption each month across the U.S., each $1 increase at the pump reduces approximately $11 billion of additional spending capacity to consumers each month. Given the unpredictability of gas prices, we cannot predict whether gas prices will increase or decrease, nor can we predict how any future changes in gas prices will impact our sales in future periods.​We have also experienced continued pressure on average hourly wages in the U.S. during fiscal 2023. Some of this is attributed to regulatory changes in certain states and municipalities, while the larger portion is being driven by general market pressures and some specific actions taken recently by other retailers. The regulatory changes are expected to continue, as evidenced by the areas that have passed legislation to increase employees’ wages substantially over the next few years.During fiscal 2023, failure and maintenance related categories represented the largest portion of our sales mix, at approximately 85% of total sales categories continuing to comprise our largest set of categories. While we have not experienced any fundamental shifts in our category sales mix as compared to previous years, in our domestic stores we see a slight decrease in mix of sales of the discretionary category and a slight increase in the maintenance category compared to last year.The two statistics we believe have the closest correlation to our market growth over the long-term are miles driven and the number of seven year old or older vehicles on the road.Miles DrivenWe believe as the number of miles driven increases, consumers’ vehicles are more likely to need service and maintenance, resulting in an increase in the need for automotive hard parts and maintenance items. While over the long-term we have seen a close correlation between our net sales and the number of miles driven, we have also seen certain time frames of minimal correlation in sales performance and miles driven. During the periods of minimal 27 Table of Contentscorrelation between net sales and miles driven, we believe net sales have been positively impacted by other factors, including macroeconomic factors and the number of seven year old or older vehicles on the road. Since the beginning of the fiscal year and through July 2023 miles driven in the U.S. increased by 1.3% compared to the same period in the prior year based on the latest information available from the U.S. Department of Transportation.Seven Year Old or Older VehiclesAs the number of seven year old or older vehicles on the road increases, we expect an increase in demand for the products we sell. We expect the aging vehicle population to continue to increase as consumers keep their cars longer in an effort to save money. According to the U.S. Department of Transportation – Federal Highway Administration, vehicles are driven an average of approximately 13,500 miles each year. In seven years, the average miles driven equates to approximately 94,500 miles. Our experience is that at this point in a vehicle’s life, most vehicles are not covered by warranties and increased maintenance and repairs are needed to keep the vehicle operating.According to the latest data provided by the Auto Care Association, as of January 1, 2023, the average age of light vehicles on the road was 12.5 years and these vehicles account for more than 40% of U.S. vehicles. The average age of light vehicles has exceeded 12 years since 2012.​28 Table of ContentsResults of OperationsThe following table highlights selected financial information over the past 5 years:​​​​​​​​​​​​​​​​​​​Fiscal Year Ended August (in thousands, except per share data, same store sales and selected operating data) 2023 2022 2021(1) 2020(1) 2019(2)(3) ​​​​​​​​​​​​​​​​​Income Statement Data ​ ​ ​ ​ ​ Net sales​$ 17,457,209​$ 16,252,230​$ 14,629,585​$ 12,631,967​$ 11,863,743​Cost of sales, including warehouse and delivery expenses​ 8,386,787​ 7,779,580​ 6,911,800​ 5,861,214​ 5,498,742​Gross profit​ 9,070,422​ 8,472,650​ 7,717,785​ 6,770,753​ 6,365,001​Operating, selling, general and administrative expenses​ 5,596,436​ 5,201,921​ 4,773,258​ 4,353,074​ 4,148,864​Operating profit​ 3,473,986​ 3,270,729​ 2,944,527​ 2,417,679​ 2,216,137​Interest expense, net​ 306,372​ 191,638​ 195,337​ 201,165​ 184,804​Income before income taxes​ 3,167,614​ 3,079,091​ 2,749,190​ 2,216,514​ 2,031,333​Income tax expense(4)​ 639,188​ 649,487​ 578,876​ 483,542​ 414,112​Net income(4)​$ 2,528,426​$ 2,429,604​$ 2,170,314​$ 1,732,972​$ 1,617,221​Diluted earnings per share(4)​$ 132.36​$ 117.19​$ 95.19​$ 71.93​$ 63.43​Weighted average shares for diluted earnings per share(4)​ 19,103​ 20,733​ 22,799​ 24,093​ 25,498​Same Store Sales​ ​ ​​ ​ ​ ​Increase in domestic comparable store net sales(5)​ 3.4% 8.4% 13.6% ​ 7.4% ​ 3.0% Increase in international comparable store net sales(5)​​ 29.3% ​ 19.1% ​ 22.5% ​(2.8)%​ 4.6% Increase in international comparable store net sales (constant currency)(5)​​ 17.5% ​ 19.2% ​ 20.7% ​ 4.7% ​ 7.2% Increase in total company comparable store net sales(5)​​ 5.6% ​ 9.2% ​ 14.3% ​ 6.6% ​ 3.2% Increase in total company comparable store net sales (constant currency)(5)​​ 4.6% ​ 9.2% ​ 14.1% ​ 7.2% ​ 3.4% Balance Sheet Data​ ​ ​ ​ ​ ​Current assets​$ 6,779,426​$ 6,627,984​$ 6,415,303​$ 6,811,872​$ 5,028,685​Operating lease right-of-use assets(6)​​ 2,998,097​​ 2,918,817​​ 2,718,712​​ 2,581,677​​ —​Working capital (deficit)(7)​ (1,732,430)​ (1,960,409)​ (954,451)​ 528,781​ (483,456)​Total assets​ 15,985,878​ 15,275,043​ 14,516,199​ 14,423,872​ 9,895,913​Current liabilities​ 8,511,856​ 8,588,393​ 7,369,754​ 6,283,091​ 5,512,141​Debt​ 7,668,549​ 6,122,092​ 5,269,820​ 5,513,371​ 5,206,344​Finance lease liabilities, less current portion(6)​ 200,702​ 217,428​ 186,122​ 155,855​ 123,659​Operating lease liabilities, less current portion(6)​​ 2,917,046​​ 2,837,973​​ 2,632,842​​ 2,501,560​​ —​Stockholders’ deficit​ (4,349,894)​ (3,538,913)​ (1,797,536)​ (877,977)​ (1,713,851)​Selected Operating Data​ ​ ​ ​ ​ ​Number of stores at beginning of year​ 6,943​ 6,767​ 6,549​ 6,411​ 6,202​New stores​ 198​ 177​ 219​ 138​ 209​Closed stores​ 1​ 1​ 1​ —​ —​Net new stores​ 197​ 176​ 218​ 138​ 209​Relocated stores​ 12​ 13​ 12​ 5​ 2​Number of stores at end of year​ 7,140​ 6,943​ 6,767​ 6,549​ 6,411​AutoZone domestic commercial programs​ 5,682​ 5,342​ 5,179​ 5,007​ 4,893​Total Company Store Data​​​​​​​​​​​​​​​​Inventory per store (in thousands)​$ 807​$ 812​$ 686​$ 683​$ 674​Total AutoZone store square footage (in thousands)​ 47,899​ 46,435​ 45,057​ 43,502​ 42,526​Average square footage per AutoZone store​ 6,709​ 6,688​ 6,658​ 6,643​ 6,633​Increase in AutoZone store square footage​ 3.2% 3.1% 3.6% 2.3% 3.6% Average net sales per AutoZone store (in thousands)​$ 2,435​$ 2,329​$ 2,160​$ 1,914​$ 1,847​Net sales per AutoZone store average square foot​$ 363​$ 349​$ 325​$ 288​$ 279​Total employees at end of year (in thousands)​ 119​ 112​ 105​ 100​ 96​Inventory turnover(8)​ 1.5x​ 1.5x​ 1.5x​ 1.3x​ 1.3x​Accounts payable to inventory ratio​ 124.9% 129.5% 129.6% 115.3% 112.6% After-tax return on invested capital(9)​ 55.4% 52.9% 41.0% 35.7% 35.7% Adjusted debt to EBITDAR(10)​ 2.3​ 2.1​ 2.0​ 2.4​ 2.5​Net cash provided by operating activities (in thousands)(4)​$ 2,940,788​$ 3,211,135​$ 3,518,543​$ 2,720,108​$ 2,128,513​Cash flow before share repurchases and changes in debt (in thousands)(11)​$ 2,156,026​$ 2,599,636​$ 3,048,841​$ 2,185,418​$ 1,758,672​Share repurchases (in thousands)(7)​$ 3,723,289​$ 4,359,991​$ 3,378,321​$ 930,903​$ 2,004,896​Number of shares repurchased (in thousands)(7)​ 1,524​ 2,220​ 2,592​ 826​ 2,182​29 Table of Contents(1) The 52 weeks ended August 28, 2021 and August 29, 2020 were negatively impacted by pandemic related expenses, including Emergency Time-Off of approximately $43.0 million (pre-tax) and $83.9 million (pre-tax), respectively.(2) The fiscal year ended August 31, 2019 consisted of 53 weeks.(3) Fiscal 2019 includes a benefit to net income related to the Tax Cuts and Jobs Act of $6.3 million, net of repatriation tax. (4) Fiscal 2023, 2022, 2021, 2020 and 2019 include excess tax benefits from stock option exercises of $92.2 million, $63.2 million, $56.4 million, $20.9 million, and $46.0 million, respectively.(5) The domestic and international comparable sales increases are based on sales for all AutoZone stores open at least one year. Constant currency same store sales exclude impacts from fluctuations of foreign exchange rates by converting both the current year and prior year international results at the prior year foreign currency exchange rate. Same store sales are computed on a 52-week basis. Relocated stores are included in the same store sales computation based on the year the original store was opened. Closed store sales are included in the same store sales computation up to the week it closes, and excluded from the computation for all periods subsequent to closing. All sales through our www.autozone.com website, including consumer direct ship-to-home sales, are also included in the computation. (6) The Company adopted ASU 2016-02, Leases (Topic 842), beginning with its first quarter ended November 23, 2019 which resulted in the Company recognizing a right-of-use asset (“ROU asset”) and a corresponding lease liability on the balance sheet.(7)Inclusive of excise tax of $23.7 million for the year ended August 26, 2023. The excise tax is assessed at one percent of the fair market value of net stock repurchases after December 31, 2022. During the third quarter of fiscal 2020, the Company temporarily suspended share repurchases under the share repurchase program in response to the COVID-19 pandemic which was restarted beginning in the first quarter of fiscal 2021.(8)Inventory turnover is calculated as cost of sales divided by the average merchandise inventory balance over the trailing 5 quarters.(9)After-tax return on invested capital is defined as after-tax operating profit (excluding rent charges) divided by invested capital (which includes a factor to capitalize leases). For fiscal 2019, after-tax operating profit was adjusted for the impact of the average revaluation of deferred tax liabilities, net of repatriation tax. See Reconciliation of Non-GAAP Financial Measures in Management’s Discussion and Analysis of Financial Condition and Results of Operations.(10)Adjusted debt to EBITDAR is defined as the sum of total debt, finance lease obligations and annual rents times six; divided by net income plus interest, taxes, depreciation, amortization, rent and share-based compensation expense. See Reconciliation of Non-GAAP Financial Measures in Management’s Discussion and Analysis of Financial Condition and Results of Operations (11)Cash flow before share repurchases and changes in debt is defined as the change in cash and cash equivalents less the change in debt plus treasury stock purchases. See Reconciliation of Non-GAAP Financial Measures in Management’s Discussion and Analysis of Financial Condition and Results of Operations.​30 Table of ContentsFiscal 2023 Compared with Fiscal 2022For the fiscal year ended August 26, 2023, we reported net sales of $17.5 billion compared with $16.3 billion for the year ended August 27, 2022, a 7.4% increase from fiscal 2022. This growth was driven primarily by a domestic same store sales increase of 3.4% and net sales of $327.8 million from new domestic and international stores. Domestic commercial sales increased $368.0 million, or 8.7%, over domestic commercial sales for fiscal 2022. Same store sales, or sales for our domestic and international stores open at least one year, are as follows:​​​​​​​​​​​​​​Fiscal Year Ended August​​​​​​​​​​​​​​​​ Constant Currency (1) ​​ Constant Currency (1) ​2023​2023​2022​2022​Domestic​ 3.4% ​ 3.4% ​ 8.4% ​ 8.4% International 29.3% 17.5% 19.1% 19.2% Total Company 5.6% 4.6% 9.2% 9.2% ​(1)Constant currency same store sales exclude impacts from fluctuations of foreign exchange rates by converting both the current year and prior year international results at the prior year foreign currency exchange rate.​At August 26, 2023, we operated 6,300 domestic stores, 740 in Mexico and 100 in Brazil, compared with 6,168 domestic stores, 703 in Mexico and 72 in Brazil at August 27, 2022. We reported a total auto parts segment (domestic, Mexico and Brazil) sales increase of 7.4% for fiscal 2023. ​Gross profit for fiscal 2023 was $9.1 billion, or 52.0% of net sales, a 17 basis point decrease compared with $8.5 billion, or 52.1% of net sales for fiscal 2022. The deleverage in gross margin was impacted by a non-cash LIFO charge of $44.0 million in fiscal 2023 versus a $15.0 million charge in fiscal 2022.Operating, selling, general and administrative expenses for fiscal 2023 increased to $5.6 billion, or 32.1% of net sales, from $5.2 billion, or 32.0% of net sales for fiscal 2022.Interest expense, net for fiscal 2023 was $306.4 million compared with $191.6 million during fiscal 2022. Average borrowings for fiscal 2023 were $7.0 billion, compared with $5.8 billion for fiscal 2022. Weighted average borrowing rates were 3.78% and 3.29% for fiscal 2023 and 2022, respectively.Our effective income tax rate was 20.2% and 21.1% of pre-tax income for fiscal 2023 and fiscal 2022, respectively. The benefit from stock options exercised in fiscal 2023 was $92.2 million compared to $63.2 million in fiscal 2022 (see “Note D – Income Taxes” in the Notes to Consolidated Financial Statements). Net income for fiscal 2023 increased by 4.1% to $2.5 billion, and diluted earnings per share increased 12.9% to $132.36 from $117.19 in fiscal 2022. The impact on the fiscal 2023 diluted earnings per share from stock repurchases was an increase of $1.15.Fiscal 2022 Compared with Fiscal 2021A discussion of changes in our results of operations from fiscal 2022 to fiscal 2021 has been omitted from this Annual Report on Form 10-K, but may be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended August 27, 2022, filed with the SEC on October 24, 2022, which is available free of charge on the SECs website at www.sec.gov and at www.autozone.com, by clicking “Investor Relations” located at the bottom of the page.Quarterly PeriodsEach of the first three quarters of our fiscal year consists of 12 weeks, and the fourth quarter consisted of 16 weeks in 2023, 2022 and 2021. Because the fourth quarter contains seasonally high sales volume and consists of 16 or 17 weeks, compared with 12 weeks for each of the first three quarters, our fourth quarter represents a disproportionate share of our annual net sales and net income. The fourth quarter of fiscal year 2023 represented 32.6% of annual sales and 34.2% of net income; the fourth quarter of fiscal year 2022 represented 32.9% of annual sales and 33.3% 31 Table of Contentsof net income; and the fourth quarter of fiscal year 2021 represented 33.6% of annual sales and 36.2% of net income.Liquidity and Capital ResourcesThe primary source of our liquidity is our cash flows realized through the sale of automotive parts, products and accessories. Continued progress on our initiatives improved our operating performance for the fiscal year. We believe that our cash generated from operating activities, available cash reserves and available credit, supplemented with our long-term borrowings will provide ample liquidity to fund our operations while allowing us to make strategic investments to support growth initiatives and return excess cash to shareholders in the form of share repurchases. As of August 26, 2023, we held $277.1 million of cash and cash equivalents, as well as $2.2 billion in undrawn capacity on our revolving credit facility, without giving effect to commercial paper borrowings. We believe our sources of liquidity will continue to be adequate to fund our operations and investments to grow our business, repay our debt as it becomes due and fund our share repurchases over the short-term and long-term. In addition, we believe we have the ability to obtain alternative sources of financing, if necessary. Net cash provided by operating activities was $2.9 billion in 2023, $3.2 billion in 2022 and $3.5 billion in 2021. Cash flows from operations are below last year primarily due to unfavorable changes in accounts payable and accrued expenses.Our net cash flows used in investing activities were $876.2 million, $648.1 million and $601.8 million in fiscal 2023, 2022 and 2021, respectively. The increase in net cash used in investing activities in fiscal 2023 was primarily due to an increase in capital expenditures. We invested $796.7 million, $672.4 million and $621.8 million in capital assets in fiscal 2023, 2022 and 2021, respectively. The increase in capital expenditures from fiscal 2022 to fiscal 2023 was primarily driven by our growth initiatives, including new stores, hub and mega hub expansion initiatives and supply chain projects. We had net new store openings of 197, 176 and 218 for fiscal 2023, 2022 and 2021, respectively. We invest a portion of our assets held by our wholly owned insurance captive in marketable debt securities. We purchased marketable debt securities of $66.9 million, $56.0 million and $63.7 million in fiscal 2023, 2022 and 2021, respectively. We had proceeds from the sale of marketable debt securities of $58.4 million, $53.9 million and $95.4 million in fiscal 2023, 2022 and 2021, respectively.Net cash used in financing activities was $2.1 billion in fiscal 2023 and $3.5 billion in fiscal 2022 and fiscal 2021. The net cash used in financing activities reflected purchases of treasury stock, which totaled $3.7 billion, $4.4 billion and $3.4 billion for fiscal 2023, 2022 and 2021, respectively. The treasury stock purchases in fiscal 2023, 2022 and 2021 were primarily funded by cash flows from operations. During the year ended August 26, 2023, we repaid our $300 million 2.875% Senior Notes due January 2023 and our $500 million 3.125% Senior Notes due July 2023 and issued $1.8 billion of new debt compared to $750 million in 2022 and none in 2021. In fiscal years 2023 and 2022 the proceeds from the issuance of debt were used for general corporate purposes.The Company had net proceeds from the issuance of commercial paper and short term borrowing of $606.2 million and $603.4 million during fiscal 2023 and fiscal 2022, respectively. We did not have any commercial paper or short-term borrowing activity during fiscal 2021.During fiscal 2024, we expect to increase the investment in our business as compared to fiscal 2023. Our investments are expected to be directed primarily to our supply chain initiatives, which includes expanded hub and mega hubs, as well as distribution center expansions and new stores. The amount of investments in our new stores is impacted by different factors, including whether the building and land are purchased (requiring higher investment) or leased (generally lower investment) and whether such buildings are located in the U.S., Mexico or Brazil, or located in urban or rural areas.During fiscal 2023, 2022 and 2021 our capital expenditures increased by approximately 18%, 8% and 36%, respectively. Fiscal 2021 capital expenditures increased due to delays in capital spending for the third and fourth quarter of fiscal 2020 related to the COVID-19 pandemic.32 Table of Contents​In addition to building and land costs, our new stores require working capital, predominantly for inventories. Historically, we have negotiated extended payment terms from suppliers, reducing the working capital required and resulting in a high accounts payable to inventory ratio. We plan to continue leveraging our inventory purchases; however, our ability to do so may be limited by our vendors’ capacity to factor their receivables from us. Certain vendors participate in arrangements with financial institutions whereby they factor their AutoZone receivables, allowing them to receive early payment from the financial institution on our invoices at a discounted rate. The terms of these agreements are between the vendor and the financial institution. Upon request from the vendor, we confirm to the vendor’s financial institution the balances owed to the vendor, the due date and agree to waive any right of offset to the confirmed balances. A downgrade in our credit or changes in the financial markets may limit the financial institutions’ willingness to participate in these arrangements, which may result in the vendor wanting to renegotiate payment terms. A reduction in payment terms would increase the working capital required to fund future inventory investments. Extended payment terms from our vendors have allowed us to continue our high accounts payable to inventory ratio. We had an accounts payable to inventory ratio of 124.9% at August 26, 2023 and 129.5% at August 27, 2022. Depending on the timing and magnitude of our future investments (either in the form of leased or purchased properties or acquisitions), we anticipate that we will rely primarily on internally generated funds and available borrowing capacity to support a majority of our capital expenditures, working capital requirements and stock repurchases. The balance may be funded through new borrowings. We anticipate we will be able to obtain such financing in view of our credit ratings and favorable experiences in the debt markets in the past.Our cash balances are held in various locations around the world. As of August 26, 2023, and August 27, 2022, cash and cash equivalents of $108.5 million and $86.8 million, respectively, were held outside of the U.S. and were generally utilized to support the liquidity needs in our foreign operations.For the fiscal year ended August 26, 2023, our adjusted after-tax return on invested capital (“ROIC”), which is a non-GAAP measure, was 55.4% as compared to 52.9% for the prior year. Adjusted ROIC is calculated as after-tax operating profit (excluding rent charges) divided by invested capital (which includes a factor to capitalize operating leases). We use adjusted ROIC to evaluate whether we are effectively using our capital resources and believe it is an important indicator of our overall operating performance. Refer to the “Reconciliation of Non-GAAP Financial Measures” section for further details of our calculation.Debt FacilitiesOn November 15, 2021, we amended and restated our existing revolving credit facility (as amended from time to time, the “Revolving Credit Agreement”) pursuant to which our borrowing capacity under the Revolving Credit Agreement was increased from $2.0 billion to $2.25 billion, and the maximum borrowing under the Revolving Credit Agreement may, at our option, subject to lenders approval, be increased from $2.25 billion to $3.25 billion. On November 15, 2022, we amended the Revolving Credit Agreement, extending the termination date by one year. As amended, the Revolving Credit Agreement will terminate, and all amounts borrowed will be due and payable, on November 15, 2027, but we may make one additional request to extend the termination date for an additional period of one year. Revolving borrowings under the Revolving Credit Agreement may be base rate loans, Term Secured Overnight Financing Rate (“SOFR”) loans, or a combination of both, at our election. The Revolving Credit Agreement includes (i) a $75 million sublimit for swingline loans, (ii) a $50 million individual issuer letter of credit sublimit and (iii) a $250 million aggregate sublimit for all letters of credit.Under our Revolving Credit Agreement, covenants include restrictions on liens, a maximum debt to earnings ratio, a minimum fixed charge coverage ratio and a change of control provision that may require acceleration of the repayment obligations under certain circumstances.As of August 26, 2023, we had no outstanding borrowings and $1.8 million of outstanding letters of credit under the Revolving Credit Agreement. 33 Table of ContentsThe Revolving Credit Agreement requires that our consolidated interest coverage ratio as of the last day of each quarter shall be no less than 2.5:1. This ratio is defined as the ratio of (i) consolidated earnings before interest, taxes and rents to (ii) consolidated interest expense plus consolidated rents. Our consolidated interest coverage ratio as of August 26, 2023 was 6.3:1.We also maintain a letter of credit facility that allows us to request the participating bank to issue letters of credit on our behalf up to an aggregate amount of $25 million. The letter of credit facility is in addition to the letters of credit that may be issued under the Revolving Credit Agreement and had an expiration in June 2022. On May 16, 2022, we amended and restated the letter of credit facility to, among other things, extend the facility through June 2025. As of August 26, 2023, we had $25 million in letters of credit outstanding under the letter of credit facility.In addition to the outstanding letters of credit issued under the committed facility discussed above, we had $107.2 million in letters of credit outstanding as of August 26, 2023. These letters of credit have various maturity dates and were issued on an uncommitted basis.As of August 26, 2023, the $1.2 billion of commercial paper borrowings and the $300 million 3.125% Senior Notes due April 2024 were classified as long-term in the Consolidated Balance Sheets as we have the current ability and intent to refinance them on a long-term basis through available capacity in our revolving credit facility. As of August 26, 2023, we had $2.2 billion of availability under our Revolving Credit Agreement, without giving effect to commercial paper borrowings, which would allow us to replace these short-term obligations with a long-term financing facility. On July 17, 2023, we repaid the $500 million 3.125% Senior Notes due July 2023.On January 17, 2023, we repaid the $300 million 2.875% Senior Notes due January 2023.On January 18, 2022, we repaid the $500 million 3.700% Senior Notes due April 2022, which were callable at par in January 2022.​On March 15, 2021, we repaid the $250 million 2.500% Senior Notes due April 2021, which were callable at par in March 2021.On July 21, 2023, we issued $450 million in 5.050% Senior Notes due July 2026 and $300 million in 5.200% Senior Notes due August 2033 under our automatic shelf registration statement on Form S-3, filed with the SEC on July 19, 2022 (File No. 333-266209) (the “2022 Shelf Registration Statement”). The 2022 Shelf Registration Statement allows us to sell an indeterminate amount in debt securities to fund general corporate purposes, including repaying, redeeming or repurchasing outstanding debt and for working capital, capital expenditures, new store or distribution center openings, stock repurchases and acquisitions. Proceeds from the debt issuance were used for general corporate purposes.On January 27, 2023 we issued $450 million in 4.500% Senior Notes due February 2028 and $550 million in 4.750% Senior Notes due February 2033 under the 2022 Shelf Registration Statement. Proceeds from the debt issuance were used to repay a portion of the Company’s outstanding commercial paper borrowings and for other general corporate purposes.On August 1, 2022, we issued $750 million in 4.750% Senior Notes due August 2032 under the 2022 Shelf Registration Statement. Proceeds from the debt issuance were used for general corporate purposes.​The Senior Notes contain a provision that repayment may be accelerated if we experience a change in control (as defined in the agreements). Our borrowings under our Senior Notes contain minimal covenants, primarily restrictions on liens, sale and leaseback transactions and consolidations, mergers and the sale of assets. All of the repayment obligations under our borrowing arrangements may be accelerated and come due prior to the applicable scheduled payment date if covenants are breached or an event of default occurs. Interest is paid on a semi-annual basis. 34 Table of ContentsAs of August 26, 2023, we were in compliance with all covenants and expect to remain in compliance with all covenants under our borrowing arrangements.For the fiscal year ended August 26, 2023, our adjusted debt to earnings before interest, taxes, depreciation, amortization, rent and share-based compensation expense (“EBITDAR”) ratio was 2.3:1 as compared to 2.1:1 as of the comparable prior year end. We calculate adjusted debt as the sum of total debt, finance lease liabilities and rent times six; and we calculate adjusted EBITDAR by adding interest, taxes, depreciation, amortization, rent and share-based compensation expense to net income. We target our debt levels to a specified ratio of adjusted debt to EBITDAR in order to maintain our investment grade credit ratings and believe this is important information for the management of our debt levels.Management expects the ratio of adjusted debt to EBITDAR to return to pre-pandemic levels in the future, increasing debt levels. Once the target ratio is achieved, to the extent adjusted EBITDAR increases, we expect our debt levels to increase; conversely, if adjusted EBITDAR decreases, we would expect our debt levels to decrease. Refer to the “Reconciliation of Non-GAAP Financial Measures” section for further details of our calculation.Stock RepurchasesDuring 1998, we announced a program permitting us to repurchase a portion of our outstanding shares not to exceed a dollar maximum established by our Board of Directors (the “Board”). The Board voted to increase the repurchase authorization by $1.5 billion on October 5, 2021, $1.5 billion on December 15, 2021, $2.0 billion on March 22, 2022, $2.5 billion on October 4, 2022 and $2.0 billion on June 14, 2023, bringing the total authorization to $35.7 billion. From January 1998 to August 26, 2023, we have repurchased a total of 154.0 million shares at an aggregate cost of $33.8 billion. We repurchased 1.5 million, 2.2 million and 2.6 million shares of common stock at an aggregate cost of $3.7 billion (inclusive of excise tax of $23.7 million), $4.4 billion and $3.4 billion during fiscal 2023, 2022 and 2021, respectively. The excise tax is assessed at one percent of the fair market value of net stock repurchases after December 31, 2022. Considering cumulative repurchases as of August 26, 2023 we had $1.8 billion remaining under the Board’s authorization to repurchase our common stock. We will continue to evaluate current and expected business conditions and adjust the level of share repurchases under our share repurchase program in a manner that is consistent with our capital allocation strategy or as we otherwise deem appropriate.Cash flow before share repurchases and changes in debt was $2.2 billion, $2.6 billion and $3.0 billion for the fiscal year ended August 26, 2023, August 27, 2022 and August 28, 2021, respectively. Cash flow before share repurchases and changes in debt is calculated as the net increase or decrease in cash and cash equivalents less net increases or decreases in debt (excluding deferred financing costs) plus share repurchases. We use cash flow before share repurchases and changes in debt to calculate the cash flows remaining and available. We believe this is important information regarding our allocation of available capital where we prioritize investments in the business and utilize the remaining funds to repurchase shares, while maintaining debt levels that support our investment grade credit ratings. Refer to the “Reconciliation of Non-GAAP Financial Measures” section for further details of our calculation.Subsequent to August 26, 2023 and through October 16, 2023, we have repurchased 200,303 shares of common stock at an aggregate cost of $512.4 million. Considering the cumulative repurchases through October 16, 2023, we have $1.3 billion remaining under the Board’s authorization to repurchase its common stock.​35 Table of ContentsFinancial CommitmentsThe following table shows our significant contractual obligations as of August 26, 2023:​​​​​​​​​​​​​​​​​​Total​Payment Due by Period​​Contractual​Less than​Between​Between​Over(in thousands)​Obligations 1 year 1‑3 years 3‑5 years 5 years​​​​​​​​​​​​​​​​Debt(1) $ 7,709,600​$ 1,509,600​$ 1,750,000​$ 1,050,000​$ 3,400,000Interest payments(2)​ 1,468,738​​ 252,600​​ 455,325​​ 321,125​​ 439,688Operating leases(3)​ 4,097,510​​ 372,849​​ 781,663​​ 682,165​​ 2,260,833Finance leases(3)​ 319,186​​ 88,284​​ 143,106​​ 44,568​​ 43,228Self-insurance reserves(4)​ 279,407​​ 96,795​​ 95,288​​ 38,757​​ 48,567Construction commitments​ 198,926​ 198,926​​ —​​ —​​ —Other(5)​​ 9,326​​ 9,326​​ —​​ —​​ —​​$ 14,082,693​$ 2,528,380​$ 3,225,382​$ 2,136,615​$ 6,192,316​(1)Debt balances represent principal maturities, excluding interest, discounts, and debt issuance costs.(2)Represents obligations for interest payments on long-term debt.(3)Operating and finance lease obligations include related interest in accordance with ASU 2016-02, Leases (Topic 842).(4)Self-insurance reserves reflect estimates based on actuarial calculations and are presented net of insurance receivables. Although these obligations do not have scheduled maturities, the timing of future payments are predictable based upon historical patterns. Accordingly, we reflect the net present value of these obligations in our Consolidated Balance Sheets.(5)Represents commitments to make additional capital contributions to certain tax credit equity investments upon achievement of project milestones.Our tax liability for uncertain tax positions, including interest and penalties, was $51.0 million at August 26, 2023. Approximately $11.2 million is classified as current liabilities and $39.8 million is classified as long-term liabilities. We did not reflect these obligations in the table above as we are unable to make an estimate of the timing of payments of the long-term liabilities due to uncertainties in the timing and amounts of the settlement of these tax positions. ​Off-Balance Sheet ArrangementsThe following table reflects outstanding letters of credit and surety bonds as of August 26, 2023:​​​​​ Total ​​Other (in thousands)​Commitments​​​​Standby letters of credit​$ 133,953Surety bonds​​ 43,076​​$ 177,029​A substantial portion of the outstanding standby letters of credit (which are primarily renewed on an annual basis) and surety bonds are used to cover reimbursement obligations to our workers’ compensation carriers.There are no additional contingent liabilities associated with these instruments as the underlying liabilities are already reflected in our Consolidated Balance Sheets. The standby letters of credit and surety bond arrangements expire within one year but have automatic renewal clauses.36 Table of ContentsReconciliation of Non-GAAP Financial Measures “Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes certain financial measures not derived in accordance with generally accepted accounting principles (“GAAP”). These non-GAAP financial measures provide additional information for determining our optimum capital structure and are used to assist management in evaluating performance and in making appropriate business decisions to maximize stockholders’ value.Non-GAAP financial measures should not be used as a substitute for GAAP financial measures, or considered in isolation, for the purpose of analyzing our operating performance, financial position or cash flows. However, we have presented the non-GAAP financial measures, as we believe they provide additional information that is useful to investors as it indicates more clearly our comparative year-to-year operating results. Furthermore, our management and Compensation Committee of the Board use the above-mentioned non-GAAP financial measures to analyze and compare our underlying operating results and use select measurements to determine payments of performance-based compensation. We have included a reconciliation of this information to the most comparable GAAP measures in the following reconciliation tables.Reconciliation of Non-GAAP Financial Measure: Cash Flow Before Share Repurchases and Changes in DebtThe following table reconciles net increase (decrease) in cash and cash equivalents to cash flow before share repurchases and changes in debt, which is presented in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”:​​​​​​​​​​​​​​​​​ Fiscal Year Ended August(in thousands)​2023 2022 2021 2020 2019​​​​​​​​​​​​​​​​Net cash provided by/(used in): ​ ​ ​ ​ ​ Operating activities​$ 2,940,788​$ 3,211,135​$ 3,518,543​$ 2,720,108​$ 2,128,513Investing activities​ (876,178)​ (648,099)​ (601,778)​ (497,875)​ (491,846)Financing activities​ (2,060,082)​ (3,470,497)​ (3,500,417)​ (643,636)​ (1,674,088)Effect of exchange rate changes on cash​​ 8,146​ 506​ 4,172​ (4,082)​ (4,103)Net (decrease)/increase in cash and cash equivalents​​ 12,674​ (906,955)​ (579,480)​ 1,574,515​ (41,524)Less: increase/(decrease) in debt, excluding deferred financing costs​​ 1,556,200​ 853,400​ (250,000)​ 320,000​ 204,700Plus: Share repurchases​ 3,699,552​ 4,359,991​ 3,378,321​ 930,903(1)​ 2,004,896Cash flow before share repurchases and changes in debt​$ 2,156,026​$ 2,599,636​$ 3,048,841​$ 2,185,418​$ 1,758,672​(1)During the third quarter of fiscal 2020, the Company temporarily suspended share repurchases under the share repurchase program in response to the COVID-19 pandemic.​​​​​​37 Table of ContentsReconciliation of Non-GAAP Financial Measure: Adjusted After-tax ROICThe following table calculates the percentage of ROIC. ROIC is calculated as after-tax operating profit (excluding rent) divided by invested capital (which includes a factor to capitalize operating leases). The ROIC percentages are presented in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”: ​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​ ​​​​​​​​​​​​​​​​​Fiscal Year Ended August​(in thousands, except percentage)2023 2022 2021 2020 2019(1) ​​​​​​​​​​​​​​​​Net income$ 2,528,426 $ 2,429,604 $ 2,170,314 $ 1,732,972 $ 1,617,221​Adjustments: ​​ ​​ ​ ​ ​Interest expense 306,372​ 191,638​ 195,337​ 201,165​ 184,804​Rent expense(2) 406,398​ 373,278​ 345,380​ 329,783​ 332,726​Tax effect(3) (143,980)​ (119,197)​ (114,091)​ (115,747)​ (105,576)​Deferred tax liabilities, net of repatriation tax(4) —​ —​ —​ —​ (6,340)​Adjusted after-tax return$ 3,097,216​$ 2,875,323​$ 2,596,940​$ 2,148,173​$ 2,022,835​​​​​​​​​​​​​​​​​Average debt(5)$ 6,900,354​$ 5,712,301​$ 5,416,471​$ 5,375,356​$ 5,126,286​Average stockholders’ deficit(5) (4,042,495)​ (2,797,181)​ (1,397,892)​ (1,542,355)​ (1,615,339)​Add: Rent x 6(2)(6) 2,438,388​ 2,239,668​ 2,072,280​ 1,978,696​ 1,996,358​Average finance lease liabilities(5) 296,599​ 284,453​ 237,267​ 203,998​ 162,591​Invested capital$ 5,592,846​$ 5,439,241​$ 6,328,126​$ 6,015,695​$ 5,669,896​​​​​​​​​​​​​​​​​Adjusted after-tax ROIC 55.4% 52.9% 41.0% 35.7% 35.7%​Reconciliation of Non-GAAP Financial Measure: Adjusted Debt to EBITDARThe following table calculates the ratio of adjusted debt to EBITDAR. Adjusted debt to EBITDAR is calculated as the sum of total debt, financing lease liabilities and annual rents times six; divided by net income plus interest, taxes, depreciation, amortization, rent and share-based compensation expense. The adjusted debt to EBITDAR ratios are presented in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”:​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​ ​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​Fiscal Year Ended August(in thousands, except ratio)​2023 2022 2021 2020 2019(1)​​​​​​​​​​​​​​​​Net income $ 2,528,426 $ 2,429,604 $ 2,170,314 $ 1,732,972 $ 1,617,221Add: Interest expense​ 306,372​ 191,638​ 195,337​ 201,165​ 184,804Income tax expense​​ 639,188​​ 649,487​​ 578,876​​ 483,542​​ 414,112EBIT​ 3,473,986​ 3,270,729​ 2,944,527​ 2,417,679​ 2,216,137Add: Depreciation and amortization expense​ 497,577​ 442,223​ 407,683​ 397,466​ 369,957Rent expense(2)​ 406,398​ 373,278​ 345,380​ 329,783​ 332,726Share-based expense​ 93,087​ 70,612​ 56,112​ 44,835​ 43,255EBITDAR​$ 4,471,048​$ 4,156,842​$ 3,753,702​$ 3,189,763​$ 2,962,075​​​​​​​​​​​​​​​​Debt​$ 7,668,549​$ 6,122,092​$ 5,269,820​$ 5,513,371​$ 5,206,344Financing lease liabilities​ 287,618​ 310,305​ 276,054​ 223,353​ 179,905Add: Rent x 6(2)(6)​ 2,438,388​ 2,239,668​ 2,072,280​ 1,978,696​ 1,996,358Adjusted debt​$ 10,394,555​$ 8,672,065​$ 7,618,154​$ 7,715,420​$ 7,382,607Adjusted debt to EBITDAR​ 2.3​ 2.1​ 2.0​ 2.4​ 2.5​​38 Table of Contents(1)The fiscal year ended August 31, 2019 consisted of 53 weeks.(2)Effective September 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842), the new lease accounting standard that required the Company to recognize operating lease assets and liabilities in the balance sheet. The table below outlines the calculation of rent expense and reconciles rent expense to total lease cost, per ASC 842, the most directly comparable GAAP financial measure, for the 52 weeks ended, August 26, 2023, August 27, 2022 and August 28, 2021. ​​​​​​​​​​​​​​​For the year ended(in thousands)​August 26, 2023​August 27, 2022​August 28, 2021​August 29, 2020​​​​​​​​​​​​​Total lease cost, per ASC 842​$ 524,283​$ 470,563​$ 427,443​$ 415,505Less: Finance lease interest and amortization​ (86,521)​​ (69,564)​​ (56,334)​​ (60,275)Less: Variable operating lease components, related to insurance and common area maintenance ​ (31,364)​​ (27,721)​​ (25,729)​​ (25,447)Rent expense​$ 406,398​$ 373,278​$ 345,380​$ 329,783​(3)For fiscal 2023, 2022, 2021 and 2020, the effective tax rate was 20.2%, 21.1%, 21.1% and 21.8%, respectively. (4)For fiscal 2019 after-tax operating profit was adjusted for the impact of the revaluation of deferred tax liabilities, net of repatriation tax.(5)All averages are computed based on trailing five quarters.(6)Rent is multiplied by a factor of six to capitalize operating leases in the determination of pre-tax invested capital.​Recent Accounting Pronouncements​See Note A of the Notes to Consolidated Financial Statements for a discussion on recent accounting pronouncements.Critical Accounting Policies and EstimatesPreparation of our Consolidated Financial Statements requires us to make estimates and assumptions affecting the reported amounts of assets and liabilities at the date of the financial statements, reported amounts of revenues and expenses during the reporting period and related disclosures of contingent liabilities. In the Notes to our Consolidated Financial Statements, we describe our significant accounting policies used in preparing the Consolidated Financial Statements. Our policies are evaluated on an ongoing basis and are drawn from historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results could differ under different assumptions or conditions. Our senior management has identified self-insurance reserves as a critical accounting estimate that is materially impacted by assumptions while income taxes and valuation allowances have been identified as critical accounting policies. These policies have been discussed with the Audit Committee of our Board. The following items in our Consolidated Financial Statements represent our critical accounting policies and estimates by management:Self-Insurance ReservesWe retain a significant portion of the risks associated with workers’ compensation, general, product liability, property and vehicle liability; and we obtain third party insurance to limit the exposure related to certain of these risks. Our self-insurance reserve estimates totaled $268.8 million at August 26, 2023, and $264.3 million at August 27, 2022. Where estimates are possible, losses covered by insurance are recognized on a gross basis with a corresponding insurance receivable.The assumptions made by management in estimating our self-insurance reserves include consideration of historical cost experience, judgments about the present and expected levels of cost per claim and retention levels. We utilize various methods, including analyses of historical trends and use of a specialist, to estimate the cost to settle reported claims and claims incurred but not yet reported. The actuarial methods develop estimates of the future ultimate claim costs based on the claims incurred as of the balance sheet date. When estimating these liabilities, we consider factors, such as the severity, duration and frequency of claims, legal costs associated with claims, healthcare trends and projected inflation of related factors. In recent history, our methods for determining our exposure have remained 39 Table of Contentsconsistent, and our historical trends have been appropriately factored into our reserve estimates. As we obtain additional information and refine our methods regarding the assumptions and estimates we use to recognize liabilities incurred, we will adjust our reserves accordingly.Management believes that the various assumptions developed and actuarial methods used to determine our self- insurance reserves are reasonable and provide meaningful data and information that management uses to make its best estimate of our exposure to these risks. Arriving at these estimates, however, requires a significant amount of subjective judgment by management, and as a result these estimates are uncertain and our actual exposure may be different from our estimates. For example, changes in our assumptions about healthcare costs, the severity of accidents and the incidence of illness, the average size of claims and other factors could cause actual claim costs to vary from our assumptions and estimates, causing our reserves to be overstated or understated. A 10% change in our self-insurance liability would have affected net income by approximately $19.3 million for fiscal 2023. Our liabilities for workers’ compensation, general and product liability, property and vehicle claims do not have scheduled maturities; however, the timing of future payments is predictable based on historical patterns and is relied upon in determining the current portion of these liabilities. Accordingly, we reflect the net present value of the obligations we determine to be long-term using the risk-free interest rate as of the balance sheet date.If the discount rate used to calculate the present value of these reserves changed by 25 basis points, net income would have been affected by approximately $1.1 million for fiscal 2023. Income TaxesOur income tax returns are audited by state, federal and foreign tax authorities, and we are typically engaged in various tax examinations at any given time. Tax contingencies often arise due to uncertainty or differing interpretations of the application of tax rules throughout the various jurisdictions in which we operate. The contingencies are influenced by items such as tax audits, changes in tax laws, litigation, appeals and prior experience with similar tax positions.We regularly review our tax reserves for these items and assess the adequacy of the amount we have recorded. As of August 26, 2023, we had approximately $51.0 million reserved for uncertain tax positions.We evaluate exposures associated with our various tax filings by estimating a liability for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement.We believe our estimates to be reasonable and have not experienced material adjustments to our reserves in the previous three years; however, actual results could differ from our estimates, and we may be exposed to gains or losses. Specifically, management has used judgment and made assumptions to estimate the likely outcome of uncertain tax positions. Additionally, to the extent we prevail in matters for which a liability has been established, or must pay in excess of recognized reserves, our effective tax rate in any particular period could be affected.Vendor AllowancesWe receive various payments and allowances from our vendors through a variety of programs and arrangements, including allowances for warranties, advertising and general promotion of vendor products. Vendor allowances are treated as a reduction of the cost of inventory, unless they are provided as a reimbursement of specific, incremental, identifiable costs incurred by the Company in selling the vendor’s products. Approximately 88% of the vendor funds received during fiscal 2023 were recorded as a reduction of the cost of inventories and recognized as a reduction to cost of sales as these inventories are sold.Based on our vendor agreements, a significant portion of vendor funding we receive is earned as we purchase inventory. Therefore, we record receivables for funding earned but not yet received as we purchase inventory. During the year, we regularly review the receivables from vendors to ensure vendors are able to meet their 40 Table of Contentsobligations. We generally have not recorded a reserve against these receivables as we have not experienced significant losses and typically have a legal right of offset with our vendors for payments owed them. We have had write-offs less than $1 million in each of the last three years.Item 7A. Quantitative and Qualitative Disclosures about Market RiskWe are exposed to market risk from, among other things, changes in interest rates, foreign exchange rates and fuel prices. From time to time, we use various derivative instruments to reduce interest rate and fuel price risks. To date, based upon our current level of foreign operations, no derivative instruments have been utilized to reduce foreign exchange rate risk. All of our hedging activities are governed by guidelines that are authorized by the Board. Further, we do not buy or sell derivative instruments for trading purposes.Interest Rate RiskOur financial market risk results primarily from changes in interest rates. At times, we reduce our exposure to changes in interest rates by entering into various interest rate hedge instruments such as interest rate swap contracts, treasury lock agreements and forward-starting interest rate swaps.We have historically utilized interest rate swaps to convert variable rate debt to fixed rate debt and to lock in fixed rates on future debt issuances. We reflect the current fair value of all interest rate hedge instruments as a component of either other current assets or accrued expenses and other. Our interest rate hedge instruments are designated as cash flow hedges. As of August 26, 2023 and August 27, 2022, no such interest rate swaps were outstanding. Unrealized gains and losses on interest rate hedges are deferred in stockholders’ deficit as a component of Accumulated Other Comprehensive Loss. These deferred gains and losses are recognized in income as a decrease or increase to interest expense in the period in which the related cash flows being hedged are recognized in expense. However, to the extent that the change in value of an interest rate hedge instrument does not perfectly offset the change in the value of the cash flow being hedged, that ineffective portion is immediately recognized in earnings.The fair value of our debt was estimated at $7.3 billion as of August 26, 2023, and $5.9 billion as of August 27, 2022, based on the quoted market prices for the same or similar debt issues or on the current rates available to us for debt having the same remaining maturities. Such fair value is less than the carrying value of debt by $406.6 million and $182.8 million at August 26, 2023 and August 27, 2022, respectively, which reflects its face amount, adjusted for any unamortized debt issuance costs and discounts. We had $1.2 billion in variable rate debt outstanding at August 26, 2023 and $603.4 million in August 27, 2022. We had outstanding fixed rate debt of $6.5 billion, net of unamortized debt issuance costs of $41.1 million, at August 26, 2023, and $5.5 billion, net of unamortized debt issuance costs of $31.3 million, at August 27, 2022. A one percentage point increase in interest rates would have reduced the fair value of our fixed rate debt by approximately $264.7 million at August 26, 2023.Foreign Currency RiskForeign currency exposures arising from transactions include firm commitments and anticipated transactions denominated in a currency other than our entities’ functional currencies. To minimize our risk, we generally enter into transactions denominated in the respective functional currencies. We are exposed to Brazilian reals, Canadian dollars, euros, Chinese yuan renminbi and British pounds, but our primary foreign currency exposure arises from Mexican peso-denominated revenues and profits and their translation into U.S. dollars. Foreign currency exposures arising from transactions denominated in currencies other than the functional currency are not material.We view our investments in Mexican subsidiaries as long-term. As a result, we generally do not hedge these net investments. The net asset exposure in the Mexican subsidiaries translated into U.S. dollars using the year-end exchange rates was $409.8 million at August 26, 2023 and $270.2 million at August 27, 2022. The year-end exchange rates with respect to the Mexican peso increased by 15.7% with respect to the U.S. dollar during fiscal 2023 and decreased by less than 1.0% with respect to the U.S. dollar during fiscal 2022. The potential loss in value 41 Table of Contentsof our net assets in the Mexican subsidiaries resulting from a hypothetical 10 percent adverse change in quoted foreign currency exchange rates at August 26, 2023 and August 27, 2022, would have been approximately $37.3 million and approximately $24.6 million, respectively. Any changes in our net assets in the Mexican subsidiaries relating to foreign currency exchange rates would be reflected in the foreign currency translation component of Accumulated Other Comprehensive Loss, unless the Mexican subsidiaries are sold or otherwise disposed. A hypothetical 10 percent adverse change in average exchange rates would not have a material impact on our results of operations.​42 Table of Contents

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+Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations33Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related Notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis also contains forward-looking statements and should also be read in conjunction with the disclosures and information contained in “Disclosure Regarding Forward-Looking Statements” and “Risk Factors” in this Annual Report on Form 10-K. We use the terms “Accenture,” “we,” “our” and “us” in this report to refer to Accenture plc and its subsidiaries. All references to years, unless otherwise noted, refer to our fiscal year, which ends on August 31. For example, a reference to “fiscal 2023” means the 12-month period that ended on August 31, 2023. All references to quarters, unless otherwise noted, refer to the quarters of our fiscal year. We use the term “in local currency” so that certain financial results may be viewed without the impact of foreign currency exchange rate fluctuations, thereby facilitating period-to-period comparisons of business performance. Financial results “in local currency” are calculated by restating current period activity into U.S. dollars using the comparable prior-year period’s foreign currency exchange rates. This approach is used for all results where the functional currency is not the U.S. dollar.Overview Accenture is a leading global professional services company, providing a broad range of services and solutions across Strategy & Consulting, Technology, Operations, Industry X and Song. We serve clients in three geographic markets: North America, Europe and Growth Markets (Asia Pacific, Latin America, Africa and the Middle East). We combine our strength in technology and leadership in cloud, data and AI with unmatched industry experience, functional expertise and global delivery capability to help the world’s leading businesses, governments and other organizations build their digital core, optimize their operations, accelerate revenue growth and enhance citizen services—creating tangible value at speed and scale.Our results of operations are affected by economic conditions, including macroeconomic conditions, the overall inflationary environment and levels of business confidence. There continues to be significant economic and geopolitical uncertainty in many markets around the world, which has impacted and may continue to impact our business. These conditions have slowed the pace and level of client spending for smaller contracts with a shorter duration, especially for our consulting services. From an industry perspective, we are also experiencing reduced demand particularly in our Communications, Media & Technology industry group.Key Metrics Key metrics for fiscal 2023 compared to fiscal 2022 are included below. We have presented operating margin and diluted earnings per share on a non-GAAP or “adjusted” basis to exclude the impact of $1,063 million in business optimization costs and, with respect to diluted earnings per share, the impact of a $253 million investment gain recorded during fiscal 2023. For additional information, see Note 1 (Summary of Significant Accounting Policies) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”•Revenues of $64.1 billion, representing 4% growth in U.S. dollars and 8% growth in local currency;•New bookings of $72.2 billion, an increase of 1% in U.S. dollars and 5% in local currency;•Operating margin of 13.7%, compared to 15.2% in fiscal 2022; adjusted operating margin expanded 20 basis points to 15.4%;•Diluted earnings per share of $10.77, compared to $10.71 for fiscal 2022; adjusted earnings per share increased 9% to $11.67; and•Cash returned to shareholders of $7.2 billion, including share purchases of $4.3 billion and dividends of $2.8 billion.Table of ContentsACCENTURE 2023 FORM 10-KItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations34RevenuesFiscalPercent Increase (Decrease) U.S. DollarsPercent Increase (Decrease) Local Currency(in billions of U.S. dollars)20232022Geographic Markets (1)North America$30.3 $29.1 4 %4 %Europe21.3 20.3 5 11 Growth Markets12.5 12.2 3 12 Total Revenues$64.1 $61.6 4 %8 %Industry GroupsCommunications, Media & Technology$11.5 $12.2 (6)%(3)%Financial Services12.1 11.8 3 7 Health & Public Service12.6 11.2 12 14 Products19.1 18.3 5 9 Resources8.9 8.1 10 15 Total Revenues$64.1 $61.6 4 %8 %Type of WorkConsulting$33.6 $34.1 (1)%3 %Managed Services (2)30.5 27.5 11 14 Total Revenues$64.1 $61.6 4 %8 %Amounts in table may not total due to rounding.(1)In the first quarter of fiscal 2024, our Middle East and Africa market units will move from Growth Markets to Europe, and the Europe market will be referred to as our Europe, Middle East and Africa (EMEA) geographic market.(2)Previously referred to as our outsourcing business.Revenues for fiscal 2023 increased 4% in U.S. dollars and 8% in local currency compared to fiscal 2022. During fiscal 2023, revenue growth in local currency was very strong in Growth Markets and Europe and solid in North America. We experienced local currency revenue growth that was very strong in Resources and Health & Public Service, strong in Products and Financial Services, partially offset by a modest decline in Communications, Media & Technology. Revenue growth in local currency was very strong in managed services and modest in consulting during fiscal 2023. The business environment is competitive, and we are experiencing lower pricing across the business. We define pricing as contract profitability or margin on the work that we sell.In our consulting business, revenues for fiscal 2023 decreased 1% in U.S. dollars and increased 3% in local currency compared to fiscal 2022. Consulting revenue growth in local currency in fiscal 2023 was driven by strong growth in Growth Markets and solid growth in Europe, while North America was flat. Our consulting revenue continues to be driven by helping our clients accelerate their digital transformation, including moving to the cloud, embedding security across the enterprise and adopting new technologies. In addition, clients continue to be focused on initiatives designed to deliver cost savings and operational efficiency, as well as projects to accelerate growth and improve customer experiences. While we continue to experience demand for these services, we are seeing a slower pace and level of client spending, especially for smaller contracts with a shorter duration.In our managed services business, revenues for fiscal 2023 increased 11% in U.S. dollars and 14% in local currency compared to fiscal 2022. Managed services revenue growth in local currency in fiscal 2023 was driven by very strong growth in Growth Markets and Europe and strong growth in North America. We continue to experience growing demand to assist clients with application modernization and maintenance, cloud enablement and cybersecurity-as-a-service (formerly managed security services). In addition, clients continue to be focused on transforming their operations through data and analytics, automation and artificial intelligence to drive productivity and operational cost savings.As we are a global company, our revenues are denominated in multiple currencies and may be significantly affected by currency exchange rate fluctuations. While a significant portion of our revenues are in U.S. dollars, the majority of our revenues are denominated in other currencies, including the Euro, Japanese yen and U.K. pound. There continues to be volatility in foreign currency exchange rates. Unfavorable fluctuations in foreign currency exchange rates have had and could in the future have a material effect on our financial results. If the U.S. dollar weakens against other currencies, resulting in favorable currency translation, our revenues, revenue growth and results of operations in U.S. dollars may be higher. If the U.S. dollar strengthens against other currencies, resulting in unfavorable currency translation, our revenues, revenue growth and results of operations in U.S. dollars may be lower. The U.S. dollar strengthened against various currencies during fiscal 2023, resulting in unfavorable currency translation and U.S. dollar revenue growth that was approximately 4% lower than our revenue growth in local currency for the year. Assuming that exchange rates stay within recent ranges, we estimate that our fiscal 2024 revenue growth in U.S. dollars will be approximately equal to our revenue growth in local currency.Table of ContentsACCENTURE 2023 FORM 10-KItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations35People MetricsUtilizationWorkforceAnnualized Voluntary Attrition91%733,00013%consistent with fiscal 2022compared to approximately 721,000 as of August 31, 2022compared to 19% in fiscal 2022Utilization for fiscal 2023 was 91%, consistent with fiscal 2022. We hire to meet current and projected future demand. We proactively plan and manage the size and composition of our workforce and take actions as needed to address changes in the anticipated demand for our services and solutions, given that compensation costs are the most significant portion of our operating expenses. Our workforce, the majority of which serves our clients, increased to approximately 733,000 as of August 31, 2023, compared to approximately 721,000 as of August 31, 2022. The year-over-year increase in our workforce reflects people added in connection with acquisitions and hiring for specific skills.For fiscal 2023, attrition, excluding involuntary terminations, was 13%, down from 19% in fiscal 2022. For the fourth quarter of fiscal 2023, annualized attrition, excluding involuntary terminations, was 14%, up from 13% in the third quarter of fiscal 2023. We evaluate voluntary attrition, adjust levels of new hiring and use involuntary terminations as a means to keep our supply of skills and resources in balance with changes in client demand. During the second quarter of fiscal 2023, we initiated actions to streamline operations and transform our nonbillable corporate functions to reduce costs.In addition, we adjust compensation in order to attract and retain appropriate numbers of qualified employees. For the majority of our people, compensation increases became effective December 1st of fiscal 2023. Given the overall inflationary environment, compensation has increased faster than in prior years, but is moderating. We strive to adjust pricing as well as drive cost and delivery efficiencies, such as changing the mix of people and utilizing technology, to reduce the impact of compensation increases on our margin and contract profitability.Our ability to grow our revenues and maintain or increase our margin could be adversely affected if we are unable to: match people and skills with the types or amounts of services and solutions clients are demanding; recover or offset increases in compensation; deploy our employees globally on a timely basis; manage attrition; and/or effectively assimilate new employees.Operating ExpensesThe primary categories of operating expenses include Cost of services, Sales and marketing and General and administrative costs. Cost of services is primarily driven by the cost of people serving our clients, which consists mainly of compensation, subcontractor and other payroll costs, and non-payroll costs such as facilities, technology and travel. Cost of services includes a variety of activities such as: contract delivery; recruiting and training; software development; and integration of acquisitions. Sales and marketing costs are driven primarily by: compensation costs for business development activities; marketing- and advertising-related activities; and certain acquisition-related costs. General and administrative costs primarily include costs for people that are non-client-facing, information systems, office space and certain acquisition-related costs.Gross margin (Revenues less Cost of services as a percentage of Revenues) for fiscal 2023 was 32.3%, compared with 32.0% for fiscal 2022. The increase in gross margin for fiscal 2023 was primarily due to lower labor costs, including lower subcontractor costs, partially offset by higher non-payroll costs, primarily for travel.Sales and marketing and General and administrative costs as a percentage of revenues were 16.9% for fiscal 2023, compared with 16.8% for fiscal 2022. For fiscal 2023 compared to fiscal 2022, Sales and marketing costs increased 40 basis points due to higher selling and other business development costs as a percentage of revenues. General and administrative costs decreased 20 basis points as a percentage of revenues. During fiscal 2023, we recorded $1,063 million in business optimization costs primarily for employee severance. For additional information, see Note 1 (Summary of Significant Accounting Policies) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”Operating margin (Operating income as a percentage of Revenues) for fiscal 2023 was 13.7%, compared with 15.2% for fiscal 2022.The business optimization costs recorded during fiscal 2023 reduced operating margin by 170 basis points. Excluding these costs, operating margin for fiscal 2023 increased 20 basis points to 15.4%.Table of ContentsACCENTURE 2023 FORM 10-KItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations36Other Income (Expense), netDuring fiscal 2023, we recorded a gain of $253 million related to our investment in Duck Creek Technologies. For additional information, see Note 1 (Summary of Significant Accounting Policies) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.” Effective Tax RateThe effective tax rates for fiscal 2023 and 2022 were 23.4% and 24.0%, respectively. Absent the business optimization costs of $1,063 million and related reduction in tax expense of $247 million, as well as an investment gain of $253 million and related tax expense of $9 million, our effective tax rate for fiscal 2023 was 23.9%.Earnings Per ShareDiluted earnings per share were $10.77 for fiscal 2023, compared with $10.71 for fiscal 2022. The $816 million of business optimization costs, net of related taxes, decreased diluted earnings per share by $1.28 and the $244 million investment gain, net of related taxes, increased diluted earnings per share by $0.38 for fiscal 2023. Excluding these impacts, diluted earnings per share were $11.67 for fiscal 2023.Our operating income and diluted earnings per share are affected by currency exchange rate fluctuations on revenues and costs. Most of our costs are incurred in the same currency as the related revenues. Where practical, we seek to manage foreign currency exposure for costs not incurred in the same currency as the related revenues, such as the costs associated with our global delivery model, by using currency protection provisions in our customer contracts and through our hedging programs. We seek to manage our costs, taking into consideration the residual positive and negative effects of changes in foreign exchange rates on those costs. For more information on our hedging programs, see Foreign Currency Risk under Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” and Note 9 (Financial Instruments) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”Non-GAAP Financial MeasuresFor fiscal 2023, we have presented effective tax rates and diluted earnings per share excluding the business optimization costs and investment gain, as well as operating income and operating margin excluding the business optimization costs, as we believe doing so facilitates understanding as to the impact of these items and our performance in comparison to the prior periods. While we believe that this non-GAAP financial information is useful in evaluating our operations, this information should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with GAAP. New BookingsFiscalPercent Increase (Decrease) U.S. DollarsPercent Increase (Decrease) Local Currency(in billions of U.S. dollars)20232022Consulting$36.2 $37.9 (4)%(1)%Managed Services (1)36.0 33.9 6 10 Total New Bookings$72.2 $71.7 1 %5 %Amounts in table may not total due to rounding.(1)Previously referred to as our outsourcing business.We provide information regarding our new bookings, which include new contracts, including those acquired through acquisitions, as well as renewals, extensions and changes to existing contracts, because we believe doing so provides useful trend information regarding changes in the volume of our new business over time. New bookings can vary significantly quarter to quarter depending in part on the timing of the signing of a small number of large managed services contracts. The types of services and solutions clients are demanding and the pace and level of their spending may impact the conversion of new bookings to revenues. For example, managed services bookings, which are typically for multi-year contracts, generally convert to revenue over a longer period of time compared to consulting bookings.Information regarding our new bookings is not comparable to, nor should it be substituted for, an analysis of our revenues over time. New bookings involve estimates and judgments. There are no third-party standards or requirements governing the calculation of bookings. We do not update our new bookings for material subsequent terminations or reductions related to bookings originally recorded in prior fiscal years. New bookings are recorded using then-existing foreign currency exchange rates and are not subsequently adjusted for foreign currency exchange rate fluctuations. Table of ContentsACCENTURE 2023 FORM 10-KItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations37The majority of our contracts are terminable by the client on short notice with little or no termination penalties, and some without notice. Only the non-cancelable portion of these contracts is included in our remaining performance obligations disclosed in Note 2 (Revenues) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.” Accordingly, a significant portion of what we consider contract bookings is not included in our remaining performance obligations.Critical Accounting Policies and Estimates The preparation of our Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses. We continually evaluate our estimates, judgments and assumptions based on available information and experience. Because the use of estimates is inherent in the financial reporting process, actual results could differ from those estimates. Certain of our accounting policies require higher degrees of judgment than others in their application. These include certain aspects of accounting for revenue recognition and income taxes. Revenue Recognition Determining the method and amount of revenue to recognize requires us to make judgments and estimates. Specifically, complex arrangements with nonstandard terms and conditions may require contract interpretation to determine the appropriate accounting, including whether promised goods and services specified in an arrangement are distinct performance obligations and should be accounted for separately. Other judgments include determining whether performance obligations are satisfied over time or at a point in time and the selection of the method to measure progress towards completion. We measure progress towards completion for technology integration consulting services and some non-technology consulting services using costs incurred to date relative to total estimated costs at completion. Revenues, including estimated fees, are recorded proportionally as costs are incurred. The amount of revenue recognized for these contracts in a period is dependent on our ability to estimate total contract costs. We continually evaluate our estimates of total contract costs based on available information and experience. Additionally, the nature of our contracts gives rise to several types of variable consideration, including incentive fees. Many contracts include incentives or penalties related to costs incurred, benefits produced or adherence to schedules that may increase the variability in revenues and margins earned on such contracts. We conduct reviews prior to signing such contracts to evaluate whether these incentives are reasonably achievable. Our estimates are monitored over the lives of our contracts and are based on an assessment of our anticipated performance, historical experience and other information available at the time. For additional information, see Note 2 (Revenues) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.” Income Taxes Determining the consolidated provision for income tax expense, income tax liabilities and deferred tax assets and liabilities involves judgment. Deferred tax assets and liabilities, measured using enacted tax rates, are recognized for the future tax consequences of temporary differences between the tax and financial statement bases of assets and liabilities. As a global company, we calculate and provide for income taxes in each of the tax jurisdictions in which we operate. This involves estimating current tax exposures in each jurisdiction as well as making judgments regarding the recoverability of deferred tax assets. Tax exposures can involve complex issues and may require an extended period to resolve. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized and adjust the valuation allowances accordingly. Factors considered in making this determination include the period of expiration of the tax asset, planned use of the tax asset, tax planning strategies and historical and projected taxable income as well as tax liabilities for the tax jurisdiction in which the tax asset is located. Valuation allowances will be subject to change in each future reporting period as a result of changes in one or more of these factors. Changes in the geographic mix or estimated level of annual income before taxes can affect the overall effective tax rate. We apply an estimated annual effective tax rate to our quarterly operating results to determine the interim provision for income tax expense. A change in judgment that impacts the measurement of a tax position taken in a prior year is recognized as a discrete item in the interim period in which the change occurs. In the event there is a significant unusual or infrequent item recognized in our quarterly operating results, the tax attributable to that item is recorded in the interim period in which it occurs. We release stranded tax effects from Accumulated other comprehensive loss using the specific identification approach for our defined benefit plans and the portfolio approach for other items. Table of ContentsACCENTURE 2023 FORM 10-KItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations38No taxes have been provided on undistributed foreign earnings that are planned to be indefinitely reinvested. If future events, including material changes in estimates of cash, working capital and long-term investment requirements, necessitate that these earnings be distributed, an additional provision for taxes may apply, which could materially affect our future effective tax rate. We currently do not foresee any event that would require us to distribute these indefinitely reinvested earnings. For additional information, see Note 11 (Income Taxes) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”As a matter of course, we are regularly audited by various taxing authorities, and sometimes these audits result in proposed assessments where the ultimate resolution may result in us owing additional taxes. We establish tax liabilities or reduce tax assets when, despite our belief that our tax return positions are appropriate and supportable under local tax law, we believe we may not succeed in realizing the tax benefit of certain positions if challenged. In evaluating a tax position, we determine whether it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Our estimate of the ultimate tax liability contains assumptions based on past experiences, judgments about potential actions by taxing jurisdictions as well as judgments about the likely outcome of issues that have been raised by taxing jurisdictions. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. We evaluate tax positions each quarter and adjust the related tax liabilities or assets in light of changing facts and circumstances, such as the progress of a tax audit or the expiration of a statute of limitations. We believe the estimates and assumptions used to support our evaluation of tax positions are reasonable. However, final determinations of prior-year tax liabilities, either by settlement with tax authorities or expiration of statutes of limitations, could be materially different from estimates reflected in assets and liabilities and historical income tax provisions. The outcome of these final determinations could have a material effect on our income tax provision, net income, or cash flows in the period in which that determination is made. We believe our tax positions comply with applicable tax law and that we have adequately accounted for these positions.Revenues by Segment/Geographic Market Our three reportable operating segments are our geographic markets, North America, Europe and Growth Markets. In addition to reporting revenues by geographic market and industry group, we also report revenues by two types of work: consulting and managed services, which represent the services sold by our geographic markets. Consulting revenues, which include strategy, management and technology consulting and technology integration consulting, reflect a finite, distinct project or set of projects with a defined outcome and typically a defined set of specific deliverables. Managed services revenues typically reflect ongoing, repeatable services or capabilities provided to transition, run and/or manage operations of client systems or business functions. From time to time, our geographic markets work together to sell and implement certain contracts. The resulting revenues and costs from these contracts may be apportioned among the participating geographic markets. Generally, operating expenses for each geographic market have similar characteristics and are subject to the same factors, pressures and challenges. However, the economic environment and its effects on the industries served by our geographic markets affect revenues and operating expenses within our geographic markets to differing degrees. The mix between consulting and managed services is not uniform among our geographic markets. Local currency fluctuations also tend to affect our geographic markets differently, depending on the geographic concentrations and locations of their businesses. While we provide discussion about our results of operations below, we cannot measure how much of our revenue growth in a particular period is attributable to changes in price or volume. Management does not track standard measures of unit or rate volume. Instead, our measures of volume and price are extremely complex, as each of our services contracts is unique, reflecting a customized mix of specific services that does not fit into standard comparability measurements. Revenue for our services is a function of the nature of each service to be provided, the skills required and the outcome sought, as well as estimated cost, risk, contract terms and other factors. Table of ContentsACCENTURE 2023 FORM 10-KItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations39Results of Operations for Fiscal 2023 Compared to Fiscal 2022 Revenues by geographic market, industry group and type of work are as follows: FiscalPercentIncrease (Decrease)U.S. DollarsPercentIncrease (Decrease)LocalCurrencyPercent of TotalRevenues for Fiscal(in millions of U.S. dollars)2023202220232022Geographic Markets (1)North America$30,296 $29,121 4 %4 %47 %47 %Europe21,285 20,264 5 11 33 33 Growth Markets12,531 12,209 3 12 20 20 Total Revenues$64,112 $61,594 4 %8 %100 %100 %Industry GroupsCommunications, Media & Technology$11,453 $12,200 (6)%(3)%18 %20 %Financial Services12,132 11,811 3 7 19 19 Health & Public Service12,560 11,226 12 14 20 18 Products19,104 18,275 5 9 30 30 Resources8,863 8,082 10 15 14 13 Total Revenues$64,112 $61,594 4 %8 %100 %100 %Type of WorkConsulting$33,613 $34,076 (1)%3 %52 %55 %Managed Services (2)30,499 27,518 11 14 48 45 Total Revenues$64,112 $61,594 4 %8 %100 %100 %Amounts in table may not total due to rounding.(1)In the first quarter of fiscal 2024, our Middle East and Africa market units will move from Growth Markets to Europe, and the Europe market will be referred to as our Europe, Middle East and Africa (EMEA) geographic market.(2)Previously referred to as our outsourcing business.Revenues The following revenues commentary discusses local currency revenue changes for fiscal 2023 compared to fiscal 2022: Geographic Markets •North America revenues increased 4% in local currency, led by growth in Public Service for our U.S. federal business, Health and Utilities. These increases were partially offset by declines in Communications & Media, High Tech, Banking & Capital Markets and Software & Platforms. Revenue growth was driven by the United States.•Europe revenues increased 11% in local currency, led by growth in Industrial, Banking & Capital Markets and Public Service. Revenue growth was driven by Germany, Italy and France.•Growth Markets revenues increased 12% in local currency, led by growth in Chemicals & Natural Resources, Public Service and Banking & Capital Markets. Revenue growth was driven by Japan.Operating Expenses Operating expenses for fiscal 2023 increased $3,075 million, or 6%, over fiscal 2022, and increased as a percentage of revenues to 86.3% compared to 84.8% during this period. The increase as a percentage of revenues is primarily due to business optimization costs of $1,063 million recorded during fiscal 2023.Table of ContentsACCENTURE 2023 FORM 10-KItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations40Operating expenses by category are as follows:Fiscal(in millions of U.S. dollars)20232022Increase (Decrease)Operating Expenses$55,302 86.3 %$52,227 84.8 %$3,075 Cost of services43,380 67.7 41,893 68.0 1,487 Sales and marketing6,583 10.3 6,108 9.9 474 General and administrative costs4,276 6.7 4,226 6.9 50 Business optimization costs1,063 1.7 — — 1,063 Amounts in table may not total due to rounding.Cost of Services Cost of services for fiscal 2023 increased $1,487 million, or 4%, over fiscal 2022, and decreased as a percentage of revenues to 67.7% from 68.0% during this period. Gross margin for fiscal 2023 increased to 32.3% compared to 32.0% in fiscal 2022. The increase in gross margin for fiscal 2023 was primarily due to lower labor costs, including lower subcontractor costs, partially offset by higher non-payroll costs, primarily for travel compared to fiscal 2022.Sales and MarketingSales and marketing expense for fiscal 2023 increased $474 million, or 8%, over fiscal 2022, and increased as a percentage of revenues to 10.3% over 9.9% during this period due to higher selling and other business development costs as a percentage of revenues.General and Administrative Costs General and administrative costs for fiscal 2023 increased $50 million, or 1%, over fiscal 2022, and decreased as a percentage of revenues to 6.7% from 6.9% during this period.Business Optimization CostsDuring fiscal 2023, we recorded business optimization costs of $1,063 million, primarily for employee severance. For additional information, see Note 1 (Summary of Significant Accounting Policies) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”Operating Income and Operating Margin Operating income for fiscal 2023 decreased $557 million, or 6%, from fiscal 2022. Operating margin for fiscal 2023 was 13.7%, compared with 15.2% for fiscal 2022. The business optimization costs reduced operating margin by 170 basis points. Excluding these costs, operating margin for fiscal 2023 increased 20 basis points to 15.4%.Operating income and operating margin for each of the geographic markets are as follows: Fiscal 20232022(in millions of U.S. dollars)OperatingIncomeOperatingMarginOperatingIncomeOperatingMarginIncrease (Decrease)North America$4,474 15 %$4,977 17 %$(503)Europe2,333 11 2,437 12 (105)Growth Markets2,004 16 1,953 16 51 Total$8,810 13.7 %$9,367 15.2 %$(557)Amounts in table may not total due to rounding.Table of ContentsACCENTURE 2023 FORM 10-KItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations41Operating Income and Operating Margin Excluding Business Optimization Costs (Non-GAAP)Fiscal 20232022(in millions of U.S. dollars)OperatingIncome (GAAP)BusinessOptimization (1)OperatingIncome (Non-GAAP)OperatingMargin (Non-GAAP)OperatingIncome (GAAP)OperatingMargin (GAAP)Increase(Decrease)North America$4,474 $465 $4,939 16 %$4,977 17 %$(38)Europe2,333 433 2,766 13 2,437 12 328 Growth Markets2,004 165 2,169 17 1,953 16 216 Total$8,810 $1,063 $9,873 15.4 %$9,367 15.2 %$506 Amounts in table may not total due to rounding.(1)Costs recorded in connection with our business optimization initiatives, primarily for employee severance.We estimate that the aggregate percentage impact of foreign currency exchange rates on our operating income during fiscal 2023 was similar to that disclosed for revenue for each geographic market. In addition, during fiscal 2023 each geographic market’s operating income was unfavorably impacted by business optimization costs. The commentary below provides insight into other factors affecting geographic market performance and operating income, including the impact of foreign currency exchange rates where significant for fiscal 2023 compared with fiscal 2022: •North America operating income decreased as revenue growth was more than offset by higher labor costs, including an increase in selling and other business development costs as a percentage of revenues.•Europe operating income increased due to revenue growth in local currency, partially offset by the negative impact of foreign currency exchange rates.•Growth Markets operating income increased primarily due to higher contract profitability and revenue growth in local currency, partially offset by the negative impact of foreign currency exchange rates.Interest IncomeInterest income for fiscal 2023 was $280 million, an increase of $235 million over fiscal 2022. The increase was primarily due to higher interest rates.Other Income (Expense), netOther income (expense), net primarily consists of foreign currency gains and losses, non-operating components of pension expense, as well as gains and losses associated with our investments. During fiscal 2023, Other income (expense) increased $169 million over fiscal 2022, primarily due to higher gains on investments, partially offset by foreign currency exchange losses. For additional information on investments, see Note 1 (Summary of Significant Accounting Policies) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”Loss on Disposition of Russia BusinessWe recorded a loss from the disposal of our business in Russia of $96 million during fiscal 2022.Income Tax Expense The effective tax rate for fiscal 2023 was 23.4%, compared with 24.0% for fiscal 2022. Absent the business optimization costs of $1,063 million and related reduction in tax expense of $247 million, and the investment gain of $253 million and related tax expense of $9 million, our effective tax rate for fiscal 2023 was 23.9%.The slightly lower effective tax rate for fiscal 2023 was primarily due to lower tax expense from the geographic distribution of earnings, partially offset by lower tax benefits from share-based payments. For additional information, see Note 11 (Income Taxes) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.” Net Income Attributable to Noncontrolling InterestsNet income attributable to noncontrolling interests reflects the income earned or expense incurred attributable to the equity interest that some current and former members of Accenture Leadership and their permitted transferees have in our Accenture Canada Holdings Inc. subsidiary. See “Business—Organizational Structure.” Noncontrolling interests also includes amounts primarily attributable to noncontrolling shareholders in our Avanade Inc. subsidiary. Net income attributable to Accenture plc represents the income attributable to the shareholders of Accenture plc. Table of ContentsACCENTURE 2023 FORM 10-KItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations42Earnings Per Share Diluted earnings per share were $10.77 for fiscal 2023, compared with $10.71 for fiscal 2022. The $816 million of business optimization costs, net of related taxes, decreased diluted earnings per share by $1.28 and the $244 million investment gain, net of related taxes, increased diluted earnings per share by $0.38 for fiscal 2023. Excluding these impacts, diluted earnings per share were $11.67 for fiscal 2023. For information regarding our earnings per share calculations, see Note 3 (Earnings Per Share) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.” The increase in diluted earnings per share is due to the following factors:Earnings Per ShareFiscal 2023FY22 As Reported$10.71 Higher revenue and operating results0.60 Higher non-operating income (excluding loss on disposition of Russia business)0.18 Loss on disposition of Russia business recorded in fiscal 20220.15 Lower share count0.08 Higher effective tax rate (excluding loss on disposition of Russia business)(0.02)Higher net income attributable to noncontrolling interests(0.03)FY23 As Adjusted$11.67 Gain on an investment, net of tax0.38 Business optimization costs(1.28)FY23 As Reported$10.77 Results of Operations for Fiscal 2022 Compared to Fiscal 2021Our Annual Report on Form 10-K for the fiscal year ended August 31, 2022 includes a discussion and analysis of our financial condition and results of operations for the year ended August 31, 2021 in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”Table of ContentsACCENTURE 2023 FORM 10-KItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations43Liquidity and Capital Resources Our primary sources of liquidity are cash flows from operations, available cash reserves and debt capacity available under various credit facilities. We could raise additional funds through other public or private debt or equity financings. We may use our available or additional funds to, among other things:•facilitate purchases, redemptions and exchanges of shares and pay dividends;•acquire complementary businesses or technologies;•take advantage of opportunities, including more rapid expansion; or•develop new services and solutions.As of August 31, 2023, Cash and cash equivalents were $9.0 billion, compared with $7.9 billion as of August 31, 2022. Cash flows from operating, investing and financing activities, as reflected in our Consolidated Cash Flows Statements, are summarized in the following table: FiscalChange(in millions of U.S. dollars)20232022Net cash provided by (used in):Operating activities$9,524 $9,541 $(17)Investing activities(2,622)(4,261)1,638 Financing activities(5,645)(5,311)(334)Effect of exchange rate changes on cash and cash equivalents(101)(248)147 Net increase (decrease) in cash and cash equivalents$1,155 $(278)$1,434 Amounts in table may not total due to rounding.Operating activities: The $17 million decrease in operating cash flows were primarily due to higher spending on certain compensation payments, partially offset by higher collections on net client balances (receivables from clients, contract assets and deferred revenues). Investing activities: The $1,638 million decrease in cash used was primarily due to lower spending on business acquisitions and higher proceeds from the sale of businesses and investments. For additional information, see Note 6 (Business Combinations and Dispositions) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”Financing activities: The $334 million increase in cash used was primarily due to an increase in cash dividends paid as well as an increase in the net purchase of shares, partially offset by increases in net proceeds from share issuances and net proceeds from borrowings. For additional information, see Note 14 (Shareholders’ Equity) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”We believe that our current and longer-term working capital, investments and other general corporate funding requirements will be satisfied for the next twelve months and thereafter through cash flows from operations and, to the extent necessary, from our borrowing facilities and future financial market activities.Substantially all of our cash is held in jurisdictions where there are no regulatory restrictions or material tax effects on the free flow of funds. In addition, domestic cash inflows for our Irish parent, principally dividend distributions from lower-tier subsidiaries, have been sufficient to meet our historic cash requirements, and we expect this to continue into the future.Share Purchases and Redemptions We intend to continue to use a significant portion of cash generated from operations for share repurchases during fiscal 2024. The number of shares ultimately repurchased under our open-market share purchase program may vary depending on numerous factors, including, without limitation, share price and other market conditions, our ongoing capital allocation planning, the levels of cash and debt balances, other demands for cash, such as acquisition activity, general economic and/or business conditions, and board and management discretion. Additionally, as these factors may change over the course of the year, the amount of share repurchase activity during any particular period cannot be predicted and may fluctuate from time to time. Share repurchases may be made from time to time through open-market purchases, in respect of purchases and redemptions of Accenture Canada Holdings Inc. exchangeable shares, through the use of Rule 10b5-1 plans and/or by other means. The repurchase program may be accelerated, suspended, delayed or discontinued at any time, without notice. For additional information, see Note 14 (Shareholders’ Equity) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.” Table of ContentsACCENTURE 2023 FORM 10-KItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations44Subsequent EventsSee Note 14 (Shareholders’ Equity) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.” Obligations and CommitmentsAs of August 31, 2023, we had commitments of $3.7 billion related to cloud hosting arrangements, software subscriptions, information technology services and other obligations in the ordinary course of business that we cannot cancel or where we would be required to pay a termination fee in the event of cancellation. Payments under these commitments are estimated to be made as follows:(in millions of U.S. dollars)Payments (1)Less than 1 year$973 1-3 years1,382 3-5 years1,186 More than 5 years137 Total$3,678 (1)Amounts do not include recourse that we may have to recover termination fees or penalties from clients. For information about borrowing facilities and leases, see Note 10 (Borrowings and Indebtedness) and Note 8 (Leases) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.” Off-Balance Sheet Arrangements In the normal course of business and in conjunction with some client engagements, we have entered into contractual arrangements through which we may be obligated to indemnify clients with respect to certain matters. To date, we have not been required to make any significant payment under any of these arrangements. For further discussion of these transactions, see Note 15 (Commitments and Contingencies) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.” Table of ContentsACCENTURE 2023 FORM 10-KItem 7A. Quantitative and Qualitative Disclosures About Market Risk45Item 7A. Quantitative and Qualitative Disclosures About Market Risk All of our market risk sensitive instruments were entered into for purposes other than trading. Foreign Currency Risk We are exposed to foreign currency risk in the ordinary course of business. We hedge material cash flow exposures when feasible using forward contracts. These instruments are subject to fluctuations in foreign currency exchange rates and credit risk. Credit risk is managed through careful selection and ongoing evaluation of the financial institutions utilized as counterparties. Certain of these hedge positions are undesignated hedges of balance sheet exposures such as intercompany loans and typically have maturities of less than one year. These hedges, the most significant of which are U.S. dollar/Indian rupee, U.S. dollar/Japanese yen, U.S. dollar/Euro, U.S. dollar/Swiss franc, U.S. dollar/Australian dollar, U.S. dollar/Chinese yuan, U.S. dollar/U.K. pound and U.S. dollar/Philippine peso, are intended to offset remeasurement of the underlying assets and liabilities. Changes in the fair value of these derivatives are recorded in Other income (expense), net in the Consolidated Income Statements. Additionally, we have hedge positions that are designated cash flow hedges of certain intercompany charges relating to our global delivery model. These hedges, the most significant of which are U.S. dollar/Indian rupee, U.S. dollar/Philippine peso, Euro/Indian rupee and U.K. pound/Indian rupee, typically have maturities not exceeding three years and are intended to partially offset the impact of foreign currency movements on future costs relating to our global delivery resources. For additional information, see Note 9 (Financial Instruments) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.” For designated cash flow hedges, gains and losses currently recorded in Accumulated other comprehensive loss are expected to be reclassified into earnings at the time when certain anticipated intercompany charges are accrued as Cost of services. As of August 31, 2023, it was anticipated that approximately $3 million of net gains, net of tax, currently recorded in Accumulated other comprehensive loss will be reclassified into Cost of services within the next 12 months. We use sensitivity analysis to determine the effects that market foreign currency exchange rate fluctuations may have on the fair value of our hedge portfolio. The sensitivity of the hedge portfolio is computed based on the market value of future cash flows as affected by changes in exchange rates. This sensitivity analysis represents the hypothetical changes in value of the hedge position and does not reflect the offsetting gain or loss on the underlying exposure. A 10% change in the levels of foreign currency exchange rates against the U.S. dollar (or other base currency of the hedge if not a U.S. dollar hedge) with all other variables held constant would have resulted in a change in the fair value of our hedge instruments of approximately $856 million and $693 million as of August 31, 2023 and 2022, respectively.Interest Rate Risk The interest rate risk associated with our borrowing and investing activities as of August 31, 2023 is not material in relation to our consolidated financial position, results of operations or cash flows. While we may do so in the future, we have not used derivative financial instruments to alter the interest rate characteristics of our investment holdings or debt instruments. Equity Investment RiskOur non-marketable and marketable equity securities are subject to a wide variety of market-related risks that could substantially reduce or increase the fair value of our investments.Our non-marketable equity securities are investments in privately held companies which are often in a start-up or development stage, which is inherently risky. The technologies or products these companies have under development are typically in the early stages and may never materialize, which could result in a loss of a substantial part of our investment in these companies. The evaluations of privately held companies are based on information that we request from these companies, which is not subject to the same disclosure regulations as U.S. publicly traded companies, and as such, the basis for these evaluations is subject to the timing and accuracy of the data received from these companies. We have minimal exposure on our long-term investments in privately held companies as these investments were not material in relation to our consolidated financial position, results of operations or cash flows as of August 31, 2023. Table of ContentsACCENTURE 2023 FORM 10-KItem 7A. Quantitative and Qualitative Disclosures About Market Risk46We record our marketable equity securities not accounted for under the equity method at fair value based on readily determinable market values.The carrying values of our investments accounted for under the equity method generally do not fluctuate based on market price changes; however, these investments could be impaired if the carrying value exceeds the fair value.

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