GLOBALFOUNDRIES(GFS) - 2024 Q1 - Quarterly Report

Interim Condensed Consolidated Statements of Financial Position This section presents the company's financial position, including assets, liabilities, and equity, as of March 31, 2024, and December 31, 2023 Financial Position Overview As of March 31, 2024, GLOBALFOUNDRIES Inc. reported total assets of $18,454 million, an increase from $18,044 million, with total liabilities rising to $7,157 million and total equity increasing to $11,297 million Financial Position Summary (in millions) | Metric | March 31, 2024 (in millions) | December 31, 2023 (in millions) | Change (in millions) | % Change | | :-------------------------------- | :----------------------------- | :------------------------------ | :------------------- | :------- | | ASSETS | | | | | | Total current assets | 6,214 | 6,327 | (113) | -1.79% | | Total non-current assets | 12,240 | 11,717 | 523 | 4.46% | | Total assets | 18,454 | 18,044 | 410 | 2.27% | | LIABILITIES | | | | | | Total current liabilities | 2,854 | 3,099 | (245) | -7.91% | | Total non-current liabilities | 4,303 | 3,794 | 509 | 13.42% | | Total liabilities | 7,157 | 6,893 | 264 | 3.83% | | EQUITY | | | | | | Total equity | 11,297 | 11,151 | 146 | 1.31% | - Non-current assets increased by $523 million, primarily driven by an increase in Property, plant and equipment, net ($10,304 million from $10,164 million) and marketable securities ($807 million from $468 million)[4] - Non-current liabilities significantly increased by $509 million, mainly due to a rise in the non-current portion of lease obligations ($744 million from $350 million) and other non-current liabilities ($1,330 million from $1,190 million)[4] Interim Condensed Consolidated Statements of Operations This section details the company's revenues, expenses, and net income for the three months ended March 31, 2024, compared to the prior year period Operations Performance For the three months ended March 31, 2024, GLOBALFOUNDRIES Inc. reported a decrease in net revenue to $1,549 million, leading to significant reductions in gross profit, operating income, net income, and diluted EPS Operations Performance Summary (in millions) | Metric | Three Months Ended March 31, 2024 (in millions) | Three Months Ended March 31, 2023 (in millions) | Change (in millions) | % Change | | :---------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :------------------- | :------- | | Net revenue | 1,549 | 1,841 | (292) | -15.86% | | Cost of revenue | 1,156 | 1,326 | (170) | -12.82% | | Gross profit | 393 | 515 | (122) | -23.69% | | Research and development expense | 124 | 109 | 15 | 13.76% | | Selling, general and administrative expense | 122 | 111 | 11 | 9.91% | | Operating expense | 246 | 225 | 21 | 9.33% | | Income from operations | 147 | 290 | (143) | -49.31% | | Net income for the period | 134 | 254 | (120) | -47.24% | | Basic earnings per share | 0.24 | 0.46 | (0.22) | -47.83% | | Diluted earnings per share | 0.24 | 0.46 | (0.22) | -47.83% | - Net revenue decreased by 15.86% year-over-year, primarily impacting gross profit and subsequent profitability metrics[7] - Operating expenses increased by 9.33%, driven by higher research and development and selling, general and administrative expenses, further contributing to the decline in operating income[7] Interim Condensed Consolidated Statements of Comprehensive Income This section outlines the company's net income and other comprehensive income components, leading to total comprehensive income for the three months ended March 31, 2024 Comprehensive Income Analysis For the three months ended March 31, 2024, net income decreased to $134 million, and a $28 million other comprehensive loss resulted in total comprehensive income of $106 million, down from $262 million Comprehensive Income Summary (in millions) | Metric | Three Months Ended March 31, 2024 (in millions) | Three Months Ended March 31, 2023 (in millions) | Change (in millions) | | :------------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | :------------------- | | Net income for the period | 134 | 254 | (120) | | Other comprehensive income (loss), net of tax: | | | | | Share of foreign exchange fluctuation reserve of joint ventures | (6) | 2 | (8) | | Effective portion of changes in the fair value of cash flow hedges | (22) | 3 | (25) | | Fair value on investments measured at fair value through other comprehensive income | — | 3 | (3) | | Total other comprehensive income (loss) for the period | (28) | 8 | (36) | | Total comprehensive income for the period | 106 | 262 | (156) | - The significant decline in total comprehensive income was driven by both lower net income and a negative shift in other comprehensive income components, particularly from cash flow hedges[9] Interim Condensed Consolidated Statements of Changes in Equity This section details the movements in the company's equity balances, including net income, share-based compensation, and other comprehensive income, for the period Equity Changes Analysis As of March 31, 2024, total equity increased to $11,297 million, driven by net income and share-based compensation, partially offset by other comprehensive loss and stock option exercises Equity Changes Summary (in millions) | Metric | December 31, 2023 (in millions) | March 31, 2024 (in millions) | Change (in millions) | | :---------------------------------- | :------------------------------ | :--------------------------- | :------------------- | | Total Equity | 11,151 | 11,297 | 146 | | Key Drivers of Change (Q1 2024): | | | | | Net income | — | 134 | 134 | | Share-based compensation | — | 42 | 42 | | Proceeds from issuance of equity instruments | — | 23 | 23 | | Exercise of stock options | — | (25) | (25) | | Other comprehensive income (loss) | — | (28) | (28) | - The accumulated deficit improved from $(13,001) million to $(12,868) million, reflecting the net income generated during the period[11] - Additional paid-in capital increased by $40 million, mainly due to proceeds from equity instrument issuance and share-based compensation, partially offset by stock option exercises[11] Interim Condensed Consolidated Statements of Cash Flows This section analyzes the company's cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2024 Cash Flow Analysis For the three months ended March 31, 2024, net cash from operations increased slightly, but higher cash usage in investing and financing activities led to an overall net decrease in cash and cash equivalents of $140 million Cash Flow Summary (in millions) | Cash Flow Activity | Three Months Ended March 31, 2024 (in millions) | Three Months Ended March 31, 2023 (in millions) | Change (in millions) | | :---------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :------------------- | | Net cash provided by operating activities | 488 | 479 | 9 | | Net cash used in investing activities | (600) | (586) | (14) | | Net cash (used in) provided by financing activities | (27) | 10 | (37) | | Effect of exchange rate changes on cash and cash equivalents | (1) | 1 | (2) | | Net decrease in cash and cash equivalents | (140) | (96) | (44) | | Cash and cash equivalents at the end of the period | 2,247 | 2,256 | (9) | - The increase in cash used in investing activities was primarily due to higher purchases of marketable securities ($697 million in 2024 vs. $187 million in 2023), despite a significant reduction in purchases of property, plant and equipment ($196 million in 2024 vs. $805 million in 2023)[13] - Financing activities shifted from providing $10 million in cash in 2023 to using $27 million in 2024, mainly due to lower net proceeds from borrowings and higher repayments of debt and lease obligations[13] Notes to Interim Condensed Consolidated Financial Statements This section provides detailed disclosures and explanations for the significant accounts and transactions presented in the interim financial statements Note 1. Corporate Information GLOBALFOUNDRIES Inc. is a Cayman Islands exempted company and a leading semiconductor foundry, offering a full range of mainstream wafer fabrication services and technologies for various semiconductor devices - GLOBALFOUNDRIES Inc. is incorporated under the laws of the Cayman Islands[15] - The Company is a leading semiconductor foundry providing mainstream wafer fabrication services and technologies[16] - It manufactures a broad range of semiconductor devices including microprocessors, mobile application processors, and power management units[16] Note 2. Basis of Presentation, Summary of Material Accounting Policies and Critical Judgements, Estimates and Assumptions The interim consolidated financial statements are unaudited and prepared in accordance with IAS 34, Interim Financial Reporting, consistent with the accounting policies disclosed in the Company's Annual Report on Form 20-F for the year ended December 31, 2023 - Interim consolidated financial statements are unaudited and prepared in accordance with IAS 34, Interim Financial Reporting[17][18] - These statements should be read in conjunction with the Annual Report on Form 20-F for the year ended December 31, 2023[17] - Material accounting policies and critical judgments, estimates, and assumptions are consistent with those in the annual audited consolidated financial statements[20] Note 3. Net Revenue Net revenue for the three months ended March 31, 2024, decreased to $1,549 million, with wafer fabrication revenue declining while engineering and other pre-fabrication services revenue increased Net Revenue by Source (in millions) | Revenue Source | Three Months Ended March 31, 2024 (in millions) | Three Months Ended March 31, 2023 (in millions) | Change (in millions) | % Change | | :---------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :------------------- | :------- | | Wafer fabrication | 1,375 | 1,680 | (305) | -18.15% | | Engineering and other pre-fabrication services | 174 | 161 | 13 | 8.07% | | Total Net Revenue | 1,549 | 1,841 | (292) | -15.86% | | Timing of Revenue Recognition: | | | | | | Revenue recognized over time | 131 | 107 | 24 | 22.43% | | Revenue recognized at a point in time | 1,418 | 1,734 | (316) | -18.22% | - Beginning in 2024, access fees and other have been reclassified from wafer fabrication to engineering and other pre-fabrication services[23] Note 4. Income taxes The Company's effective tax rate increased to 13.5% for the three months ended March 31, 2024, primarily due to the U.S. corporate alternative minimum tax and an increase in permanent differences Effective Tax Rate | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------- | :-------------------------------- | :-------------------------------- | | Effective tax rate | 13.5% | 8.3% | - The increase in the effective tax rate was primarily due to higher income tax expense related to the U.S. corporate alternative minimum tax and an increase in permanent differences[25] - The Company's domestic statutory income tax rate as a Cayman Islands corporation is 0.0%[24] Note 5. Earnings Per Share Basic and diluted earnings per share (EPS) for the three months ended March 31, 2024, were $0.24, a decrease from $0.46 in the prior year, reflecting the lower net income attributable to equity shareholders Earnings Per Share Data | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net income attributable to equity shareholders (in millions) | 133 | 254 | | Basic weighted average common shares outstanding (in millions) | 555 | 550 | | Diluted weighted average common shares outstanding (in millions) | 558 | 555 | | Basic earnings per share | $0.24 | $0.46 | | Diluted earnings per share | $0.24 | $0.46 | - The decrease in EPS is directly correlated with the 47.6% reduction in net income attributable to equity shareholders[29] Note 6. Property, Plant and Equipment As of March 31, 2024, the net book value of property, plant and equipment was $10,304 million, with depreciation expense increasing to $361 million for the period Property, Plant and Equipment Net Book Value (in millions) | Metric | As of March 31, 2024 (in millions) | As of December 31, 2023 (in millions) | | :-------------------------------- | :--------------------------------- | :---------------------------------- | | Total Cost | 35,163 | 34,960 | | Accumulated Depreciation and Impairment | 24,859 | 24,796 | | Net book value | 10,304 | 10,164 | Depreciation Expense (in millions) | Metric | Three Months Ended March 31, 2024 (in millions) | Three Months Ended March 31, 2023 (in millions) | | :------------------ | :---------------------------------------------- | :---------------------------------------------- | | Depreciation expense | 361 | 312 | - Additions to property, plant and equipment totaled $505 million during the period, with transfers from construction in progress amounting to $0 million[32] Note 7. Restructuring The Company incurred no restructuring costs for the three months ended March 31, 2024, and the restructuring provision balance decreased to $11 million due to payments Restructuring Costs (in millions) | Metric | Three Months Ended March 31, 2024 (in millions) | Three Months Ended March 31, 2023 (in millions) | | :------------------ | :---------------------------------------------- | :---------------------------------------------- | | Restructuring costs | — | 5 | Restructuring Provision Activity (in millions) | Restructuring Provision Activity | Amount (in millions) | | :------------------------------- | :------------------- | | Beginning balance as of December 31, 2023 | 31 | | Amounts paid | (20) | | Ending balance as of March 31, 2024 | 11 | Note 8. Receivables, Prepayments and Other Assets Total current receivables, prepayments, and other assets decreased to $1,190 million as of March 31, 2024, primarily due to a reduction in trade receivables, while non-current receivables remained stable Receivables, Prepayments and Other Assets (in millions) | Category | March 31, 2024 (in millions) | December 31, 2023 (in millions) | | :-------------------------------- | :----------------------------- | :------------------------------ | | Current: | | | | Trade receivables, other than related parties | 721 | 1,002 | | Other receivables | 333 | 255 | | Unbilled accounts receivable | 39 | 33 | | Receivables from government grants | 66 | 66 | | Receivables from related parties | 7 | 12 | | Other current financial assets | 24 | 52 | | Total Current | 1,190 | 1,420 | | Non-current: | | | | Advances to suppliers | 206 | 213 | | Receivables from government grant | 77 | 106 | | Other | 65 | 24 | | Total Non-current | 348 | 343 | - Trade receivables, other than related parties, saw a significant decrease of $281 million[36] - Unbilled accounts receivable increased from $33 million to $39 million during the period[36] Note 9. Inventories Total inventories increased to $1,667 million as of March 31, 2024, from $1,487 million at December 31, 2023, driven by an increase in work in progress and raw materials and supplies Inventory Components (in millions) | Inventory Component | March 31, 2024 (in millions) | December 31, 2023 (in millions) | | :-------------------- | :----------------------------- | :------------------------------ | | Work in progress | 1,062 | 928 | | Raw materials and supplies | 605 | 559 | | Total Inventories | 1,667 | 1,487 | - Work in progress increased by $134 million, and raw materials and supplies increased by $46 million[37] Note 10. Long Term Debt Total long-term debt decreased to $2,308 million as of March 31, 2024, with $1,065 million in unutilized credit facilities available to support liquidity Long-Term Debt (in millions) | Debt Category | March 31, 2024 (in millions) | December 31, 2023 (in millions) | | :-------------------------- | :----------------------------- | :------------------------------ | | Current portion of long-term debt | 542 | 571 | | Non-current portion of long-term debt | 1,766 | 1,801 | | Total Long-Term Debt | 2,308 | 2,372 | Unutilized Credit Facilities (in millions) | Unutilized Credit Facilities | March 31, 2024 (in millions) | December 31, 2023 (in millions) | | :--------------------------- | :----------------------------- | :------------------------------ | | Revolving Credit Facility | 1,012 | 1,012 | | Uncommitted Credit Facilities | 53 | 46 | | Total Unutilized Credit Facilities | 1,065 | 1,058 | - The 2019 Tool Equipment Purchase and Lease Financing matured in 2024, reducing current debt[39] Note 11. Related Party Disclosures Balances due from related parties decreased to $7 million as of March 31, 2024, while purchases from Silicon Manufacturing Partners Pte Ltd. (SMP) increased to $14 million Related Party Balances (in millions) | Related Party Balances | March 31, 2024 (in millions) | December 31, 2023 (in millions) | | :----------------------- | :----------------------------- | :------------------------------ | | Due from related parties | 7 | 12 | | Due to related parties | 8 | 10 | Related Party Transactions (in millions) | Related Party Transactions | Three Months Ended March 31, 2024 (in millions) | Three Months Ended March 31, 2023 (in millions) | | :------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Purchases from SMP | 14 | 10 | | Other transactions with SMP | 1 | 13 | - Related party balances and transactions primarily relate to Silicon Manufacturing Partners Pte Ltd. (SMP), a joint venture where the Company holds a 49% interest[43] Note 12. Commitments and Contingencies Total future payments under purchase and licensing agreements decreased to $650 million, and the Company is vigorously defending against a $2.5 billion lawsuit from IBM Commitments and Guarantees (in millions) | Commitments | March 31, 2024 (in millions) | December 31, 2023 (in millions) | | :------------------------------------------------ | :----------------------------- | :------------------------------ | | Total future payments under purchase agreements | 650 | 1,100 | | Unconditional purchase commitments due within 12 months | 299 | N/A | | Letters of credit | 23 | 23 | | Drawn down bank guarantees | 58 | 54 | - IBM filed a lawsuit claiming $2.5 billion in damages and restitution, alleging fraudulent misrepresentations during the acquisition of IBM's Microelectronics division in 2014 and 2015[49] - The Company believes it has meritorious defenses against IBM's claims and intends to vigorously defend against them, with discovery and dispositive motion practice completed and awaiting a trial date[49] Note 13. Fair Value Measurements The Company measures financial instruments at fair value using a three-level hierarchy, with marketable securities increasing to $1,917 million and $646 million transferred from Level 1 to Level 2 Assets and Liabilities Measured at Fair Value (in millions) | Asset/Liability | March 31, 2024 (in millions) | December 31, 2023 (in millions) | | :-------------------------------- | :----------------------------- | :------------------------------ | | Assets Measured at Fair Value: | | | | Cash equivalents | 1,509 | 1,897 | | Investments in equity instruments | 19 | 19 | | Derivatives | 76 | 132 | | Investments in marketable securities | 1,917 | 1,501 | | Liabilities Measured at Fair Value: | | | | Derivatives | 65 | 56 | - During Q1 2024, FVOCI corporate debt securities with carrying amounts of $646 million were transferred from Level 1 to Level 2 due to reassessment of market activity[54] Financial Liabilities Not Measured at Recurring Fair Value (in millions) | Financial Liabilities (Not Recurring Fair Value) | March 31, 2024 (in millions) | December 31, 2023 (in millions) | | :----------------------------------------------- | :----------------------------- | :------------------------------ | | Other long-term debt (Carrying Amount) | 2,308 | 2,372 | | Other long-term debt (Fair Value) | 2,226 | 2,319 | Note 14. Share-Based Compensation The Company recognizes share-based compensation expense based on fair value, estimated using the Black-Scholes model for options and Monte Carlo simulation for performance share units, and offers an Employee Stock Purchase Plan - Compensation expense for share-based transactions is measured and recognized based on fair value[60] - The Black-Scholes option pricing model is used for options, and the Monte Carlo simulation model for performance share units[60] - The Employee Stock Purchase Plan allows eligible employees to purchase ordinary shares with a 20% company match on contributions[61]