UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549Form 10-Q_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 30,2024OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _ to _Commission file number 1-8974Honeywell International Inc.(Exact name of registrant as specified in its charter)Delaware22-2640650(State or other jurisdiction of incorporation or organization)(I.R.S.Employer Identification No.)855 South Mint Street28202Charlotte,North Carolina(Address of principal executive offices)(Zip Code)(704)627-6200(Registrants telephone number,including area code)Securities registered pursuant to Section 12(b)of the Act:Title of each classTrading Symbol(s)Name of each exchange on which registeredCommon Stock,par value$1 per shareHONThe Nasdaq Stock Market LLC3.500%Senior Notes due 2027HON 27The Nasdaq Stock Market LLC2.250%Senior Notes due 2028HON 28AThe Nasdaq Stock Market LLC3.375%Senior Notes due 2030HON 30The Nasdaq Stock Market LLC0.750%Senior Notes due 2032HON 32The Nasdaq Stock Market LLC3.750%Senior Notes due 2032HON 32AThe Nasdaq Stock Market LLC4.125%Senior Notes due 2034HON 34The Nasdaq Stock Market LLC3.750%Senior Notes due 2036HON 36The Nasdaq Stock Market LLCIndicate by check mark whether the Registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12months(or for such shorter period that the Registrant was required to file such reports),and(2)has been subject to such filing requirements for the past 90 days.Yes No Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the Registrant was required to submit such files).Yes No Indicate by check mark whether the Registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company,or an emerging growthcompany.See definitions of“large accelerated filer,”“accelerated filer,”“smaller reporting company,”and“emerging growth company”in Rule 12b-2 of the Exchange Act.Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting company Emerging growth companyIf an emerging growth company,indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the Registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act).Yes No There were 649,671,200 shares of Common Stock outstanding at June 30,2024.TABLE OF CONTENTSCautionary Statement about Forward-Looking Statements1About Honeywell2PART IFinancial InformationITEM 1Financial Statements and Supplementary Data(unaudited):3Consolidated Statement of Operations(unaudited)Three and Six Months Ended June 30,2024,and 20233Consolidated Statement of Comprehensive Income(unaudited)Three and Six Months Ended June 30,2024,and 20234Consolidated Balance Sheet(unaudited)June 30,2024,and December 31,20235Consolidated Statement of Cash Flows(unaudited)Six Months Ended June 30,2024,and 20236Consolidated Statement of Shareowners Equity(unaudited)Three and Six Months Ended June 30,2024,and 20237Note 1 Basis of Presentation8Note 2 Summary of Significant Accounting Policies8Note 3 Acquisitions and Divestitures9Note 4 Revenue Recognition and Contracts with Customers11Note 5 Repositioning and Other Charges14Note 6 Income Taxes16Note 7 Inventories16Note 8 Goodwill and Other Intangible AssetsNet17Note 9 Long-term Debt and Credit Agreements18Note 10 Leases19Note 11 Derivative Instruments and Hedging Transactions20Note 12 Fair Value Measurements23Note 13 Earnings Per Share24Note 14 Accumulated Other Comprehensive Income(Loss)25Note 15 Commitments and Contingencies25Note 16 Pension Benefits30Note 17 Other(Income)Expense30Note 18 Segment Financial Data31Note 19 Subsequent Events33ITEM 2Managements Discussion and Analysis of Financial Condition and Results of Operations34ITEM 3Quantitative and Qualitative Disclosures about Market Risks53ITEM 4Controls and Procedures53PART IIOther InformationITEM 1Legal Proceedings54ITEM 1ARisk Factors54ITEM 2Unregistered Sales of Equity Securities and Use of Proceeds54ITEM 4Mine Safety Disclosures55ITEM 5Other Information55ITEM 6Exhibits56Signatures57 TABLE OF CONTENTSCAUTIONARY STATEMENT ABOUT FORWARD-LOOKINGSTATEMENTSWe describe many of the trends and other factors that drive our business and future results in the section titled Managements Discussion and Analysis ofFinancial Condition and Results of Operations and in other parts of this report(including Part II,Item 1A Risk Factors).Such discussions contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934,as amended(the Exchange Act).Forward-looking statementsare those that address activities,events,or developments that management intends,expects,projects,believes,or anticipates will or may occur in thefuture.They are based on managements assumptions and assessments in light of past experience and trends,current economic and industry conditions,expected future developments,and other relevant factors,many of which are difficult to predict and outside of our control.They are not guarantees of futureperformance,and actual results,developments,and business decisions may differ significantly from those envisaged by our forward-looking statements.Wedo not undertake to update or revise any of our forward-looking statements,except as required by applicable securities law.Our forward-looking statementsare also subject to material risks and uncertainties,including ongoing macroeconomic and geopolitical risks,such as lower GDP growth or recession,capitalmarkets volatility,inflation,and certain regional conflicts,that can affect our performance in both the near-and long-term.In addition,no assurance can begiven that any plan,initiative,projection,goal,commitment,expectation,or prospect set forth in this Form 10-Q can or will be achieved.These forward-looking statements should be considered in light of the information included in this report and our other filings with the Securities and Exchange Commission(SEC),including,without limitation,the Risk Factors,as well as the description of trends and other factors in Managements Discussion and Analysis ofFinancial Condition and Results of Operations,set forth in this report and our 2023 Annual Report on Form 10-K.Any forward-looking plans described hereinare not final and may be modified or abandoned at any time.1 Honeywell International Inc.TABLE OF CONTENTSABOUT HONEYWELLHoneywell International Inc.(Honeywell,we,us,our,or the Company)is an integrated operating company serving a broad range of industries andgeographies around the world.Our portfolio of solutions is uniquely positioned to blend physical products with software to serve customers worldwide withaerospace products and services,energy efficient products and solutions for businesses,specialty chemicals,electronic and advanced materials,processtechnology for refining and petrochemicals,and productivity,sensing,safety,and security technologies for buildings and industries.Our products andsolutions enable a safer,more comfortable,and more productive world,enhancing the quality of life of people around the globe.The Honeywell brand datesback to 1906,and the Company was incorporated in Delaware in 1985.Our Annual Report on Form 10-K,Quarterly Reports on Form 10-Q,Current Reports on Form 8-K,and any amendments to those reports,are available freeof charge on our Investor Relations website()under the heading Financials(see SEC Filings)immediately after they are filed with,orfurnished to,the SEC.Honeywell uses our Investor Relations website,along with press releases on our primary Honeywell website()underthe heading News&Media,as a means of disclosing information which may be of interest or material to our investors and for complying with disclosureobligations under Regulation FD.Accordingly,investors should monitor our Investor Relations website and Honeywell News feed,in addition to following ourpress releases,SEC filings,public conference calls,webcasts,and social media.Information contained on or accessible through,including any reportsavailable on,our website is not a part of,and is not incorporated by reference into,this Quarterly Report on Form 10-Q or any other report or document wefile with the SEC.Any reference to our website in this Form 10-Q is intended to be an inactive textual reference only.2 Honeywell International Inc.TABLE OF CONTENTSPART I.FINANCIAL INFORMATIONThe financial statements and related notes as of June 30,2024,should be read in conjunction with the financial statements for the year ended December 31,2023,contained in the Companys 2023 Annual Report on Form 10-K.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAHONEYWELL INTERNATIONAL INC.CONSOLIDATED STATEMENT OF OPERATIONS(Unaudited)Three Months Ended June30,Six Months Ended June 30,2024202320242023(Dollars in millions,except per share amounts)Product sales$6,477$6,441$12,740$12,751 Service sales3,100 2,705 5,942 5,259 Net sales9,577 9,146 18,682 18,010 Costs,expenses and otherCost of products sold4,247 4,133 8,282 8,201 Cost of services sold1,609 1,493 3,157 2,923 Total Cost of products and services sold5,856 5,626 11,439 11,124 Research and development expenses382 375 742 732 Selling,general and administrative expenses1,361 1,262 2,663 2,579 Other(income)expense(246)(208)(477)(468)Interest and other financial charges250 187 470 357 Total costs,expenses and other7,603 7,242 14,837 14,324 Income before taxes1,974 1,904 3,845 3,686 Tax expense414 403 810 777 Net income1,560 1,501 3,035 2,909 Less:Net income attributable to noncontrolling interest16 14 28 28 Net income attributable to Honeywell$1,544$1,487$3,007$2,881 Earnings per share of common stockbasic$2.37$2.24$4.62$4.32 Earnings per share of common stockassuming dilution$2.36$2.22$4.59$4.29 The Notes to Consolidated Financial Statements are an integral part of this statement.3 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME(Unaudited)Three Months Ended June30,Six Months Ended June 30,2024202320242023(Dollars in millions)Net income$1,560$1,501$3,035$2,909 Other comprehensive income(loss),net of taxForeign exchange translation adjustment5(77)59(135)Pension and other postretirement benefit adjustments(5)(12)(10)(24)Changes in fair value of available for sale investments(1)9(1)3 Cash flow hedges recognized in other comprehensive income(loss)(14)14 4 30 Less:Reclassification adjustment for gains(losses)included in net income12 11 16 13 Changes in fair value of cash flow hedges(26)3(12)17 Other comprehensive income(loss),net of tax(27)(77)36(139)Comprehensive income1,533 1,424 3,071 2,770 Less:Comprehensive income attributable to the noncontrolling interest16 10 4 25 Comprehensive income attributable to Honeywell$1,517$1,414$3,067$2,745 The Notes to Consolidated Financial Statements are an integral part of this statement.4 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.CONSOLIDATED BALANCE SHEET(Unaudited)June 30,2024December 31,2023(Dollars in millions)ASSETS Current assets Cash and cash equivalents$9,576$7,925 Short-term investments231 170 Accounts receivable,less allowances of$312 and$323,respectively7,759 7,530 Inventories6,324 6,178 Other current assets1,479 1,699 Total current assets25,369 23,502 Investments and long-term receivables1,472 939 Property,plant and equipmentnet5,752 5,660 Goodwill20,824 18,049 Other intangible assetsnet5,208 3,231 Insurance recoveries for asbestos-related liabilities163 170 Deferred income taxes374 392 Other assets10,167 9,582 Total assets$69,329$61,525 LIABILITIESCurrent liabilitiesAccounts payable$6,470$6,849 Commercial paper and other short-term borrowings4,548 2,085 Current maturities of long-term debt2,519 1,796 Accrued liabilities7,507 7,809 Total current liabilities21,044 18,539 Long-term debt20,865 16,562 Deferred income taxes2,137 2,094 Postretirement benefit obligations other than pensions126 134 Asbestos-related liabilities1,444 1,490 Other liabilities6,196 6,265 Redeemable noncontrolling interest7 7 SHAREOWNERS EQUITYCapitalcommon stock issued958 958 additional paid-in capital9,495 9,062 Common stock held in treasury,at cost(39,007)(38,008)Accumulated other comprehensive income(loss)(4,075)(4,135)Retained earnings49,576 47,979 Total Honeywell shareowners equity16,947 15,856 Noncontrolling interest563 578 Total shareowners equity17,510 16,434 Total liabilities,redeemable noncontrolling interest and shareowners equity$69,329$61,525 The Notes to Consolidated Financial Statements are an integral part of this statement.5 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.CONSOLIDATED STATEMENT OF CASH FLOWS(Unaudited)Six Months Ended June 30,20242023(Dollars in millions)Cash flows from operating activities Net income$3,035$2,909 Less:Net income attributable to noncontrolling interest28 28 Net income attributable to Honeywell3,007 2,881 Adjustments to reconcile net income attributable to Honeywell to net cash provided by(used for)operating activitiesDepreciation329 327 Amortization271 240 Repositioning and other charges137 243 Net payments for repositioning and other charges(211)(195)NARCO Buyout payment(1,325)Pension and other postretirement income(295)(273)Pension and other postretirement benefit payments(15)(23)Stock compensation expense108 109 Deferred income taxes(36)196 Other(583)(643)Changes in assets and liabilities,net of the effects of acquisitions and divestituresAccounts receivable(149)(505)Inventories(77)(338)Other current assets227 208 Accounts payable(423)114 Accrued liabilities(471)(440)Net cash provided by operating activities1,819 576 Cash flows from investing activitiesCapital expenditures(492)(426)Proceeds from disposals of property,plant and equipment 13 Increase in investments(468)(229)Decrease in investments392 632 Receipts(payments)from settlements of derivative contracts76(38)Cash paid for acquisitions,net of cash acquired(4,913)(661)Net cash used for investing activities(5,405)(709)Cash flows from financing activitiesProceeds from issuance of commercial paper and other short-term borrowings6,993 8,000 Payments of commercial paper and other short-term borrowings(4,489)(7,930)Proceeds from issuance of common stock309 115 Proceeds from issuance of long-term debt5,710 2,966 Payments of long-term debt(605)(1,384)Repurchases of common stock(1,200)(1,176)Cash dividends paid(1,446)(1,416)Other26(38)Net cash provided by(used for)financing activities5,298(863)Effect of foreign exchange rate changes on cash and cash equivalents(61)(5)Net increase(decrease)in cash and cash equivalents1,651(1,001)Cash and cash equivalents at beginning of period7,925 9,627 Cash and cash equivalents at end of period$9,576$8,626 The Notes to Consolidated Financial Statements are an integral part of this statement.6 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.CONSOLIDATED STATEMENT OF SHAREOWNERS EQUITY(Unaudited)Three Months Ended June 30,Six Months Ended June 30,2024202320242023Shares$Shares$Shares$Shares$(In millions,except per share amounts)Common stock,par value957.6 958 957.6 958 957.6 958 957.6 958 Additional paid-in capitalBeginning balance9,353 8,774 9,062 8,564 Issued for employee savings and option plans87 42 289 193 Stock compensation expense55 50 108 109 Impact of Quantinuum contribution 36 Ending balance9,495 8,866 9,495 8,866 Treasury stockBeginning balance(306.4)(38,544)(291.9)(35,072)(305.8)(38,008)(290.0)(34,443)Reacquired stock or repurchases of common stock(2.7)(529)(2.5)(477)(6.1)(1,200)(6.0)(1,176)Issued for employee savings and option plans1.2 66 0.8 39 4.0 201 2.4 109 Ending balance(307.9)(39,007)(293.6)(35,510)(307.9)(39,007)(293.6)(35,510)Retained earningsBeginning balance48,735 45,797 47,979 45,093 Net income attributable to Honeywell1,544 1,487 3,007 2,881 Dividends on common stock(703)(688)(1,410)(1,378)Ending balance49,576 46,596 49,576 46,596 Accumulated other comprehensive income(loss)Beginning balance(4,048)(3,538)(4,135)(3,475)Foreign exchange translation adjustment5(73)83(132)Pension and other postretirement benefitadjustments(5)(12)(10)(24)Changes in fair value of available for saleinvestments(1)9(1)3 Changes in fair value of cash flow hedges(26)3(12)17 Ending balance(4,075)(3,611)(4,075)(3,611)Noncontrolling interestBeginning balance591 596 578 622 Net income attributable to noncontrolling interest16 14 28 28 Foreign exchange translation adjustment(4)(24)(3)Dividends paid(44)(11)(48)(52)Contributions from noncontrolling interest holders 29 Ending balance563 595 563 595 Total shareowners equity649.7 17,510 664.0 17,894 649.7 17,510 664.0 17,894 Cash dividends per share of common stock$1.08$1.03$2.16$2.06 The Notes to Consolidated Financial Statements are an integral part of this statement.7 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Dollars in tables in millions,except per share amounts)NOTE 1.BASIS OF PRESENTATIONIn the opinion of management,the accompanying unaudited Consolidated Financial Statements reflect all adjustments necessary to present fairly thefinancial position,results of operations,cash flows,and shareowners equity of Honeywell International Inc.and its consolidated subsidiaries(Honeywell orthe Company)for the periods presented.The interim results of operations and cash flows should not necessarily be taken as indicative of the entire year.Honeywell reports its quarterly financial information using a calendar convention;the first,second,and third quarters are consistently reported as ending onMarch 31,June 30,and September 30,respectively.It is Honeywells practice to establish actual quarterly closing dates using a predetermined fiscalcalendar,which requires Honeywells businesses to close their books on a Saturday in order to minimize the potentially disruptive effects of quarterly closingon the Companys business processes.The effects of this practice are generally not significant to reported results for any quarter and only exist within areporting year.In the event differences in actual closing dates are material to year-over-year comparisons of quarterly or year-to-date results,Honeywell willprovide appropriate disclosures.Honeywells actual closing dates for the three and six months ended June 30,2024,and 2023,were June 29,2024,andJuly 1,2023,respectively.NOTE 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe accounting policies of the Company are set forth in Note 1 Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements inthe Companys 2023 Annual Report on Form 10-K.The Company includes herein certain updates to those policies.RECLASSIFICATIONSCertain prior year amounts are reclassified to conform to the current year presentation.During the first quarter of 2024,the Company realigned certain of its business units as reflected in Note 18 Segment Financial Data,which impacted thecomposition of its reportable segments.The Company recast historical periods to reflect this change in segment presentation.SUPPLY CHAIN FINANCINGAmounts outstanding related to supply chain financing programs are included in Accounts payable in the Consolidated Balance Sheet.Accounts payableincluded approximately$1,017 million and$1,112 million as of June 30,2024,and December 31,2023,respectively.The impact of these programs is notmaterial to the Companys overall liquidity.RECENT ACCOUNTING PRONOUNCEMENTSThe Company considers the applicability and impact of all Accounting Standards Updates(ASUs)issued by the Financial Accounting Standards Board(FASB).ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the CompanysConsolidated Financial Statements.In December 2023,the FASB issued ASU 2023-09,Income Taxes(Topic 740):Improvements to Income Taxes Disclosures,which requires greaterdisaggregation of income tax disclosures.The new standard requires additional information to be disclosed with respect to the income tax rate reconciliationand income taxes paid disaggregated by jurisdiction.This ASU should be applied prospectively for fiscal years beginning after December 15,2024,withretrospective application permitted.The Company is currently evaluating the impacts of this guidance on the Companys Consolidated Financial Statements.In November 2023,the FASB issued ASU 2023-07,Segment Reporting(Topic 280):Improvements to Reportable Segment Disclosures,which requirescompanies to enhance the disclosures about segment expenses.The new standard requires the disclosure of the Companys Chief Operating DecisionMaker(CODM),expanded incremental line-item disclosures of significant segment expenses used by the CODM for decision-making,and the inclusion ofprevious annual only segment disclosure requirements on a quarterly basis.This ASU should be applied retrospectively for fiscal years beginning afterDecember 15,2023,and interim periods within fiscal years beginning after December 15,2024.Early adoption is permitted.The Company is currentlyevaluating the impacts of this guidance on the Companys Consolidated Financial Statements.8 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Dollars in tables in millions,except per share amounts)In September 2022,the FASB issued ASU 2022-04,LiabilitiesSupplier Finance Programs(Topic 405):Disclosure of Supplier Finance ProgramObligations,to enhance the transparency of supplier finance programs.The new standard requires annual disclosure of the key terms of the program,adescription of where in the financial statements amounts outstanding under the program are presented,a rollforward of such amounts,and interim disclosureof amounts outstanding as of the end of each period.The guidance does not affect recognition,measurement,or financial statement presentation of supplierfinance programs.The ASU was effective on January 1,2023,except for the rollforward,which became effective on January 1,2024,for annual disclosures.The Company adopted this guidance on January 1,2023,with the exception of the rollforward adopted on January 1,2024.The adoption of this standarddoes not have a material impact on the Companys Consolidated Financial Statements.In March 2020,the FASB issued ASU 2020-04,Reference Rate Reform(Topic 848):Facilitation of the Effects of Reference Rate Reform on FinancialReporting,which provides optional expedients and exceptions for applying generally accepted accounting principles to contracts,hedging relationships,andother transactions affected by the transition away from reference rates expected to be discontinued to alternative reference rates.In January 2021,the FASBissued ASU 2021-01,Reference Rate Reform(Topic 848):Scope,to expand the scope of this guidance to include derivatives.The guidance was effectiveupon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into on or before December 31,2022.InDecember 2022,the FASB issued ASU 2022-06,Reference Rate Reform(Topic 848):Deferral of the Sunset Date of Topic 848,which extends the period oftime entities can utilize the reference rate reform relief guidance under ASU 2020-04 from December 31,2022,to December 31,2024.The Company willapply the guidance to impacted transactions during the transition period.The adoption of this standard does not have a material impact on the CompanysConsolidated Financial Statements.NOTE 3.ACQUISITIONS AND DIVESTITURESACQUISITIONSOn July 10,2024,the Company announced its intention to acquire Air Products liquefied natural gas process technology and equipment business in an all-cash transaction of approximately$1.8 billion.The transaction is not subject to any financing condition but is subject to regulatory review and approval andcustomary closing conditions.The transaction is expected to close in the second half of 2024 and the business will be reported within the Energy andSustainability Solutions reportable business segment.On June 20,2024,the Company announced its intention to acquire CAES Systems Holdings LLC from private equity firm Advent International in an all-cashtransaction of approximately$1.9 billion.The transaction is not subject to any financing condition but is subject to regulatory review and approval andcustomary closing conditions.The transaction is expected to close in the second half of 2024 and the business will be reported within the AerospaceTechnologies reportable business segment.On June 3,2024,the Company acquired 100%of the outstanding equity interests of Carrier Global Corporations Global Access Solutions business(AccessSolutions),an innovative global leader in advanced access and security solutions,electronic locking systems,and contactless mobile key solutions,for totalconsideration of$4,913 million,net of cash acquired.The business is included in the Building Automation reportable business segment.The following tablesummarizes the preliminary determination of the fair value of identifiable assets acquired and liabilities assumed that are included in the ConsolidatedBalance Sheet as of June 30,2024:Current assets$244 Intangible assets2,050 Other noncurrent assets20 Current liabilities(133)Noncurrent liabilities(65)Net assets acquired2,116 Goodwill2,878 Purchase price$4,994 The Access Solutions identifiable intangible assets primarily include customer relationships,technology,and trademarks that are being amortized over theirestimated useful lives ranging from 10 to 20 years using straight line and accelerated amortization methods.The majority of the goodwill is deductible for taxpurposes.As of June 30,2024,the purchase accounting for Access Solutions is subject to final adjustment,primarily for the valuation of intangible assets,amounts allocated to goodwill,working capital adjustments,and tax balances.9 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Dollars in tables in millions,except per share amounts)On March 27,2024,the Company announced its intention to acquire Civitanavi Systems S.p.A.in an all-cash transaction for approximately 200 million.Thetransaction is not subject to any financing condition but is subject to regulatory review and approval,the tender into the offer of at least 95%of CivitanaviSystems S.p.A.s outstanding shares,and customary closing conditions.The transaction is expected to close by the end of the third quarter of 2024 and thebusiness will be reported within the Aerospace Technologies reportable business segment.On August 25,2023,the Company acquired 100%of the outstanding equity interests of SCADAfence,a provider of operational technology and Internet ofThings cybersecurity solutions for monitoring large scale networks,for total consideration of$52 million,net of cash acquired.The business is included in theIndustrial Automation reportable business segment.The assets and liabilities acquired with SCADAfence are included in the Consolidated Balance Sheet asof June 30,2024,including$17 million of intangible assets and$42 million of goodwill,which is not deductible for tax purposes.The purchase accounting issubject to final adjustment,primarily for the value of intangible assets,amounts allocated to goodwill,and tax balances.On June 30,2023,the Company acquired 100%of the outstanding equity interests of Compressor Controls Corporation,a turbomachinery services andcontrols company based in the United States,for total cash consideration of$673 million,net of cash acquired.The business is included in the IndustrialAutomation reportable business segment.The assets and liabilities acquired with Compressor Controls Corporation are included in the ConsolidatedBalance Sheet as of June 30,2024,including$282 million of intangible assets and$351 million allocated to goodwill,which is deductible for tax purposes.The identifiable intangible assets primarily include customer relationships amortized over an estimated life of 15 years using an excess earnings amortizationmethod.The Company finalized the evaluation for the fair value of all the assets and liabilities acquired with Compressor Controls Corporation during thesecond quarter of 2024.DIVESTITURESFor the six months ended June 30,2024,and 2023,there were no significant divestitures that closed individually or in the aggregate.10 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Dollars in tables in millions,except per share amounts)NOTE 4.REVENUE RECOGNITION AND CONTRACTS WITH CUSTOMERSThe Company has a comprehensive offering of products and services,including software and technologies,that are sold to a variety of customers in multipleend markets.See the following disaggregated revenue table and related discussions by reportable business segment for details:Three Months Ended June30,Six Months Ended June 30,2024202320242023Aerospace TechnologiesCommercial Aviation Original Equipment$668$607$1,342$1,148 Commercial Aviation Aftermarket1,798 1,533 3,457 2,956 Defense and Space1,425 1,201 2,761 2,348 Net Aerospace Technologies sales3,891 3,341 7,560 6,452 Industrial AutomationSensing and Safety Technologies466 518 916 1,011 Productivity Solutions and Services298 329 620 690 Process Solutions1,509 1,482 3,005 2,967 Warehouse and Workflow Solutions233 398 443 862 Net Industrial Automation sales2,506 2,727 4,984 5,530 Building AutomationProducts908 918 1,721 1,826 Building Solutions663 592 1,276 1,171 Net Building Automation sales1,571 1,510 2,997 2,997 Energy and Sustainability SolutionsUOP599 623 1,176 1,188 Advanced Materials1,005 944 1,953 1,840 Net Energy and Sustainability Solutions sales1,604 1,567 3,129 3,028 Corporate and All Other5 1 12 3 Net sales$9,577$9,146$18,682$18,010 In April 2024,the Company realigned certain business units within the Industrial Automation reportable business segment.The gas detection businessmoved from the Sensing and Safety Technologies business unit to the Process Solutions business unit to align with the process measurement controlsbusiness.The Company recast historical periods to reflect this realignment.Aerospace Technologies A global supplier of products,software,and services for aircrafts that it sells to original equipment manufacturers(OEM)andother customers in a variety of end markets including air transport,regional,business and general aviation aircraft,airlines,aircraft operators,and defenseand space contractors.Aerospace Technologies products and services include auxiliary power units,propulsion engines,environmental control systems,integrated avionics,wireless connectivity services,electric power systems,engine controls,flight safety,communications,navigation hardware,data andsoftware applications,radar and surveillance systems,aircraft lighting,management and technical services,advanced systems and instruments,satelliteand space components,aircraft wheels and brakes,and thermal systems.Aerospace Technologies also provides spare parts,repair,overhaul,andmaintenance services(principally to aircraft operators),and sells licenses or intellectual property to other parties.Honeywell Forge solutions enablecustomers to turn data into predictive maintenance and predictive analytics to enable better fleet management and make flight operations more efficient.11 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Dollars in tables in millions,except per share amounts)Industrial Automation A global provider of industrial automation solutions that deliver intelligent,sustainable,and secure operations for customers in oiland gas,petrochemicals,life sciences,metals and mining,and warehouse and logistics segments.With millions of installed assets,Industrial Automationdeploys outcome-based solutions to increase asset utilization;improve operational efficiency and labor productivity;reduce carbon emissions with lessenergy consumption;and enhance cyber security for critical infrastructure and operational assets.Industrial Automation offerings include automation controland instrumentation products and services;smart energy products;sensing technologies with an array of custom-engineered sensors and services;gasdetection technologies and personal protective equipment;and system design,advanced automation equipment,software and analytics for manufacturing,distribution and fulfillment operations.These products and services are combined with proprietary machine learning and artificial intelligence algorithms inproducts and projects which are digitally enabled through the Companys industry leading industrial Internet of Things(IoT)platform,Honeywell Forge.Building Automation A global provider of products,software,solutions,and technologies that enable building owners and occupants to ensure theirfacilities are safe,energy efficient,sustainable,and productive.Building Automation products and services include advanced software applications forbuilding control and optimization;sensors,switches,control systems,and instruments for energy management;access control;video surveillance;fireproducts;and installation,maintenance,and upgrades of systems.Honeywell Forge solutions enable customers to digitally manage buildings,connectingdata from different assets to enable smart maintenance,improve building performance,and even protect from incoming security threats.Energy and Sustainability Solutions A global provider of industry leading technology,processing,and licensing capabilities combined with materialscience capabilities and innovative chemistry to offer focused solutions that are integral to facilitating the worlds energy transition.The reportable businesssegment is comprised of UOP and Advanced Materials business units.The UOP business provides sustainable aviation fuels,petrochemical and refiningtechnologies,and carbon management solutions across multiple sectors through process technology solutions,products,including catalysts and adsorbents,equipment and aftermarket services.The Advanced Materials business provides customers with its Solstice lower global warming potential refrigeration andheating solutions,Spectra fibers for high end protective armor and medical applications,and leading-edge semiconductor materials.Honeywell Forgesolutions serve customer asset productivity and efficiency needs by providing connectivity,data integration,and software solutions to generate a holistic viewof their operations.Corporate and All Other Corporate and All Other includes revenue from Honeywells majority-owned investment in Quantinuum.Through Quantinuum,Honeywell provides a wide range of service offerings of fully integrated quantum computing hardware and software solutions.For a summary by disaggregated product and services sales for each reportable business segment,refer to Note 18 Segment Financial Data.The Company recognizes revenue arising from performance obligations outlined in contracts with its customers that are satisfied at a point in time and overtime.The disaggregation of the Companys revenue based off timing of recognition is as follows:Three Months Ended June 30,Six Months Ended June 30,2024202320242023Products,transferred point in time57XWX%Products,transferred over time11 12 11 13 Net product sales68 70 68 71 Services,transferred point in time5 11 5 9 Services,transferred over time27 19 27 20 Net service sales32 30 32 29 Net sales100000%CONTRACT BALANCESThe Company tracks progress on satisfying performance obligations under contracts with customers.The related billings and cash collections are recordedin the Consolidated Balance Sheet in Accounts receivablenet and Other assets(unbilled receivables(contract assets)and billed receivables),andAccrued liabilities and Other liabilities(customer advances and deposits(contract liabilities).Unbilled receivables arise when the timing of cash collectedfrom customers differs from the timing of revenue recognition,such as when contract provisions require specific milestones to be met before a customer canbe billed.Contract assets are recognized when the revenue associated with the contract is recognized prior to billing and derecognized when billed inaccordance with the terms of the contract.Contract liabilities are recorded when customers remit contractual cash payments in advance of the Companysatisfying performance obligations under contractual arrangements,including those with performance obligations to be satisfied over a period of time.Contract liabilities are derecognized when revenue is recorded,either when a milestone is met triggering the contractual right to bill or when the performanceobligation is satisfied.12 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Dollars in tables in millions,except per share amounts)Contract balances are classified as assets or liabilities on a contract-by-contract basis at the end of each reporting period.The following table summarizes the Companys contract assets and liabilities balances:20242023Contract assetsJanuary 1$2,013$2,294 Contract assetsJune 302,072 2,438 Change in contract assetsincrease(decrease)$59$144 Contract liabilitiesJanuary 1$(4,326)$(4,583)Contract liabilitiesJune 30(4,096)(4,179)Change in contract liabilitiesdecrease(increase)$230$404 Net change$289$548 For the three and six months ended June 30,2024,the Company recognized revenue of$494 million and$1,487 million,respectively,that was previouslyincluded in the beginning balance of contract liabilities.For the three and six months ended June 30,2023,the Company recognized revenue of$528 millionand$1,481 million,respectively,that was previously included in the beginning balance of contract liabilities.Contract assets included$1,968 million and$1,949 million of unbilled balances under long-term contracts as of June 30,2024,and December 31,2023,respectively.These amounts are billed in accordance with the terms of customer contracts to which they relate.When contracts are modified to account for changes in contract specifications and requirements,the Company considers whether the modification eithercreates new or changes the existing enforceable rights and obligations.Contract modifications for goods or services and not distinct from the existingcontract,due to the significant integration with the original good or service provided,are accounted for as if they were part of that existing contract.The effectof a contract modification on the transaction price and the Companys measure of progress for the performance obligation to which it relates,is recognizedas an adjustment to revenue(either as an increase in or a reduction of revenue)on a cumulative catch-up basis.When the modifications include additionalperformance obligations that are distinct and at relative stand-alone selling price,they are accounted for as a new contract and performance obligation,which are recognized prospectively.PERFORMANCE OBLIGATIONSA performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is defined as the unit of account.A contractstransaction price is allocated to each distinct performance obligation and recognized as revenue when,or as,the performance obligation is satisfied.Whencontracts with customers require highly complex integration or manufacturing services not separately identifiable from other promises in the contracts and,therefore,are not distinct,the entire contract is accounted for as a single performance obligation.In situations when the Companys contracts include distinctgoods or services that are substantially the same and have the same pattern of transfer to the customer over time,they are recognized as a series of distinctgoods or services.For any contracts with multiple performance obligations,the Company allocates the contracts transaction price to each performanceobligation based on the estimated relative stand-alone selling price of each distinct good or service in the contract.For product sales,each product sold to acustomer typically represents a distinct performance obligation.In such cases,the observable stand-alone sales are used to determine the stand-aloneselling price.Performance obligations are satisfied as of a point in time or over time.Performance obligations are supported by contracts with customers,providing aframework for the nature of the distinct goods,services,or bundle of goods and services.The timing of satisfying the performance obligation is typicallyindicated by the terms of the contract.13 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Dollars in tables in millions,except per share amounts)The following table outlines the Companys remaining performance obligations disaggregated by reportable business segment:June 30,2024Aerospace Technologies$13,724 Industrial Automation5,880 Building Automation7,707 Energy and Sustainability Solutions4,667 Corporate and All Other32 Total performance obligations$32,010 1The remaining performance obligations within Corporate and All Other relate to the Quantinuum business.Performance obligations recognized as of June 30,2024,will be satisfied over the course of future periods.The Companys disclosure of the timing forsatisfying the performance obligation is based on the requirements of contracts with customers.However,from time to time,these contracts may be subjectto modifications,impacting the timing of satisfying the performance obligations.Performance obligations expected to be satisfied within one year and greaterthan one year are 57%and 43%,respectively.The timing of satisfaction of the Companys performance obligations does not significantly vary from the typical timing of payment.Typical payment terms ofthe Companys fixed price over time contracts include progress payments based on specified events or milestones or based on project progress.For somecontracts,the Company may be entitled to receive an advance payment.The Company applied the practical expedient for certain revenue streams to exclude the value of remaining performance obligations for(i)contracts with anoriginal expected term of one year or less or(ii)contracts for which the Company recognizes revenue in proportion to the amount the Company has the rightto invoice for services performed.NOTE 5.REPOSITIONING AND OTHER CHARGESA summary of net repositioning and other charges follows:Three Months Ended June30,Six Months Ended June 30,2024202320242023Severance$20$19$53$86 Asset impairments1 9 2 21 Exit costs18 38 33 62 Reserve adjustments(12)(12)(27)(17)Total net repositioning charges27 54 61 152 Asbestos-related charges,net of insurance and reimbursements18 34 36 55 Probable and reasonably estimable environmental liabilities,net of reimbursements(1)12 23 34 Other charges 2 17 2 Total net repositioning and other charges$44$102$137$243 The following table summarizes the pre-tax distribution of total net repositioning and other charges by classification in the Consolidated Statement ofOperations:Three Months Ended June30,Six Months Ended June 30,2024202320242023Cost of products and services sold$28$63$86$143 Selling,general and administrative expenses16 26 34 91 Other(income)expense 13 17 9 Total net repositioning and other charges$44$102$137$243 114 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Dollars in tables in millions,except per share amounts)The following table summarizes the pre-tax amount of total net repositioning and other charges by reportable business segment.These amounts areexcluded from segment profit as described in Note 18 Segment Financial Data:Three Months Ended June30,Six Months Ended June 30,2024202320242023Aerospace Technologies$3$8$8$11 Industrial Automation11 41 28 89 Building Automation(4)4 31 Energy and Sustainability Solutions1(6)19 5 Corporate and All Other33 55 82 107 Total net repositioning and other charges$44$102$137$243 NET REPOSITIONING CHARGESIn the three months ended June 30,2024,the Company recognized gross repositioning charges totaling$39 million,including severance costs of$20 millionrelated to workforce reductions of 645 manufacturing and administrative positions primarily in the Companys Industrial Automation reportable businesssegment and corporate function.The workforce reductions related to productivity and ongoing functional transformation initiatives.The repositioning chargesincluded asset impairments of$1 million related to the write-down of certain assets within the Companys corporate function.The repositioning charges alsoincluded exit costs of$18 million related to current period costs incurred for closure obligations associated with site transitions primarily in the CompanysIndustrial Automation reportable business segment and corporate function.Also,$12 million of previously established reserves,primarily for severance,werereturned to income due to higher-than-expected voluntary exits and adjustments to the scope of previously announced repositioning actions.In the three months ended June 30,2023,the Company recognized gross repositioning charges totaling$66 million,including severance costs of$19 millionrelated to workforce reductions of 764 manufacturing and administrative positions primarily in the Companys Industrial Automation reportable businesssegment.The workforce reductions related to productivity and ongoing functional transformation initiatives.The repositioning charges included assetimpairments of$9 million primarily related to the write-down of certain assets within the Companys Industrial Automation reportable business segment.Therepositioning charges also included exit costs of$38 million related to current period costs incurred for closure obligations associated with site transitionsacross all of the Companys reportable business segments and corporate function.Also,$12 million of previously established reserves,primarily forseverance,were returned to income due to adjustments to the scope of previously announced repositioning actions.In the six months ended June 30,2024,the Company recognized gross repositioning charges totaling$88 million,including severance costs of$53 millionrelated to workforce reductions of 2,007 manufacturing and administrative positions primarily in the Companys Industrial Automation reportable businesssegment and corporate function.The workforce reductions related to productivity and ongoing functional transformation initiatives.The repositioning chargesincluded asset impairments of$2 million related to the write-down of certain assets within the Companys Industrial Automation reportable businesssegment.The repositioning charges also included exit costs of$33 million related to current period costs incurred for closure obligations associated with sitetransitions primarily in the Companys Industrial Automation reportable business segment and corporate function.Also,$27 million of previously establishedreserves,primarily for severance,were returned to income due to adjustments to the scope of previously announced repositioning actions.In the six months ended June 30,2023,the Company recognized gross repositioning charges totaling$169 million,including severance costs of$86 millionrelated to workforce reductions of 2,561 manufacturing and administrative positions primarily in the Companys Industrial Automation and BuildingAutomation reportable business segments.The workforce reductions primarily related to productivity and ongoing functional transformation initiatives.Therepositioning charges included asset impairments of$21 million related to the write-down of certain assets within the Companys Industrial Automationreportable business segment.The repositioning charges also included exit costs of$62 million related to current period costs incurred for closure obligationsassociated with site transitions across all of the Companys reportable business segments and corporate function.Also,$17 million of previously establishedreserves,primarily for severance,were returned to income due to adjustments to the scope of previously announced repositioning actions.15 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Dollars in tables in millions,except per share amounts)The following table summarizes the status of the Companys total repositioning reserves:Severance CostsAssetImpairmentsExit CostsTotalBalance at December 31,2023$188$91$279 Charges53 2 33 88 Usagecash(56)(53)(109)Usagenoncash Foreign currency translation Adjustments(18)(2)(7)(27)Balance at June 30,2024$167$64$231 Certain repositioning projects will recognize exit costs in future periods when the actual liability is incurred.Such exit costs incurred in the six months endedJune 30,2024,and 2023,were$26 million and$25 million,respectively.OTHER CHARGESIn 2022,the Company recognized$295 million of Other charges related to the initial suspension and the wind down of the Companys business andoperations in Russia.These costs impacted all reportable business segments,with the most significant impact within the historical Performance Materialsand Technologies reportable business segment.The Other charges include costs recorded in Cost of products sold,Selling,general and administrativeexpenses,or Other(income)expense in the Consolidated Statement of Operations.During the six months ended June 30,2024,the Company recognizedOther charges of$17 million related to the settlement of a contractual dispute with a Russian entity associated with the Companys suspension and winddown activities in Russia.The charges were recorded in Other(income)expense in the Consolidated Statement of Operations.Given the uncertainty inherent in the Companys remaining obligations related to contracts with Russian counterparties,the Company does not believe it ispossible to develop estimates of reasonably possible loss in excess of current accruals for these matters(other than as specifically set forth above).Basedon available information to date,the Companys estimate of potential future losses or other contingencies related to the wind down of activities,including anyguarantee payments or any litigation costs or as otherwise related to the Companys wind down in Russia,could adversely affect the Companysconsolidated results of operations in the periods recognized but would not be material with respect to the Companys consolidated financial position.SeeNote 15 Commitments and Contingencies for a discussion of the recognition and measurement of estimate for contingencies.During the three and six months ended June 30,2023,the Company recorded a fair value adjustment,within Asbestos-related charges,net of insurance andreimbursements in the table above and Other(income)expense on the Consolidated Statement of Operations,related to HWI Net Sale Proceeds(asdefined in Note 15 Commitments and Contingencies)and reduced the estimate by$11 million.See Note 12 Fair Value Measurements and Note 15Commitments and Contingencies for further discussion.NOTE 6.INCOME TAXESThe effective tax rate was higher than the U.S.federal statutory rate of 21%and remained unchanged in 2024 compared to 2023 due to increased benefitfrom taxes on non-U.S.earnings and employee share-based compensation deductions,offset by incremental expense from tax reserve activity and foreigntax matters.NOTE 7.INVENTORIES June 30,2024December 31,2023Raw materials$1,534$1,704 Work in process1,268 1,217 Finished products3,522 3,257 Total Inventories$6,324$6,178 16 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Dollars in tables in millions,except per share amounts)NOTE 8.GOODWILL AND OTHER INTANGIBLE ASSETSNETThe following table summarizes the change in the carrying amount of goodwill for the six months ended June 30,2024,by reportable business segment:December 31,2023Acquisitions/DivestituresCurrency Translation AdjustmentJune 30,2024Aerospace Technologies$2,386$(3)$2,383 Industrial Automation9,650 (66)9,584 Building Automation3,380 2,878(32)6,226 Energy and Sustainability Solutions1,727 (3)1,724 Corporate and All Other906 1 907 Total Goodwill$18,049$2,878$(103)$20,824 Other intangible assets are comprised of:June 30,2024December 31,2023Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying AmountDefinite-life intangibles Patents and technology$2,652$(1,872)$780$2,399$(1,837)$562 Customer relationships5,894(2,671)3,223 4,199(2,601)1,598 Trademarks390(291)99 362(284)78 Other413(278)135 299(277)22 Total definite-life intangiblesnet9,349(5,112)4,237 7,259(4,999)2,260 Indefinite-life intangiblesTrademarks971 971 971 971 Total Other intangible assetsnet$10,320$(5,112)$5,208$8,230$(4,999)$3,231 Other intangible assets amortization includes$85 million and$155 million of acquisition-related intangible amortization expense for the three and six monthsended June 30,2024,respectively,and$61 million and$129 million for the three and six months ended June 30,2023,respectively.17 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Dollars in tables in millions,except per share amounts)NOTE 9.LONG-TERM DEBT AND CREDIT AGREEMENTS June 30,2024December 31,20230.00%Euro notes due 2024$547 2.30%notes due 2024750 750 4.85%notes due 2024400 400 1.35%notes due 20251,250 1,250 2.50%notes due 20261,500 1,500 1.10%notes due 20271,000 1,000 3.50%Euro notes due 2027695 711 4.95%notes due 2028500 500 2.25%Euro notes due 2028802 820 4.25%notes due 2029750 750 2.70%notes due 2029750 750 4.875%notes due 2029500 3.375%Euro notes due 2030802 1.95%notes due 20301,000 1,000 4.95%notes due 2031500 1.75%notes due 20311,500 1,500 0.75%Euro notes due 2032535 547 3.75%Euro notes due 2032535 547 5.00%notes due 20331,100 1,100 4.50%notes due 20341,000 1,000 4.125%Euro notes due 20341,069 1,094 5.00%notes due 2035750 3.75%Euro notes due 2036802 5.70%notes due 2036441 441 5.70%notes due 2037462 462 5.375%notes due 2041417 417 3.812%notes due 2047442 442 2.80%notes due 2050750 750 5.25%notes due 20541,750 5.35%notes due 2064650 Industrial development bond obligations,floating rate maturing at various dates through 203722 22 6.625bentures due 2028201 201 9.065bentures due 203351 51 Other(including capitalized leases),6.0%weighted average interest rate maturing at various dates through 2029217 217 Fair value of hedging instruments(212)(166)Debt issuance costs(297)(245)Total Long-term debt and current related maturities23,384 18,358 Less:Current maturities of long-term debt2,519 1,796 Total Long-term debt$20,865$16,562 18 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Dollars in tables in millions,except per share amounts)On March 1,2024,the Company issued$500 million 4.875%Senior Notes due 2029,$500 million 4.95%Senior Notes due 2031,$750 million 5.00%SeniorNotes due 2035,$1.75 billion 5.25%Senior Notes due 2054,and$650 million 5.35%Senior Notes due 2064(collectively,the 2024 USD Notes).TheCompany may redeem the 2024 USD Notes at any time,and from time to time,in whole or in part,at the Companys option at the applicable redemptionprice.The offering provided gross proceeds of$4.2 billion,offset by$44 million in discount and closing costs related to the offering.On March 1,2024,the Company issued 750 million 3.375%Senior Notes due 2030 and 750 million 3.75%Senior Notes due 2036(collectively,the 2024Euro Notes).The Company may redeem the 2024 Euro Notes at any time,and from time to time,in whole or in part,at the Companys option at theapplicable redemption price.The offering provided gross proceeds of$1.6 billion,offset by$21 million in discount and closing costs related to the offering.The 2024 USD Notes and 2024 Euro Notes are senior unsecured and unsubordinated obligations of the Company and rank equally with each other and withall of the Companys existing and future senior unsecured debt and senior to all of the Companys subordinated debt.The Company intends to use theproceeds from the issuances for general corporate purposes,which may include,among other things,the repayment of outstanding debt and financing ofpossible acquisitions or business expansion.On March 11,2024,the Company repaid its 0.00%Euro notes due 2024.On March 18,2024,the Company entered into a$1.5 billion 364-day credit agreement(the 364-Day Credit Agreement)and a$4.0 billion amended andrestated five-year credit agreement(the 5-Year Credit Agreement).The 364-Day Credit Agreement replaced the$1.5 billion 364-day credit agreement datedas of March 20,2023,which was terminated in accordance with its terms effective March 18,2024.Amounts borrowed under the 364-Day Credit Agreementare required to be repaid no later than March 17,2025,unless(i)Honeywell elects to convert all then outstanding amounts into a term loan,upon which suchamounts shall be repaid in full on March 17,2026,or(ii)the 364-Day Credit Agreement is terminated earlier pursuant to its terms.The 5-Year CreditAgreement amended and restated the previously reported$4.0 billion amended and restated five-year credit agreement dated as of March 20,2023.Commitments under the 5-Year Credit Agreement can be increased pursuant to the terms of the 5-Year Credit Agreement to an aggregate amount not toexceed$4.5 billion.The 364-Day Credit Agreement and 5-Year Credit Agreement are maintained for general corporate purposes.As of June 30,2024,there were no outstanding borrowings under the 364-Day Credit Agreement or the 5-Year Credit Agreement.NOTE 10.LEASESThe Companys operating and finance lease portfolio is described in Note 10 Leases of Notes to Consolidated Financial Statements in the Companys 2023Annual Report on Form 10-K.Supplemental cash flow information related to leases was as follows:Six Months Ended June 30,20242023Right-of-use assets obtained in exchange for lease obligationsOperating leases$112$91 Finance leases61 25 19 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Dollars in tables in millions,except per share amounts)Supplemental balance sheet information related to leases was as follows:June 30,2024December 31,2023Operating leasesOther assets$997$1,004 Accrued liabilities194 196 Other liabilities904 897 Total operating lease liabilities1,098 1,093 Finance leasesProperty,plant and equipment423 402 Accumulated depreciation(216)(204)Property,plant and equipmentnet207 198 Current maturities of long-term debt88 86 Long-term debt98 99 Total finance lease liabilities$186$185 NOTE 11.DERIVATIVE INSTRUMENTS AND HEDGING TRANSACTIONSHoneywells foreign currency,interest rate,credit,and commodity price risk management policies are described in Note 11 Derivative Instruments andHedging Transactions of Notes to Consolidated Financial Statements in the Companys 2023 Annual Report on Form 10-K.The following table summarizes the notional amounts and fair values of the Companys outstanding derivatives by risk category and instrument type withinthe Consolidated Balance Sheet:NotionalFair Value AssetFair Value(Liability)June 30,2024December 31,2023June 30,2024December 31,2023June 30,2024December 31,2023Derivatives in fair value hedging relationships Interest rate swap agreements$4,687$4,717$18$(212)$(184)Derivatives in cash flow hedging relationshipsForeign currency exchange contracts898 712 19 28(6)(4)Commodity contracts2 6 (1)Derivatives in net investment hedging relationshipsCross currency swap agreements7,214 4,264 25 (83)(145)Total derivatives designated as hedginginstruments12,801 9,699 44 46(301)(334)Derivatives not designated as hedging instrumentsForeign currency exchange contracts8,634 8,198 3 7(17)(5)Total derivatives at fair value$21,435$17,897$47$53$(318)$(339)All derivative assets are presented in Other current assets or Other assets.All derivative liabilities are presented in Accrued liabilities or Other liabilities.In addition to the foreign currency derivative contracts designated as net investment hedges,certain of the Companys foreign currency denominated debtinstruments are designated as net investment hedges.The carrying value of those debt instruments designated as net investment hedges,which includesthe adjustment for the foreign currency transaction gain or loss on those instruments,was$6,338 million and$6,099 million as of June 30,2024,andDecember 31,2023,respectively.20 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Dollars in tables in millions,except per share amounts)The following table sets forth the amounts recorded in the Consolidated Balance Sheet related to cumulative basis adjustments for fair value hedges:Carrying Amount of Hedged ItemCumulative Amount of Fair ValueHedging Adjustment Included in theCarrying Amount of Hedged ItemJune 30,2024December 31,2023June 30,2024December 31,2023Long-term debt$4,475$4,551$(212)$(166)The following tables summarize the location and impact to the Consolidated Statement of Operations related to derivative instruments:Three Months Ended June 30,2024Net SalesCost of Products SoldCost of Services SoldSelling,General and Administrative ExpensesOther(Income)ExpenseInterest andOther FinancialCharges$9,577$4,247$1,609$1,361$(246)$250 Gain or(loss)on cash flow hedgesForeign currency exchange contractsAmount reclassified from accumulated othercomprehensive income(loss)into income2 6 2 4 Gain or(loss)on fair value hedgesInterest rate swap agreementsHedged items 4 Derivatives designated as hedges (4)Gain or(loss)on derivatives not designated ashedging instrumentsForeign currency exchange contracts 10 Three Months Ended June 30,2023Net SalesCost of Products SoldCost of Services SoldSelling,General and Administrative ExpensesOther(Income)ExpenseInterest andOther FinancialCharges$9,146$4,133$1,493$1,262$(208)$187 Gain or(loss)on cash flow hedgesForeign currency exchange contractsAmount reclassified from accumulated othercomprehensive income(loss)into income2 6 2 3 Gain or(loss)on fair value hedgesInterest rate swap agreementsHedged items 65 Derivatives designated as hedges (65)Gain or(loss)on derivatives not designated ashedging instrumentsForeign currency exchange contracts (69)21 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Dollars in tables in millions,except per share amounts)Six Months Ended June 30,2024Net SalesCost ofProducts SoldCost ofServices SoldSelling,General and Administrative ExpensesOther(Income)ExpenseInterest andOther FinancialCharges$18,682$8,282$3,157$2,663$(477)$470 Gain or(loss)on cash flow hedgesForeign currency exchange contractsAmount reclassified from accumulated othercomprehensive income(loss)into income3 8 3 5 Gain or(loss)on fair value hedgesInterest rate swap agreementsHedged items 46 Derivatives designated as hedges (46)Gain or(loss)on derivatives not designated ashedging instrumentsForeign currency exchange contracts 33 Six Months Ended June 30,2023Net SalesCost of Products SoldCost of Services SoldSelling,General and Administrative ExpensesOther(Income)ExpenseInterest andOther FinancialCharges$18,010$8,201$2,923$2,579$(468)$357 Gain or(loss)on cash flow hedgesForeign currency exchange contractsAmount reclassified from accumulated othercomprehensive income(loss)into income3 9 3 4 Gain or(loss)on fair value hedgesInterest rate swap agreementsHedged items (2)Derivatives designated as hedges 2 Gain or(loss)on derivatives not designated ashedging instrumentsForeign currency exchange contracts (149)The following table summarizes the amounts of gain or(loss)on net investment hedges recognized in Accumulated other comprehensive income(loss):Three Months Ended June30,Six Months Ended June 30,2024202320242023Euro-denominated long-term debt$61$(37)$100$(86)Euro-denominated commercial paper22(15)41(43)Cross currency swap agreements12(18)87(75)22 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Dollars in tables in millions,except per share amounts)NOTE 12.FAIR VALUE MEASUREMENTSThe accounting guidance for fair value measurements and disclosures establishes a three-level fair value hierarchy:Level 1-Inputs are based on quoted prices in active markets for identical assets and liabilities.Level 2-Inputs are based on observable inputs other than quoted prices in active markets for identical or similar assets and liabilities.Level 3-One or more inputs are unobservable and significant.Financial and nonfinancial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair valuemeasurement.The following table sets forth the Companys financial assets and liabilities that were accounted for at fair value on a recurring basis:June 30,2024December 31,2023Level 1Level 2Level 3TotalLevel 1Level 2Level 3TotalAssets Foreign currency exchange contracts$22$22$35$35 Available for sale investments69 271 340 63 217 280 Interest rate swap agreements 18 18 Cross currency swap agreements 25 25 Investments in equity securities20 20 22 22 Right to HWI Net Sale Proceeds 6 6 9 9 Total assets$89$318$6$413$85$270$9$364 LiabilitiesForeign currency exchange contracts$23$23$9$9 Interest rate swap agreements 212 212 184 184 Commodity contracts 1 1 Cross currency swap agreements 83 83 145 145 Total liabilities$318$318$339$339 The Company values foreign currency exchange contracts,interest rate swap agreements,cross currency swap agreements,and commodity contractsusing broker quotations,or market transactions in either the listed or over-the-counter markets.As such,these derivative instruments are classified withinlevel 2.The Company also holds investments in commercial paper,certificates of deposits,time deposits,and corporate debt securities that are designatedas available for sale.These investments are valued using published prices based on observable market data.As such,these investments are classifiedwithin level 2.The Company holds certain available for sale investments in U.S.government securities and investments in equity securities.The Company values theseinvestments utilizing published prices based on quoted market pricing,which are classified within level 1.The carrying value of cash and cash equivalents,trade accounts and notes receivables,payables,commercial paper,and other short-term borrowingsapproximates fair value.As part of the NARCO Buyout(see Note 15 Commitments and Contingencies for definition),Honeywell holds a right to proceeds from the definitive saleagreement pursuant to which HarbisonWalker International Holdings,Inc.(HWI),the reorganized and renamed entity that emerged from the NARCOBankruptcy,was acquired by an affiliate of Platinum Equity,LLC(HWI Sale).The right to these proceeds is considered a financial instrument.The significantinput for the valuation of this right is unobservable,and as such,is classified within level 3.The HWI Sale closed on February 16,2023.The balance of theremaining HWI Net Sale Proceeds as of December 31,2023,and June 30,2024,was$9 million and$6 million,respectively,based on the receipt of anadditional$3 million in HWI Net Sale Proceeds during the six months ended June 30,2024.23 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Dollars in tables in millions,except per share amounts)The following table sets forth the Companys financial assets and liabilities that were not carried at fair value:June 30,2024December 31,2023 Carrying ValueFair ValueCarrying ValueFair ValueAssets Long-term receivables$759$655$232$173 LiabilitiesLong-term debt and related current maturities23,384 22,291 18,358 17,706 The Company determined the fair value of the long-term receivables by utilizing transactions in the listed markets for identical or similar assets.As such,thefair value of these receivables is considered level 2.The Company determined the fair value of the long-term debt and related current maturities by utilizing transactions in the listed markets for identical orsimilar liabilities.As such,the fair value of the long-term debt and related current maturities is considered level 2.NOTE 13.EARNINGS PER SHAREThe details of the earnings per share calculations for the three and six months ended June 30,2024,and 2023,are as follows(shares in millions):Three Months Ended June30,Six Months Ended June 30,Basic2024202320242023Net income attributable to Honeywell$1,544$1,487$3,007$2,881 Weighted average shares outstanding650.2 665.3 651.3 666.5 Earnings per share of common stockbasic$2.37$2.24$4.62$4.32 Three Months Ended June30,Six Months Ended June 30,Assuming Dilution2024202320242023Net income attributable to Honeywell$1,544$1,487$3,007$2,881 Average sharesWeighted average shares outstanding650.2 665.3 651.3 666.5 Dilutive securities issuablestock plans4.0 4.9 4.2 5.4 Total weighted average diluted shares outstanding654.2 670.2 655.5 671.9 Earnings per share of common stockassuming dilution$2.36$2.22$4.59$4.29 The diluted earnings per share calculations exclude the effect of stock options when the cost to exercise an option exceeds the average market price of thecommon shares during the period.For the three and six months ended June 30,2024,the weighted average number of stock options excluded from thecomputations were 5.6 million and 5.3 million,respectively.For the three and six months ended June 30,2023,the weighted average number of stockoptions excluded from the computations were 4.7 million and 4.3 million,respectively.As of June 30,2024,and 2023,the total shares outstanding were 649.7 million and 664.0 million,respectively,and as of June 30,2024,and 2023,totalshares issued were 957.6 million.24 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Dollars in tables in millions,except per share amounts)NOTE 14.ACCUMULATED OTHER COMPREHENSIVE INCOME(LOSS)CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME(LOSS)BY COMPONENT Foreign Exchange Translation AdjustmentPension and Other Postretirement Benefit AdjustmentsChanges in Fair Value of Available for Sale InvestmentsChanges in Fair Value of Cash Flow HedgesTotalBalance at December 31,2023$(3,101)$(1,055)$(2)$23$(4,135)Other comprehensive income(loss)before reclassifications83 (1)4 86 Amounts reclassified from accumulated other comprehensiveincome(loss)(10)(16)(26)Net current period other comprehensive income(loss)83(10)(1)(12)60 Balance at June 30,2024$(3,018)$(1,065)$(3)$11$(4,075)Foreign Exchange Translation AdjustmentPension and Other Postretirement Benefit Adjustments Changes in Fair Value of Available for Sale InvestmentsChanges in Fair Value of Cash Flow HedgesTotalBalance at December 31,2022$(2,832)$(648)$(7)$12$(3,475)Other comprehensive income(loss)before reclassifications(132)3 30(99)Amounts reclassified from accumulated other comprehensiveincome(loss)(24)(13)(37)Net current period other comprehensive income(loss)(132)(24)3 17(136)Balance at June 30,2023$(2,964)$(672)$(4)$29$(3,611)NOTE 15.COMMITMENTS AND CONTINGENCIESENVIRONMENTAL MATTERSThe Company is subject to various federal,state,local,and foreign government requirements relating to the protection of the environment.With respect toenvironmental matters involving site contamination,the Company continually conducts studies,individually or jointly with other potentially responsibleparties,to determine the feasibility of various remedial techniques.It is the Companys policy to record appropriate liabilities for environmental matters whenremedial efforts or damage claim payments are probable and the costs can be reasonably estimated.Such liabilities are based on the Companys bestestimate of the undiscounted future costs required to complete the remedial work.The recorded liabilities are adjusted periodically as remediation effortsprogress or as additional technical,regulatory,or legal information becomes available.Honeywells environmental matters are further described in Note 19 Commitments and Contingencies of Notes to Consolidated Financial Statements in theCompanys 2023 Annual Report on Form 10-K.The following table summarizes information concerning the Companys recorded liabilities for environmental costs:Balance at December 31,2023$641 Accruals for environmental matters deemed probable and reasonably estimable150 Environmental liability payments(98)Balance at June 30,2024$693 25 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Dollars in tables in millions,except per share amounts)Environmental liabilities are included in the following balance sheet accounts:June 30,2024December 31,2023Accrued liabilities$228$227 Other liabilities465 414 Total environmental liabilities$693$641 The Company does not currently possess sufficient information to reasonably estimate the amounts of environmental liabilities to be recorded upon futurecompletion of studies,litigation,or settlements,and neither the timing nor the amount of the ultimate costs associated with environmental matters can bedetermined,although they could be material to the Companys consolidated results of operations and operating cash flows in the periods recognized or paid.However,considering the Companys past experience and existing reserves,the Company does not expect that environmental matters will have a materialadverse effect on its consolidated financial position.In conjunction with the Resideo Technologies,Inc.(Resideo)spin-off,the Company entered into an indemnification and reimbursement agreement with aResideo subsidiary,pursuant to which Resideos subsidiary has an ongoing obligation to make cash payments to Honeywell in amounts equal to 90%ofHoneywells annual net spending for environmental matters at certain sites as defined in the agreement.The amount payable to Honeywell in any given yearis subject to a cap of$140 million,and the obligation will continue until the earlier of December 31,2043,or December 31 of the third consecutive yearduring which the annual payment obligation is less than$25 million.Reimbursements associated with this agreement are collected from Resideo quarterly and were$70 million in the six months ended June 30,2024,andoffset operating cash outflows incurred by the Company.As the Company incurs costs for environmental matters deemed probable and reasonablyestimable related to the sites covered by the indemnification and reimbursement agreement,a corresponding receivable from Resideo for 90%of such costsis also recorded.This receivable amount recorded in the six months ended June 30,2024,was$103 million.As of June 30,2024,Other current assets andOther assets included$140 million and$554 million,respectively,for the short-term and long-term portion of the receivable amount due from Resideo underthe indemnification and reimbursement agreement.ASBESTOS MATTERSHoneywell is named in asbestos-related personal injury claims related to North American Refractories Company(NARCO),which was sold in 1986,and theBendix Friction Materials(Bendix)business,which was sold in 2014.The following tables summarize information concerning NARCO and Bendix asbestos-related balances:ASBESTOS-RELATED LIABILITIES BendixNARCOTotalDecember 31,2023$1,644$1,644 Accrual for update to estimated liability20 1 21 Change in estimated cost of future claims10 10 Asbestos-related liability payments(89)(1)(90)June 30,2024$1,585$1,585 INSURANCE RECOVERIES FOR ASBESTOS-RELATED LIABILITIES BendixNARCOTotalDecember 31,2023$123$88$211 Probable insurance recoveries related to estimated liability Insurance receipts for asbestos-related liabilities(4)(3)(7)June 30,2024$119$85$204 26 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Dollars in tables in millions,except per share amounts)NARCO and Bendix asbestos-related balances are included in the following balance sheet accounts:June 30,2024December 31,2023Other current assets$41$41 Insurance recoveries for asbestos-related liabilities163 170 Total insurance recoveries for asbestos-related liabilities$204$211 Accrued liabilities$141$154 Asbestos-related liabilities1,444 1,490 Total asbestos-related liabilities$1,585$1,644 NARCO Products NARCO manufactured high-grade,heat-resistant,refractory products for various industries.Honeywells predecessor,AlliedCorporation,owned NARCO from 1979 to 1986.Allied Corporation sold the NARCO business in 1986 and entered into a cross-indemnity agreement whichincluded an obligation to indemnify the purchaser for asbestos claims,arising primarily from alleged occupational exposure to asbestos-containing refractorybrick and mortar for high-temperature applications.NARCO ceased manufacturing these products in 1980 and filed for bankruptcy in January 2002,at whichpoint in time all then current and future NARCO asbestos claims were stayed against both NARCO and Honeywell pending the reorganization of NARCO.The Company established its initial liability for NARCO asbestos claims in 2002.NARCO emerged from bankruptcy in April 2013,at which time a federally authorized 524(g)trust was established to evaluate and resolve all existingNARCO asbestos claims(the Trust).Both Honeywell and NARCO are protected by a permanent channeling injunction barring all present and futureindividual actions in state or federal courts and requiring all asbestos-related claims based on exposure to NARCO asbestos-containing products to be madeagainst the Trust(Channeling Injunction).The NARCO Trust Agreement(TA)and the NARCO Trust Distribution Procedures(TDP)set forth the structure andoperating rules of the Trust,and established Honeywells evergreen funding obligations.The operating rules per the TDP define criteria claimants must meet for a claim to be considered valid and paid.Once operational in 2014,the Trust beganto receive,process,and pay claims.In September 2021,Honeywell filed suit against the Trust in the United States Bankruptcy Court for the Western Districtof Pennsylvania(Bankruptcy Court)alleging that the Trust breached its duties in managing the Trust,including breaches of certain provisions of the TA andTDP.Honeywells lawsuit sought appropriate relief preventing the Trust from continuing these practices.The Trust also filed suit against Honeywell,allegingHoneywell breached its obligations under the Trusts governing documents.Honeywell moved to dismiss the Trusts suit,and on December 15,2021,theBankruptcy Court granted Honeywells motion to dismiss subject to granting the Trust leave to file an amended complaint.On December 28,2021,the Trustfiled an answer with counterclaims in response to Honeywells complaint and in lieu of filing an amended complaint.The Bankruptcy Court conducted a trialon these matters during May 2022;following the trial,the Company and the Trust began discussing a potential settlement of Honeywells remainingobligations to the Trust.On November 18,2022,Honeywell entered into a definitive agreement(Buyout Agreement)with the Trust,and on November 20,2022,in exchange for theNARCO Trust Advisory Committee(TAC)and Lawrence Fitzpatrick,in his capacity as the NARCO Asbestos Future Claimants Representative(FCR),becoming parties to the Buyout Agreement,Honeywell,the Trust,the TAC,and the FCR entered into an Amended and Restated Buyout Agreement(Amended Buyout Agreement).Pursuant to the terms of the Amended Buyout Agreement,Honeywell agreed to make a one-time,lump sum payment in the amount of$1.325 billion to theTrust(Buyout Amount),subject to certain deductions as described in the Amended Buyout Agreement and in exchange for the release by the Trust ofHoneywell from all further and future obligations of any kind related to the Trust and/or any claimants who were exposed to asbestos-containing productsmanufactured,sold,or distributed by NARCO or its predecessors,including Honeywells ongoing evergreen obligation to fund(i)claims against the Trust,which comprise Honeywells NARCO asbestos-related claims liability,and(ii)the Trusts annual operating expenses,which are expensed as incurred,including its legal fees(which operating expenses,for reference,were approximately$30 million in 2022)(such evergreen obligations referred to in(i)and(ii),Honeywell Obligations)(the NARCO Buyout).On December 8,2022,the Bankruptcy Court issued an order that(A)approved the Amended Buyout Agreement,and(B)declared that the NARCOChanneling Injunction(which bars all past,present,and future individual actions in state or federal courts based on exposure to NARCO asbestos-containingproducts and requires all such claims to be made against the Trust)will remain in full force and effect without modification,dissolution,or termination(Order).On December 14,2022,HWI,the reorganized and renamed entity that emerged from the NARCO bankruptcy,entered into a definitive agreement(SaleAgreement)pursuant to which an affiliate of Platinum Equity,LLC agreed to acquire HWI(HWI Sale)subject to the terms set forth in the Sale Agreement,including customary conditions to closing set forth therein.In accordance with the Amended Buyout Agreement,the economic rights of the Trust in respect ofthe net proceeds from the HWI Sale inure to the benefit of Honeywell.27 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Dollars in tables in millions,except per share amounts)On January 30,2023,the Company paid the Buyout Amount to the Trust,the parties closed the transactions contemplated in the Amended BuyoutAgreement(Closing),and Honeywell was released from the Honeywell Obligations.Honeywell continues to have the right to collect proceeds in connectionwith its NARCO asbestos-related insurance policies.With the issuance of the Order,the Company derecognized the NARCO asbestos-related liability of$688 million from the Consolidated Balance Sheet andrecognized a charge of$1.325 billion in the Consolidated Statement of Operations and accrued a corresponding liability in the Consolidated Balance Sheetfor the Buyout Amount.In addition,the Company recognized a benefit of$295 million in the Consolidated Statement of Operations and corresponding assetin Other current assets in the Consolidated Balance Sheet for Honeywells rights to the proceeds from the HWI Sale.The benefit of$295 million offset thecharge for the Buyout Amount.On February 16,2023,the HWI Sale closed.Pursuant to the Amended Buyout Agreement,during 2023,Honeywell received$275 million of proceeds fromthe HWI Sale(HWI Net Sale Proceeds).Additionally,during 2023,the Company recorded a fair value adjustment for the HWI Net Sale Proceeds andreduced the HWI Net Sale Proceeds estimate by$11 million.During the three and six months ended June 30,2024,Honeywell received$3 million ofproceeds from the HWI Sale.The ending balance as of June 30,2024,was$6 million.The fair value of the remaining HWI Net Sale Proceeds as of June 30,2024,represents contingent consideration to be paid in future periods if certain conditions under the definitive sale agreement for the HWI Sale are met.Bendix Products Bendix manufactured automotive brake linings that contained chrysotile asbestos in an encapsulated form.Claimants consist largely ofindividuals who allege exposure to asbestos from brakes from either performing or being in the vicinity of individuals who performed brake replacements.The following tables present information regarding Bendix-related asbestos claims activity:Six Months Ended June 30,Years Ended December 31,202420232022Claims unresolved at the beginning of period5,517 5,608 6,401 Claims filed811 1,803 2,014 Claims resolved(1,066)(1,894)(2,807)Claims unresolved at the end of period5,262 5,517 5,608 June 30,December 31,Disease Distribution of Unresolved Claims202420232022Mesothelioma and other cancer claims3,223 3,244 3,283 Nonmalignant claims2,039 2,273 2,325 Total claims5,262 5,517 5,608 Honeywell has experienced average resolution values per claim excluding legal costs as follows:Years Ended December 31,20232022202120202019(in whole dollars)Mesothelioma and other cancer claims$66,200$59,200$56,000$61,500$50,200 Nonmalignant claims$1,730$520$400$550$3,900 The Consolidated Financial Statements reflect an estimated liability for resolution of asserted(claims filed as of the financial statement date)and unassertedBendix-related asbestos claims,which exclude the Companys ongoing legal fees to defend such asbestos claims which will continue to be expensed asthey are incurred.The Company reflects the inclusion of all years of epidemiological disease projection through 2059 when estimating the liability for unasserted Bendix-related asbestos claims.Such liability for unasserted Bendix-related asbestos claims is based on historic and anticipated claims filing experience anddismissal rates,disease classifications,and average resolution values in the tort system over a defined look-back period.The Company historically valuedBendix asserted and unasserted claims using a five-year look-back period.The Company reviews the valuation assumptions and average resolution valuesused to estimate the cost of Bendix asserted and unasserted claims during the fourth quarter each year.28 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Dollars in tables in millions,except per share amounts)The Company experienced fluctuations in average resolution values year-over-year in each of the past five years with no well-established trends in eitherdirection.In 2023,the Company observed two consecutive years of increasing average resolution values(2023 and 2022),with more volatility in the earlieryears of the five-year period(2019 through 2021).Based on these observations,the Company,during its annual review in the fourth quarter of 2023,reevaluated its valuation methodology and elected to give more weight to the two most recent years by shortening the look-back period from five years totwo years(2023 and 2022).The Company believes that the average resolution values in the last two consecutive years are likely more representative ofexpected resolution values in future periods.It is not possible to predict whether such resolution values will increase,decrease,or stabilize in the future,given recent litigation trends within the tortsystem and the inherent uncertainty in predicting the outcome of such trends.The Company will continue to monitor Bendix claim resolution values andother trends within the tort system to assess the appropriate look-back period for determining average resolution values going forward.In 2023,the Company recognized a$522 million expense and corresponding adjustment to its estimated liability for Bendix asbestos-related claims.Thisamount includes$434 million attributable primarily to shortening the look-back period to the two most recent years,and to a lesser extent to increasingexpected resolution values for a subset of asserted claims to adjust for higher claim values in that subset than in the modelled two-year data set.The Companys insurance receivable corresponding to the liability for settlement of asserted and unasserted Bendix asbestos claims reflects coverage whichis provided by a large number of insurance policies written by dozens of insurance companies in both the domestic insurance market and the London excessmarket.Based on the Companys ongoing analysis of the probable insurance recovery,insurance receivables are recorded in the financial statementssimultaneous with the recording of the estimated liability for the underlying asbestos claims.This determination is based on the Companys analysis of theunderlying insurance policies,historical experience with insurers,ongoing review of the solvency of insurers,judicial determinations relevant to insuranceprograms,and consideration of the impacts of any settlements reached with the Companys insurers.SEC MATTERThe Company is cooperating with a formal investigation by the Securities and Exchange Commission(SEC)which is primarily focused on certain accountingmatters with respect to the Companys former Performance Materials and Technologies segment.At this time,the Company does not expect the outcome ofthis matter to have a material adverse effect on the Companys consolidated results of operations,cash flows,or financial position.PETROBRAS AND UNAOIL MATTERSOn December 19,2022,the Company reached a comprehensive resolution to the investigations by the U.S.Department of Justice(DOJ),the SEC,andcertain Brazilian authorities(Brazilian Authorities)relating to the Companys use of third parties who previously worked for the Companys UOP business inBrazil in relation to a project awarded in 2010 for Petrleo Brasileiro S.A.(Petrobras).The investigations focused on the Companys compliance with theU.S.Foreign Corrupt Practices Act and similar Brazilian laws(UOP Matters).The comprehensive resolution also resolves DOJ and SEC investigationsrelating to a matter involving a foreign subsidiarys prior contract with Unaoil S.A.M.in Algeria executed in 2011(the Unaoil Matter).In connection with the comprehensive resolution,(i)the Company agreed to pay a total equivalent of$202.7 million,which payment occurred in January2023,to the DOJ,the SEC,and the Brazilian Authorities,collectively,in penalties,disgorgement,and prejudgment interest,(ii)the Companys subsidiary,UOP,LLC(UOP),entered into a three-year Deferred Prosecution Agreement with the DOJ for charges related to the UOP Matters,(iii)UOP entered intoleniency agreements with the Brazilian authorities related to the UOP Matter in Brazil,and(iv)the Company entered into an agreement with the SEC thatresolves allegations relating to the UOP Matters and the Unaoil Matter.Pursuant to these agreements,the Company agreed to undertake certain compliancemeasures and compliance reporting obligations.These agreements entirely resolve the Petrobras and Unaoil investigations.OTHER MATTERSThe Company is subject to a number of other lawsuits,investigations,and disputes(some of which involve substantial amounts claimed)arising out of theconduct of the Companys business,including matters relating to commercial transactions,government contracts,product liability,prior acquisitions anddivestitures,employee benefit plans,intellectual property,and environmental,health,and safety matters.The Company recognizes liabilities for anycontingency that is probable of occurrence and reasonably estimable.The Company continually assesses the likelihood of adverse judgments or outcomesin such matters,as well as potential ranges of probable losses(taking into consideration any insurance recoveries),based on a careful analysis of eachmatter with the assistance of outside legal counsel and,if applicable,other experts.29 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Dollars in tables in millions,except per share amounts)Given the uncertainty inherent in litigation and investigations,including those discussed in this Note 15,the Company cannot predict when or how thesematters will be resolved and does not believe it is possible to develop estimates of reasonably possible loss(or a range of possible loss)in excess of currentaccruals for commitment and contingency matters.Considering the Companys past experience and existing accruals,the Company does not expect theoutcome of such matters,either individually or in the aggregate,to have a material adverse effect on the Companys consolidated financial position.Becausemost contingencies are resolved over long periods of time,potential liabilities are subject to change due to new developments,changes in settlementstrategy or the impact of evidentiary requirements,which could cause the Company to pay damage awards or settlements(or become subject to equitableremedies)that could have a material adverse effect on the Companys consolidated results of operations or operating cash flows in the periods recognizedor paid.NOTE 16.PENSION BENEFITSNet periodic pension benefit(income)cost for the Companys significant pension plans included the following components:U.S.PlansThree Months Ended June30,Six Months Ended June 30,2024202320242023Service cost$7$7$14$14 Interest cost149 161 299 322 Expected return on plan assets(281)(278)(562)(556)Amortization of prior service(credit)cost(2)(10)(4)(20)Net periodic benefit income$(127)$(120)$(253)$(240)Non-U.S.PlansThree Months Ended June30,Six Months Ended June 30,2024202320242023Service cost$3$3$6$6 Interest cost47 49 94 99 Expected return on plan assets(74)(68)(148)(136)Net periodic benefit income$(24)$(16)$(48)$(31)NOTE 17.OTHER(INCOME)EXPENSE Three Months Ended June30,Six Months Ended June 30,2024202320242023Interest income$(110)$(76)$(215)$(152)Pension ongoing incomenon-service(156)(146)(317)(292)Other postretirement incomenon-service(4)(7)(10)(13)Equity income of affiliated companies(14)(14)(30)(49)Foreign exchange5 18 31 20 Expense(benefit)related to Russia-Ukraine Conflict 2 17(2)Net expense related to the NARCO Buyout and HWI Sale 11 11 Acquisition-related costs22 1 24 1 Other,net11 3 23 8 Total Other(income)expense$(246)$(208)$(477)$(468)See Note 15 Commitments and Contingencies for more information on the Net expense related to the NARCO Buyout and HWI Sale.See Note 5Repositioning and Other Charges for further discussion of the expense related to the Russia-Ukraine Conflict.30 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Dollars in tables in millions,except per share amounts)NOTE 18.SEGMENT FINANCIAL DATAHoneywell globally manages its business operations through four reportable business segments.Segment information is consistent with how managementreviews the businesses,makes investing and resource allocation decisions,and assesses operating performance.Honeywells senior management evaluates segment performance based on segment profit.Each segments profit is measured as segment income(loss)before taxes excluding general corporate unallocated expense,interest and other financial charges,stock compensation expense,pension and otherpostretirement income(expense),amortization of acquisition-related intangibles,repositioning and other charges,and other items within Other(income)expense.Effective during the second quarter of 2024,the Company updated its calculation of segment profit to exclude the impact of amortization expense foracquisition-related intangible assets and certain acquisition-related costs.The Company recast historical periods to reflect segment profit under this newbasis to facilitate comparability.Effective during the first quarter of 2024,the Company realigned certain of its business units comprising its historical Performance Materials andTechnologies and Safety and Productivity Solutions reportable business segments by forming two new reportable business segments:Industrial Automationand Energy and Sustainability Solutions.Industrial Automation includes Sensing and Safety Technologies,Productivity Solutions and Services,andWarehouse and Workflow Solutions,previously included in Safety and Productivity Solutions,in addition to Process Solutions,previously included inPerformance Materials and Technologies.Energy and Sustainability Solutions includes UOP and Advanced Materials,previously included in PerformanceMaterials and Technologies.Further,as part of the realignment,the Company renamed its historical Aerospace and Honeywell Building Technologiesreportable business segments to Aerospace Technologies and Building Automation,respectively.This realignment had no impact on the Companyshistorical consolidated financial position,results of operations,or cash flows.Prior period amounts have been recast to conform to current period segmentpresentation.31 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Dollars in tables in millions,except per share amounts)Three Months Ended June30,Six Months Ended June 30,2024202320242023Net sales Aerospace Technologies Products$2,127$1,799$4,152$3,471 Services1,764 1,542 3,408 2,981 Net Aerospace Technologies sales3,891 3,341 7,560 6,452 Industrial AutomationProducts1,777 2,061 3,577 4,220 Services729 666 1,407 1,310 Net Industrial Automation sales2,506 2,727 4,984 5,530 Building AutomationProducts1,154 1,159 2,211 2,291 Services417 351 786 706 Net Building Automation sales1,571 1,510 2,997 2,997 Energy and Sustainability SolutionsProducts1,419 1,422 2,800 2,769 Services185 145 329 259 Net Energy and Sustainability Solutions sales1,604 1,567 3,129 3,028 Corporate and All OtherServices5 1 12 3 Net Corporate and All Other sales5 1 12 3 Net sales$9,577$9,146$18,682$18,010 Segment profitAerospace Technologies$1,060$930$2,095$1,761 Industrial Automation477 544 951 1,130 Building Automation397 391 747 772 Energy and Sustainability Solutions405 363 708 665 Corporate and All Other(140)(115)(208)(200)Total segment profit2,199 2,113 4,293 4,128 Interest and other financial charges(250)(187)(470)(357)Interest income110 76 215 152 Amortization of acquisition-related intangibles(85)(61)(155)(129)Stock compensation expense(55)(50)(108)(109)Pension ongoing income140 130 285 260 Other postretirement income4 7 10 13 Repositioning and other charges(44)(102)(137)(243)Other expense(45)(22)(88)(29)Income before taxes$1,974$1,904$3,845$3,686 1Amounts included in Selling,general and administrative expenses.2Amounts included in Cost of products and services sold(service cost component),Selling,general and administrative expenses(service cost component),Research and development expenses(service cost component),and Other(income)expense(non-service cost component).3Amounts included in Cost of products and services sold,Selling,general and administrative expenses,and Other(income)expense.4Amounts include the other components of Other(income)expense not included within other categories in this reconciliation.Equity income of affiliated companies is included in segment profit.1223432 Honeywell International Inc.TABLE OF CONTENTSHONEYWELL INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Dollars in tables in millions,except per share amounts)NOTE 19.SUBSEQUENT EVENTSOn July 2,2024,the Company entered into a$1.5 billion second 364-day credit agreement(the Second 364-day Credit Agreement).Amounts borrowedunder the Second 364-Day Credit Agreement are required to be repaid no later than July 1,2025,unless(i)Honeywell elects to convert all then outstandingamounts into a term loan,upon which such amounts shall be repaid in full on July 1,2026,or(ii)the Second 364-Day Credit Agreement is terminated earlierpursuant to i
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Solid second-quarter performance Outlook confirmedRoland Busch,CEO Siemens AGRalf P.Thomas,CFO Siemens AGUnrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16Notes and forward-looking statements This document contains statements related to our future business and financial performance and future events or developments involving Siemens that may constitute forward-looking statements.These statements may be identified by words such as“expect,”“look forward to,”“anticipate,”“intend,”“plan,”“believe,”“seek,”“estimate,”“will,”“project”or words of similar meaning.We may also make forward-looking statements in other reports,in prospectuses,in presentations,in material delivered to shareholders and in press releases.In addition,our representatives may from time to time make oral forward-looking statements.Such statements are based on the current expectations and certain assumptions of Siemens management,of which many are beyond Siemens control.These are subject to a number of risks,uncertainties and factors,including,but not limited to those described in disclosures,in particular in the chapter Report on expected developments and associated material opportunities and risks in the Combined Management Report of the Siemens Report( in the Interim Group Management Report of the Half-year Financial Report(provided that it is already available for the current reporting year),which should be read in conjunction with the Combined Management Report.Should one or more of these risks or uncertainties materialize,should decisions,assessments or requirements of regulatory authorities deviate from our expectations,should events of force majeure,such as pandemics,unrest or acts of war,occur or should underlying expectations including future events occur at a later date or not at all or assumptions prove incorrect,actual results,performance or achievements of Siemens may(negatively or positively)vary materially from those described explicitly or implicitly in the relevant forward-looking statement.Siemens neither intends,nor assumes any obligation,to update or revise these forward-looking statements in light of developments which differ from those anticipated.This document includes in the applicable financial reporting framework not clearly defined supplemental financial measures that are or may be alternative performance measures(non-GAAP-measures).These supplemental financial measures should not be viewed in isolation or as alternatives to measures of Siemens net assets and financial positions or results of operations as presented in accordance with the applicable financial reporting framework in its Consolidated Financial Statements.Other companies that report or describe similarly titled alternative performance measures may calculate them differently.Due to rounding,numbers presented throughout this and other documents may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures.Unrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16Page 2Q2 Business highlightsSolid performanceUnrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16Page 3ROBUST TOPLINEOrders solid Book-to-bill 1.07;SI,MO,SHS 1 DI sequentially up,driven by SW Record backlog of 114bnStable revenue MO,SI and SHS all up DI soft due to market headwinds in AutomationCompetitive strength SI Electrification standing out,revenue up 14%SOLID EXECUTIONStringent conversion Q2 IB profit of 2.5bn IB margin at 14.0%on strength in SI,while DI Automation softConsistent free cash flow 2.1bn for IB 1.3bn“all in”Full-year guidance confirmed on Group level DI lowered on top and bottom line SI narrowed towards upper endSUSTAINABLE STRATEGYPortfolio optimization Divestment of Innomotics to KPS IDT ebm-papst acquisition Innovation leadership EcoTech label introduced First to market product launches:electronic switching,industrial AIGrowth engines Digital transformation and sustainability at scale Digital business up 13%in H1Q2 Key FinancialsUnrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16Page 4Orders20.5bn-12%Note:Orders and Revenue growth comparableRevenue19.2bnflatIB Profit margin14.0%EPS pre PPA2.73Free cash flow1.3bnIndustrial Net debt/EBITDA1.1xClear progress to optimize portfolio and sharpen technology company profileUnrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16Page 5Bolt-on acquisitionsStrategic options best owner principleIndustrial BusinessPOC&below IBFY 2024FY 2025ffClosed Q3-24Process Gas ChromatographyDivestment to KPS signedPurchase price of 3.5bn(Enterprise value)Closing in H1 FY25eClosed Q2-24Siemens EnergyAlgeriaNo further P&L effects as of Q2-24Separation process in India progressingSiemens Ltd.Board approved demergerListing of SE India Ltd.within 2025 Announced Q2-24IDTebm-papstSiemens EcoTech label creates industry-leading sustainability transparencyNew Electronic Circuit Protection Device is scaling sustainability impactUnrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16Page 6SENTRON ECPD(Electronic Circuit Protection Device)Ultra-fast(up to 1000 times)USE CASELarge lighting applications in parking decks,airports,tunnels,warehouses for example75wer lighting circuits10%less lightinginstallation costMultifunctionalParameterizableSustainableFOUNDATIONRobust Ecodesign approachSIMATIC S7-15008DJH24 blue GISSINAMICS S200 servo drive systemSINUMERIK ONETransparency on product performance across 13 environmental criteria:Lifecycle from sustainable materials,optimal use&value recovery,circularityCustomers can identify and compare sustainable products more easily:Take informed decisions across entire lifecycle performanceNote:Calculated exampleHanover Fair “Go digital,become sustainable”Cutting edge technologies and strong partnerships drive customer competitiveness Unrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16Page 7Siemens&NVIDIA Enabling the Industrial MetaverseSiemens,Microsoft,Schaeffler Generative AI for Engineering&ShopfloorSiemens Xcelerator Electrification X Siemens Industrial Copilot supports engineers to speed up generation of code for PLCs through natural language input Seamlessly connected to TIA-Portal Reduce repetitive workload and development times,boost quality and productivity Highly scalable IoT SaaS offering to manage,optimize and automate electrification infrastructure Commercial,industrial&utility customers Increase uptime and improve reliability,asset utilization,energy efficiency,sustainability and cyber security Launch of PLM software Teamcenter X powered by NVIDIA Omniverse technologies Ability for ultra-intuitive,photorealistic,real-time and physics-based digital twins Eliminate workflow waste&errors,save time&cost,improve customer experienceAI demand is a significant inflection for accelerated data center investmentLeverage strong portfolio and capacity expansion to gain market share Unrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16Page 8Electrification Infrastructure,MV&LVBuilding ManagementDigital OperationsFinancial Services Decarbonization ServicesSiemens Xcelerator Fire SafetyPhysical SecurityComprehensive portfolioUnprecedented AI growth drives massive build out of data centers globallySupply chains for long-lead electrical infrastructure under pressure,power&grid capacity a potential constraintEmerging EU and US legislation will require more transparent operations reporting,drives digital&sustainability demandExpansion of new global colocation operators as hyperscalers look for more third-party capacityKey market trendsKey customer priority secure supply for build planningOngoing capacity expansion for electrification equipment in U.S.will strengthen our market positionGrowth trajectory points at market share gainsH1 FY 24:Orders sharply up;Revenue up by 25%y-o-yINDUSTRY FOXCONNFactory of the futureBroad based collaboration to drive digital transformation and sustainability in smart manufacturing platforms Siemens Xcelerator and vertical know-how drive customer valueSustainability impact through decarbonization,resource efficiency&people centricityUnrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16AUTOMOTIVE MERCEDES-BENZDigital Energy TwinSimulation model to improve integration of energy efficiency and sustainability measures in factory designs and upgrades across production network.PUBLIC TRANSPORT BANEDANMARK&DSBDriverless train operationsUpgrade of entire 170 km long S-bane network in Copenhagen to highest grade of automation for higher train frequency,increased capacity and flexibilityHIGH-SPEED US BRIGHTLINE WESTTransform American railPreferred bidder for fleet of ten state-of-the-art high-speed train sets including 30-year maintenance contract Verticaldomainknow-howCrosscollaborationCore TechnologiesPage 9Combining the real and digital worldsNew offerings for Siemens Xcelerator portfolio foster growth and customer valueUnrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16FY 2020FY 2021FY 2022FY 2023FY 2024e FY 2025e5.35.66.57.33.810GRDigital Business revenue11“Digital Business”means Siemens vertical specific software and IoT and Digital services from Smart Infrastructure,Digital Industries,Mobility,Siemens Advanta;unconsolidated valuesbnPage 10Stringent execution of SaaS transitionExpanded Industrial Operations X offering,e.g.SW-defined automationDigital IndustriesMobilitySmart InfrastructureRecent highlightsLaunch of Gridscale X to manage complexity of distribution gridsElectrification X introduced,e.g.asset management,load managementScaling of Sqills through internationalizationRailigent X as key for optimized TCO and profitable service businessH1CMD TargetPage 11DI SW Annual Recurring Revenue(ARR)Q2 2218%Q1 2324%Q2 2327%Q3 2330%Q2 2437%3.13.53.63.74.03.94.1Q1 2433%Q4 239% 14%1) 15%1)SaaS transition with high momentum1 ARR:FX comparable Share of Cloud ARRbnCloud ARR:Up 1.8x y-o-y to 1.5bn60%Q2 2279%Q1 2381%Q2 2382%Q3 2384%Q4 2384%Q1 2485%Q2 241,2505,4507,5209,26011,30012,59014,760#Customers(accumulated):Customer transformation rate to SaaS:69Yuxy%Q2 22Q1 23Q2 23Q3 23Q4 23Q1 24Q2 24Cloud invest:120m in H1 FY24|FY24:targeted invest 250m Share of renewals based on total contract value(TCV)Therein 75%new customersSME customersRolling 4QUnrestrictedUnrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16Combining the real and digital worldsStrong underlying growth momentum with SaaS transformation at high paceTARGET40%CloudARRbyFY2024Digital Industries(DI)Strong Software performance,while Automation is soft in challenging environmentUnrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16 Sequential decline in Automation,above trough levels of Q4/23 Stock levels remain elevated SW with double-digit growth Book-to-bill at 0.94 Backlog 10.2bn,therein 5.4bn SW Automation down-20%PLM Software up 5%on progressing SaaS-transition EDA with outstanding growth of 50%Lower capacity utilization Less favorable product mix in Automation Contingency measures intensifying Solid cash conversion on lower profit Shift of payments for major software orders into Q3OrdersbnRevenuebnProfit marginFree cash flowmx.xProfit margin excl.severancex.xsh Conversion Ratex.xxtherein SoftwareQ2 FY 23Q2 FY 245.04.3-12%1)1.24.0Q2 FY 231.43.1Q2 FY 245.24.5-11%1)Q2 FY 23Q2 FY 24-780bps16.5$.5.7-23$.3V5Q2 FY 23Q2 FY 241,158-51%0.920.761 Comparable,excl.FX and portfoliox.xPage 12Digital Industries(DI)Unrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16Automation orders sequentially softer;however,above trough level of Q4 FY 23Lower fast turning orders affect revenue growth on very tough comps-20%-26%OrdersRevenueQ2 FY 24 Key regions AutomationChina-17%-25%Germany-45%-27%Italy-22%-11%U.S.Q2 FY 24 Software 19%GlobalStrong performance driven by EDA,Double digit-growth across all regionsOrders normalizing,sequentially up;Weak macro weighed on revenueOrders still weak in soft macro;Revenue lower broad-based versus outstanding PY levelsOrders impacted by soft macro and elevated distributor stock levels;Revenue with tough compsOrders further normalizing;Process revenue moderately downNote:Growth rates Comparable,excl.FX and portfolioPage 13Digital Industries(DI)Vertical end market trendsUnrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16Still subdued macro environmentMuted growth momentum in key end marketsAutomotiveMachine BuildingFood&BeveragePharma&ChemicalsAerospace&DefenseElectronics&SemiconductorsVertical end marketsRevenueexposureMarket trend1Q1 FY 24Market trend1Q2 FY 2420%5%1 Y-o-Y industry revenue development for next 6 months based on industry production data from statistical office sources(e.g.NBoS,US Fed,Eurostat)Page 14Smart Infrastructure(SI)Consistent topline momentum,record operational profitability,strong free cash flowUnrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16 Book-to-bill at 1.18 Electrical Products up 26%Electrification up 4%Buildings up 4%Record level of large orders from data center customers All-time high backlog 18bn Electrification with further excellent growth of 14%Electrical Products up 2%on tough comps Buildings up 2%driven by solutions and services Service business up 6%Strong conversion on higher revenue and capacity utilization Net positive economic equation supported by ongoing productivity measures Stringent cash conversionOrdersbnRevenuebnProfit marginFree cash flowm1 Comparable,excl.FX and portfolioProfit margin excl.severancex.xsh Conversion Ratex.xxtherein ServiceQ2 FY 23Q2 FY 245.56.1 10%1)1.03.9Q2 FY 231.14.0Q2 FY 244.95.1 6%1)796770Q2 FY 23Q2 FY 24-3%1.020.90Q2 FY 23Q2 FY 24 70bps16.1.8-16.9.6%x.xx.xPage 15Smart Infrastructure(SI)Unrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16Order growth driven by large customer wins for data centersRevenue growth fueled by strong momentum in the U.S.Orders RevenueQ2 FY 24 Key regions Q2 FY 24 Service 6%GlobalBroad-based revenue growth driven by Asia and across Europe 38% 12%U.S.Order strength on large data center wins;Strong backlog execution,Electrification&Electrical Products driving revenue up-12%-1%GermanyOrders softer across businesses;Revenue growth in Buildings offsetting Electrical Products-9%-9%ChinaOrders and revenue soft across businesses due to challenging market environment,especially in commercial real estate 3% 1%Europeexcl.GermanyOrders driven by large Buildings orders;Revenue strength in Electrification,mainly power distribution&transmissionNote:Growth rates Comparable,excl.FX and portfolioPage 16Smart Infrastructure(SI)Vertical end market trendsUnrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16Key verticals with consistent market trendsData Center a growth engine boosted by AI;Power Distribution strengthCommercial BuildingsPublic Sector/EducationData CenterPower DistributionElectrical&ElectronicsHealthcareVertical end marketsRevenueexposureMarket trend1Q1 FY 24Market trend1Q2 FY 2420%5%5%5%1 Trend next 3 4 quarters,Y-o-Y vertical market development Page 17Mobility(MO)Solid topline and profit performance,sharp free cash flow improvementUnrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16 Book-to-bill at 1.12 Solid number of large and mid sized orders in both,Rolling Stock and Rail Infrastructure Backlog at 48bn,therein 13bn service Clear growth across all businesses Stringent backlog execution Service up 9%Higher revenue and strong project execution drive operational profitability improvement Prior year included positive trailing effects from Russia Higher level of milestone and downpayments Clear catch up as expectedOrdersbnRevenueProfit marginFree cash flowmCash Conversion Ratex.xxtherein ServiceQ2 FY 23Q2 FY 246.23.2-49%1)0.42.2Q2 FY 230.52.3Q2 FY 242.72.8 6%1)2331Q2 FY 23Q2 FY 24 100%0.011.40Q2 FY 23Q2 FY 24-80bps8.4-13%9.2%1 Comparable,excl.FX and portfoliox.xx.xRevenuebn9.6%8.6%Profit margin excl.severancex.x%Page 18Below Industrial BusinessSolid operational performance,lower tax rateUnrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16m14989162IBSFSPOCOther Below IB items-188PPA-260TaxIncome Cont.OpsDisc.Ops.Net Income2,5132,0342,196-269Minorities163mTax Rate 11%Q2 FY 24 SFS:Consistently solid performance Portfolio Companies:Robust profitability as expected;starting from Q3,Innomotics will be reported in D/O retrospectively Net Income:Reflecting solid operational performance;significantly lower tax rate due to a non-cash reversal of income tax provisionsPositive swing in Discontinued Operations also tax-drivenNote:Other Below IB items contains SE Investment;SRE;Innovation;Governance;Pensions;Financing,Elimination,OtherDetailed split H1 24 and Outlook FY 2024 see page 28 Page 19Key developmentsSolid free cash flow supported by all businessesUnrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16FCF Industrial BusinessbnFCF“all in”bnIndustrial Business lower due to profit decline at Digital Industries Build up of operating net working capital at Siemens HealthineersCash Conversion Ratex.x2.70.4H1 FY 232.11.3H1 FY 243.13.4Q2Q1 10%0.59Q2 cash performance0.65Page 20Capital allocation for shareholders2.30.1H1 FY 231.31.0H1 FY 24Q2Q12.42.4-2%0.470.50New share buyback program started(0.2bn since inception in Feb 2024)Dividend payment of 3.7bn to Siemens shareholders in Feb 2024Outlook FY 2024 on Group level confirmedUnrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16Page 21This outlook excludes burdens from legal and regulatory mattersSiemens GroupSiemens BusinessesRevenue growthComparable Profit marginDigital Industries-8%-4%prior 0%3!%prior 20#%Smart Infrastructure8%prior 7%prior 15%Mobility8%8%Book-to-bill1Revenue growthComparable4%8%EPS pre PPA excl.SE Investment10.40 11.00Unrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16Questions and AnswersPage 22Unrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16AppendixPage 23Shaping the future of Innomotics,a leading motors and large drives companySiemens AG has decided to sell Innomotics to KPS Capital Partners for 3.5bnPage 24Germany28%Americas21%Europe&Africa 20%China19%APAC&ME12%Revenue by geography(FY 23)#13.3bnMarket positionRevenue(FY 23)Adj.EBITDA margin(FY 23)DoubledigitUnrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16Key transaction factsBuyer:KPS Capital Partners Very experienced financial investor with US$21bn AuM Strong track record in creating and strengthening world-class,industry-leading manufacturing and industrial businessesPurchase price(EV):3.5bnNext steps:Transaction expected to be completed in H1 FY 25,after customary regulatory approvalsOrder backlog on record levelGrowth aspirations well underpinned for SiemensUnrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-165534230487181094Order backlog March 202456FY 2024eFY 2025eAfter FY 2025e11429Expected revenue generation from backlogKey developmentsbnShort-cycle product businesses in DI further normalized,Software backlog now exceeding AutomationContinued rise of backlog in systems,solution and service business of SI providing strong basis for clear revenue growthMO with high visibility for utilization of well-structured manufacturing footprint;execution excellence is key Attractive long-term share in SHS-backlogDIMOSHSSIPOC/OtherPage 2510%Manufacturing5%Healthcarenon-hospitals5%Information andcommunication8%Healthcare hospitals6%Conventional power9%Transmission anddistribution13%Service9%Transportation43%USA4%Wholesale andretail trade63%Project andstructured debt6%Equity business30%Commercialfinance16%RenewableFinancial Services:Strong H1 performance driven by an equity sale as planned in Q1 provides a solid base for FY24Page 26IndustryProduct15%OtherRegion4nada12%Other investmentgrade countries 3%Other non-investment grade countries13%Other EU12%UK4%France4%India6%GermanyPortfolio composition by product,industry and region(Q2 FY 24)SFS totalDebt BusinessEquity BusinessTherein:Return on Equity(after tax)Earnings before taxes(m)Total assets(bn)Key figures30340931.3H1FY2332.6H1FY2420321029.2H1FY2330.2H1FY241022021.8H1FY232.1H1FY2417.3#.8%Unrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-1612.5B.9.8q.4low Industrial Business-OutlookStarting from Q3 FY 24 Innomotics will be reported as Discontinued OperationsUnrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16H1 FY 24Expectation for FY 2024Profit Industrial Business5,236SFS409Further gradual improvement over FY 2023POC167Operational margin 5%,FY 23 included gain on sale of CV(148m)SE Investment479No further P&L impact;excluded from EPS guidanceSRE16On FY 2023 level,dependent on disposal gainsInnovation-94On FY 2023 levelGovernance-76Further improvement vs.FY 2023;around-0.3bnPensions-47On FY 2023 levelPPA-384-0.7 to-0.8bn,based on current portfolioFinancing,Elim.,Other-152-0.3 to-0.4bn,depending on market developmentsTax-984Tax Rate:21 25%w/o impact from potential tax reformsIncome C/O4,570Discontinued Operations175Innomotics will be reported as D/O starting from Q3 FY 24 retrospectivelyNet Income4,744Page 27Net Debt bridgeCapital Structure remains rock solidUnrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16Net Debt Q1 20242.0-0.2 OWC-1.0Cash flows from investing activities-5.2Financing and other topicsNet Debt Q2 202426.8Net Debt adjustmentsInd.Net Debt Q2 202436.641.014.2Q2 Q1 SFS debt 28.5 0.6 Provisions for pensions-1.4 0.1 Credit guarantees-0.4 0.0Ind.Net Debt/EBITDA(c/o)1.1x(Q1 FY24:0.7x)Cash&cash equiv.11.8bn1)Cash&cash equiv.8.8bn2)Operating ActivitiesbnCash flows from operating activities(w/o OWC)1 Sum Cash&cash equivalents of 11.8bn incl.current interest bearing debt securities of 1.1bn2 Sum Cash&cash equivalents of 8.8bn incl.current interest bearing debt securities of 1.1bntherein:Inventories-0.2 Trade and other receivables 0.1 Trade payables-0.3 Contract assets/liabilities 0.2therein:Dividends paid-3.7 Share buyback-0.2 Interest paid-0.6 FX -0.6therein:CAPEX-0.5 SFS-0.5Page 28Capital structure on strong levelContinuing robust cash performance,dividend paymentUnrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16Capital structure1.6x 1.6x1.0 x1.1x1.0 x0.8x0.6x0.7x1.1xQ2 22 Q3 22 Q4 22 Q1 23 Q2 23 Q3 23 Q4 23 Q1 24 Q2 24Industrial net debt/EBITDA(c/o)Consistent cash generation with stable development over prior year H1 Excellent financial position recognized with rating upgrade by S&P to AA-Raised large 5bn corporate bond across a four-part deal with outstanding terms&conditions Pension deficit remains on record low level of 1.4bn Record dividend payment of 3.7bn to Siemens shareholders New share buyback program started Opportunities from further portfolio optimizationTargetUp to 1.5xPage 29Financial strengthSiemens with sound refinancing profileUnrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16Page 30FY 2031FY 2032FY2033FY 2034FY 2035FY2036FY2037FY 2039FY 2041FY 2042FY2043FY2044FY 2045FY 2046FY 20471.54.86.75.42.93.02.33.72.01.01.00.80.5FY 2024FY 2025FY 2026FY 2027FY 2028FY 2029FY 20300.81.41.30.81.51.60.91.40.8Loan and bond maturity profile as of March 28,2024in EUR bnTotal loan and bond debt of around 46bn1)1)Nominal AmountProvisions for pensions remain stable at historic low levelUnrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16Page 31Q FY 2020 Pensions and similar obligations 1 All figures are reported on a continuing basis(w/o LHfS)2 Fair value of plan assets including effects from asset ceiling(Q2 2024:-0.5bn);Difference between DBO and fair value of plan assets additionally resulted in net defined benefit assets (Q2 2024:1.0bn)in bnFY 2021FY 2022Q1 FY 2023Q2 FY 2023Q3 FY 2023Q4 FY 2023Q1 FY 2024Q2 FY 2024Defined benefit obligation(DBO)-35.5-27.8-27.2-27.3-28.1-26.6-28.8-28.3Fair value of plan assets33.525.925.725.926.725.527.727.9Provisions for pensions and similar obligations-2.8-2.3-1.8-1.8-1.7-1.4-1.5-1.4Discount rate1.3%3.9%3.9%3.8%3.8%4.6%3.5%3.7%Interest income0.30.30.20.20.20.20.30.3Actual return on plan assets2.5-6.70.40.70.1-1.01.70.7Profit Bridge from SHS disclosure to SAG disclosureDifferent profit definitions at SHS and SAG to be considered in modelsUnrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16Page 32mQ2 FY 24H1 FY 24SHS EBIT(adjusted)82215.1%1,56414.7%PPA(SHS logic)1-95-191Transaction,integration,retention,carve-out cost-6-11Gains and losses from divestments00Severance-29-54Expenses for other portfolio-related measures00Other restructuring expenses-103-126SHS EBIT(as reported)58910.8%1,18211.1%PPA(SAG logic)2 91 182Consolidation/Accounting Differences 1 8SAG Profit(as reported)68112.5%1,37312.9%Severance 29 54SAG Profit(excl.severance)71013.1%1,42613.4%1PPA on intangible assets as well as other effects from IFRS 3 PPA adjustments2 PPA on intangible assetsUnrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05-16Outlook FY 2024 as presented by Siemens Healthineers on May 7,2024Page 33Tobias ANikola PChristopher HJulia BFinancial calendarUnrestricted|Siemens 2024|Investor Relations|Q2 Analyst Call|2024-05- 89 7805-32474Investor Relations ContactsMartin BNico ZMay 16,2024Q2 Earnings ReleaseJune 13,2024JP Morgan ConferenceMay 17,2024Roadshow London(virtual)June 4,2024BNP Exane ConferenceCinzia FMay 28/29,2024RoadshowNew York,BostonJune 5,2024Roadshow FrankfurtPage 34June 20,2024Roadshow Munich;JefferiesConference(virtual)August 8,2024Q3 Earnings Release
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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON,D.C.20549FORM 10-Q(Mark One)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 29,2024 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission File Number 001-02217 COCA COLA CO (Exact name of Registrant as specified in its charter)Delaware 58-0628465(State or other jurisdiction of incorporation or organization)(I.R.S.Employer Identification No.)One Coca-Cola PlazaAtlanta Georgia30313(Address of principal executive offices)(Zip Code)Registrants telephone number,including area code:(404)676-2121 Securities registered pursuant to Section 12(b)of the Act:Title of each classTrading Symbol(s)Name of each exchange on which registeredCommon Stock,$0.25 Par ValueKONew York Stock Exchange1.875%Notes Due 2026KO26New York Stock Exchange0.750%Notes Due 2026KO26CNew York Stock Exchange1.125%Notes Due 2027KO27New York Stock Exchange0.125%Notes Due 2029KO29ANew York Stock Exchange0.125%Notes Due 2029KO29BNew York Stock Exchange0.400%Notes Due 2030KO30BNew York Stock Exchange1.250%Notes Due 2031KO31New York Stock Exchange0.375%Notes Due 2033KO33New York Stock Exchange0.500%Notes Due 2033KO33ANew York Stock Exchange1.625%Notes Due 2035KO35New York Stock Exchange1.100%Notes Due 2036KO36New York Stock Exchange0.950%Notes Due 2036KO36ANew York Stock Exchange0.800%Notes Due 2040KO40BNew York Stock Exchange1.000%Notes Due 2041KO41New York Stock ExchangeIndicate by check mark whether the Registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the Registrant was required to file such reports)and(2)has been subject to such filing requirements for the past 90 days.Yes No Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the Registrant was required to submit such files).Yes No Indicate by check mark whether the Registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company or an emerging growth company.See the definitions of“large accelerated filer,”“accelerated filer,”“smaller reporting company”and“emerging growth company”in Rule 12b-2 of the Exchange Act.Large accelerated filerAccelerated filer Non-accelerated filerSmaller reporting companyEmerging growth companyIf an emerging growth company,indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark if the Registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act).Yes No Indicate the number of shares outstanding of each of the issuers classes of common stock as of the latest practicable date.Class of Common Stock Shares Outstanding as of April 30,2024$0.25 Par Value 4,307,955,307THE COCA-COLA COMPANY AND SUBSIDIARIESTable of Contents PageForward-Looking Statements1Part I.Financial Information Item 1.Financial Statements2Consolidated Statements of Income Three Months Ended March 29,2024 and March 31,20232Consolidated Statements of Comprehensive Income Three Months Ended March 29,2024 andMarch 31,20233Consolidated Balance Sheets March 29,2024 and December 31,20234Consolidated Statements of Cash Flows Three Months Ended March 29,2024 and March 31,20235Notes to Consolidated Financial Statements6Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations27Item 3.Quantitative and Qualitative Disclosures About Market Risk39Item 4.Controls and Procedures39Part II.Other Information Item 1.Legal Proceedings40Item 1A.Risk Factors41Item 2.Unregistered Sales of Equity Securities and Use of Proceeds42Item 5.Other Information42Item 6.Exhibits42Signatures46FORWARD-LOOKING STATEMENTSThis report contains information that may constitute“forward-looking statements.”Generally,the words“believe,”“expect,”“intend,”“estimate,”“anticipate,”“project,”“will”and similar expressions identify forward-looking statements,which generally are not historical in nature.However,the absence of these words or similar expressions does not mean that a statement is not forward-looking.All statements that address operating performance,events or developments that we expect or anticipate will occur in the future including statements relating to volume growth,share of sales and net income per share growth,and statements expressing general views about future operating results are forward-looking statements.Management believes that these forward-looking statements are reasonable as and when made.However,caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made.Our Company undertakes no obligation to publicly update or revise any forward-looking statements,whether as a result of new information,future events or otherwise,except as required by law.In addition,forward-looking statements are subject to certain risks and uncertainties that could cause our Companys actual results to differ materially from historical experience and our present expectations or projections.These risks and uncertainties include,but are not limited to,the possibility that the assumptions used to calculate our estimated aggregate incremental tax and interest liability related to the potential unfavorable outcome of the ongoing tax dispute with the U.S.Internal Revenue Service could significantly change;those described in Part II,“Item 1A.Risk Factors”and elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31,2023;and those described from time to time in our future reports filed with the Securities and Exchange Commission.1Part I.Financial InformationItem 1.Financial StatementsTHE COCA-COLA COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(In millions except per share data)Three Months EndedMarch 29,2024March 31,2023Net Operating Revenues$11,300$10,980 Cost of goods sold 4,235 4,317 Gross Profit 7,065 6,663 Selling,general and administrative expenses 3,351 3,185 Other operating charges 1,573 111 Operating Income 2,141 3,367 Interest income 246 168 Interest expense 382 372 Equity income(loss)net 354 275 Other income(loss)net 1,513 615 Income Before Income Taxes 3,872 4,053 Income taxes 687 940 Consolidated Net Income 3,185 3,113 Less:Net income(loss)attributable to noncontrolling interests 8 6 Net Income Attributable to Shareowners of The Coca-Cola Company$3,177$3,107 Basic Net Income Per Share1$0.74$0.72 Diluted Net Income Per Share1$0.74$0.72 Average Shares Outstanding Basic 4,310 4,326 Effect of dilutive securities 12 19 Average Shares Outstanding Diluted 4,322 4,345 1 Calculated based on net income attributable to shareowners of The Coca-Cola Company.Refer to Notes to Consolidated Financial Statements.2THE COCA-COLA COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(In millions)Three Months EndedMarch 29,2024March 31,2023Consolidated Net Income$3,185$3,113 Other Comprehensive Income:Net foreign currency translation adjustments(303)549 Net gains(losses)on derivatives 49 (70)Net change in unrealized gains(losses)on available-for-sale debt securities 5 8 Net change in pension and other postretirement benefit liabilities(4)11 Total Comprehensive Income 2,932 3,611 Less:Comprehensive income(loss)attributable to noncontrolling interests(16)(69)Total Comprehensive Income Attributable to Shareowners of The Coca-Cola Company$2,948$3,680 Refer to Notes to Consolidated Financial Statements.3THE COCA-COLA COMPANY AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In millions except par value)March 29,2024December 31,2023ASSETSCurrent Assets Cash and cash equivalents$10,443$9,366 Short-term investments 4,760 2,997 Total Cash,Cash Equivalents and Short-Term Investments 15,203 12,363 Marketable securities 1,716 1,300 Trade accounts receivable,less allowances of$504 and$502,respectively 4,244 3,410 Inventories 4,961 4,424 Prepaid expenses and other current assets 3,338 5,235 Total Current Assets 29,462 26,732 Equity method investments 19,495 19,671 Other investments 147 118 Other noncurrent assets 7,291 7,162 Deferred income tax assets 1,457 1,561 Property,plant and equipment,less accumulated depreciation of$9,359 and$9,233,respectively 9,306 9,236 Trademarks with indefinite lives 13,532 14,349 Goodwill 18,210 18,358 Other intangible assets 492 516 Total Assets$99,392$97,703 LIABILITIES AND EQUITYCurrent Liabilities Accounts payable and accrued expenses$19,425$15,485 Loans and notes payable 6,054 4,557 Current maturities of long-term debt 1,392 1,960 Accrued income taxes 1,485 1,569 Total Current Liabilities 28,356 23,571 Long-term debt 35,104 35,547 Other noncurrent liabilities 5,465 8,466 Deferred income tax liabilities 2,521 2,639 The Coca-Cola Company Shareowners Equity Common stock,$0.25 par value;authorized 11,200 shares;issued 7,040 shares 1,760 1,760 Capital surplus 19,321 19,209 Reinvested earnings 74,868 73,782 Accumulated other comprehensive income(loss)(14,504)(14,275)Treasury stock,at cost 2,732 and 2,732 shares,respectively(55,016)(54,535)Equity Attributable to Shareowners of The Coca-Cola Company 26,429 25,941 Equity attributable to noncontrolling interests 1,517 1,539 Total Equity 27,946 27,480 Total Liabilities and Equity$99,392$97,703 Refer to Notes to Consolidated Financial Statements.4THE COCA-COLA COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In millions)Three Months Ended March 29,2024March 31,2023Operating Activities Consolidated net income$3,185$3,113 Adjustments to reconcile consolidated net income to net cash provided by operating activities:Depreciation and amortization 262 286 Stock-based compensation expense 68 58 Deferred income taxes(173)260 Equity(income)loss net of dividends(58)(249)Foreign currency adjustments 17 25 Significant(gains)losses net(1,401)(442)Other operating charges 1,532 88 Other items(59)(102)Net change in operating assets and liabilities(2,845)(2,877)Net Cash Provided by Operating Activities 528 160 Investing Activities Purchases of investments(2,552)(739)Proceeds from disposals of investments 444 815 Acquisitions of businesses,equity method investments and nonmarketable securities(8)(20)Proceeds from disposals of businesses,equity method investments and nonmarketable securities 2,893 319 Purchases of property,plant and equipment(370)(276)Proceeds from disposals of property,plant and equipment 14 21 Collateral(paid)received associated with hedging activities net(105)18 Other investing activities 14 (21)Net Cash Provided by(Used in)Investing Activities 330 117 Financing Activities Issuances of loans,notes payable and long-term debt 2,285 4,074 Payments of loans,notes payable and long-term debt(1,366)(1,174)Issuances of stock 290 229 Purchases of stock for treasury(702)(848)Dividends(99)(101)Other financing activities(2)(115)Net Cash Provided by(Used in)Financing Activities 406 2,065 Effect of Exchange Rate Changes on Cash,Cash Equivalents,Restricted Cash and Restricted Cash Equivalents(138)113 Cash,Cash Equivalents,Restricted Cash and Restricted Cash EquivalentsNet increase(decrease)in cash,cash equivalents,restricted cash and restricted cash equivalents during the period 1,126 2,455 Cash,cash equivalents,restricted cash and restricted cash equivalents at beginning of period 9,692 9,825 Cash,Cash Equivalents,Restricted Cash and Restricted Cash Equivalents at End of Period 10,818 12,280 Less:Restricted cash and restricted cash equivalents at end of period 375 276 Cash and Cash Equivalents at End of Period$10,443$12,004 Refer to Notes to Consolidated Financial Statements.5THE COCA-COLA COMPANY AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 1:SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of PresentationThe accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States(“U.S.GAAP”)for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.They do not include all information and notes required by U.S.GAAP for complete financial statements.However,except as disclosed herein,there has been no material change in the information disclosed in the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K of The Coca-Cola Company for the year ended December 31,2023.When used in these notes,the terms“The Coca-Cola Company,”“Company,”“we,”“us”and“our”mean The Coca-Cola Company and all entities included in our consolidated financial statements.In the opinion of management,all adjustments(including normal recurring accruals)considered necessary for a fair presentation have been included.Operating results for the three months ended March 29,2024 are not necessarily indicative of the results that may be expected for the year ending December 31,2024.Sales of our ready-to-drink beverages are somewhat seasonal,with the second and third calendar quarters typically accounting for the highest sales volumes.The volume of sales in the beverage business may be affected by weather conditions.Each of our quarterly reporting periods,other than the fourth quarter,ends on the Friday closest to the last day of the corresponding quarterly calendar period.The first quarter of 2024 and the first quarter of 2023 ended on March 29,2024 and March 31,2023,respectively.Our fourth quarter and our fiscal year end on December 31 regardless of the day of the week on which December 31 falls.Advertising CostsThe Companys accounting policy related to advertising costs for annual reporting purposes is to expense production costs of print,radio,television and other advertisements as of the first date the advertisements take place.All other marketing expenditures are expensed in the annual period in which the expenditure is incurred.For quarterly reporting purposes,we allocate our estimated full year marketing expenditures that benefit multiple quarters to each of those quarters.We use the proportion of each quarters actual unit case volume to the estimated full year unit case volume as the basis for the allocation.This methodology results in our marketing expenditures being recognized at a standard rate per unit case.At the end of each quarter,we review our estimated full year unit case volume and our estimated full year marketing expenditures that benefit multiple quarters in order to evaluate if a change in estimate is necessary.The impact of any change in the full year estimate is recognized in the quarter in which the change in estimate occurs.Our full year marketing expenditures are not impacted by this interim accounting policy.Cash,Cash Equivalents,Restricted Cash and Restricted Cash EquivalentsWe classify time deposits and other investments that are highly liquid and have maturities of three months or less at the date of purchase as cash equivalents or restricted cash equivalents,as applicable.Restricted cash and restricted cash equivalents generally consist of amounts held by our captive insurance companies,which are included in the line item other noncurrent assets in our consolidated balance sheet,and when applicable,cash and cash equivalents related to assets held for sale are included in the line item prepaid expenses and other current assets in our consolidated balance sheets.We manage our exposure to counterparty credit risk through specific minimum credit standards,diversification of counterparties and procedures to monitor our concentrations of credit risk.Refer to Note 2 for additional information on our assets held for sale and Note 4 for additional information on our captive insurance companies.The following tables provide a summary of cash,cash equivalents,restricted cash and restricted cash equivalents that constitute the total amounts shown in our consolidated statements of cash flows(in millions):March 29,2024December 31,2023Cash and cash equivalents$10,443$9,366 Restricted cash and restricted cash equivalents 375 326 Cash,cash equivalents,restricted cash and restricted cash equivalents$10,818$9,692 6March 31,2023December 31,2022Cash and cash equivalents$12,004$9,519 Restricted cash and restricted cash equivalents 276 306 Cash,cash equivalents,restricted cash and restricted cash equivalents$12,280$9,825 Recently Issued Accounting GuidanceIn November 2023,the Financial Accounting Standards Board(“FASB”)issued Accounting Standards Update(“ASU”)2023-07,Segment Reporting(Topic 280):Improvements to Reportable Segment Disclosures,which expands annual and interim disclosure requirements for reportable segments,primarily through enhanced disclosures about significant segment expenses.The expanded annual disclosures are effective for the year ending December 31,2024,and the expanded interim disclosures are effective in 2025 and will be applied retrospectively to all prior periods presented.The Company is currently evaluating the impact that ASU 2023-07 will have on our consolidated financial statements.In December 2023,the FASB issued ASU 2023-09,Income Taxes(Topic 740):Improvements to Income Tax Disclosures,which requires,among other things,additional disclosures primarily related to the income tax rate reconciliation and income taxes paid.The expanded annual disclosures are effective for the year ending December 31,2025.The Company is currently evaluating the impact that ASU 2023-09 will have on our consolidated financial statements and whether we will apply the standard prospectively or retrospectively.NOTE 2:ACQUISITIONS AND DIVESTITURESAcquisitionsOur Companys acquisitions of businesses,equity method investments and nonmarketable securities totaled$8 million and$20 million during the three months ended March 29,2024 and March 31,2023,respectively.DivestituresProceeds from disposals of businesses,equity method investments and nonmarketable securities during the three months ended March 29,2024 totaled$2,893 million,which primarily related to the refranchising of the Companys bottling operations that were classified as held for sale as of December 31,2023.Also included was the sale of our ownership interest in an equity method investee in Thailand for which we received cash proceeds of$728 million and recognized a net gain of$516 million,which was recorded in the line item other income(loss)net in our consolidated statement of income.Proceeds from disposals of businesses,equity method investments and nonmarketable securities during the three months ended March 31,2023 totaled$319 million,which primarily related to the sale of our ownership interest in an equity method investee in Indonesia to Coca-Cola Europacific Partners plc(“CCEP”),an equity method investee,for which we received cash proceeds of$302 million and recognized a net gain of$12 million.The Company also refranchised its bottling operations in Vietnam in January 2023 and recognized a net gain of$439 million as a result of the sale.The Company received the related cash proceeds of$823 million in December 2022.These gains were recorded in the line item other income(loss)net in our consolidated statement of income.Assets and Liabilities Held for SaleAs of December 31,2023,the Companys bottling operations in the Philippines,Bangladesh and certain territories in India met the criteria to be classified as held for sale.As a result,we were required to record the related assets and liabilities at the lower of carrying value or fair value less any costs to sell.As the fair values less any costs to sell exceeded the carrying values,the related assets and liabilities were recorded at their carrying values.These assets and liabilities were included in the Bottling Investments operating segment.The Company refranchised its bottling operations in certain territories in India in January and February of 2024,for which we received net cash proceeds of$476 million and recognized a net gain of$293 million.The Company refranchised its bottling operations in Bangladesh to Coca-Cola İecek A.(“CCI”),an equity method investee,in February 2024,for which we received net cash proceeds of$27 million and a note receivable of$29 million and recognized a net loss of$18 million,primarily due to the related reversal of cumulative translation adjustments.Additionally,in February 2024,the Company refranchised its bottling operations in the Philippines to CCEP and a local business partner,for which we received net cash proceeds of$1,656 million and recognized a net gain of$599 million.These gains and losses were recorded in the line item other income(loss)net in our consolidated statement of income.7The following table presents information related to the major classes of assets and liabilities that were classified as held for sale and were included in the line items prepaid expenses and other current assets and accounts payable and accrued expenses,respectively,in our consolidated balance sheet(in millions):December 31,2023Cash,cash equivalents and short-term investments$37 Marketable securities 8 Trade accounts receivable,less allowances 95 Inventories 299 Prepaid expenses and other current assets 60 Equity method investments 4 Other noncurrent assets 51 Deferred income tax assets 28 Property,plant and equipment net 1,267 Goodwill 231 Other intangible assets 14 Assets held for sale$2,094 Accounts payable and accrued expenses$464 Loans and notes payable 63 Accrued income taxes 24 Long-term debt 2 Other noncurrent liabilities 108 Deferred income tax liabilities 58 Liabilities held for sale$719 NOTE 3:NET OPERATING REVENUES The following table presents net operating revenues disaggregated between the United States and International and further by line of business(in millions):United StatesInternationalTotalThree Months Ended March 29,2024Concentrate operations$2,125$4,530$6,655 Finished product operations 1,993 2,652 4,645 Total$4,118$7,182$11,300 Three Months Ended March 31,2023Concentrate operations$1,989$4,344$6,333 Finished product operations 1,860 2,787 4,647 Total$3,849$7,131$10,980 Refer to Note 17 for disclosures of net operating revenues by operating segment and Corporate.8NOTE 4:INVESTMENTSEquity SecuritiesThe carrying values of our equity securities were included in the following line items in our consolidated balance sheets(in millions):March 29,2024Marketable securities$373$Other investments 105 42 Other noncurrent assets 1,628 Total equity securities$2,106$42 December 31,2023Marketable securities$345$Other investments 76 42 Other noncurrent assets 1,585 Total equity securities$2,006$42 Fair Value with Changes Recognized in IncomeMeasurement Alternative No Readily Determinable Fair Value The calculation of net unrealized gains and losses recognized during the period related to equity securities still held at the end of the period is as follows(in millions):Three Months EndedMarch 29,2024March 31,2023Net gains(losses)recognized during the period related to equity securities$183$125 Less:Net gains(losses)recognized during the period related to equity securities sold during the period 49 1 Net unrealized gains(losses)recognized during the period related to equity securitiesstill held at the end of the period$134$124 Debt SecuritiesOur debt securities consisted of the following(in millions):Gross UnrealizedEstimatedFair Value CostGainsLossesMarch 29,2024Trading securities$45$1$(2)$44 Available-for-sale securities 1,516 29 (25)1,520 Total debt securities$1,561$30$(27)$1,564 December 31,2023Trading securities$43$(2)$41 Available-for-sale securities 1,136 26 (28)1,134 Total debt securities$1,179$26$(30)$1,175 The carrying values of our debt securities were included in the following line items in our consolidated balance sheets(in millions):March 29,2024December 31,2023Trading Securities Available-for-Sale Securities Trading Securities Available-for-Sale Securities Marketable securities$44$1,299$41$914 Other noncurrent assets 221 220 Total debt securities$44$1,520$41$1,134 9The contractual maturities of these available-for-sale debt securities as of March 29,2024 were as follows(in millions):CostEstimated Fair Value Within 1 year$224$224 After 1 year through 5 years 1,075 1,080 After 5 years through 10 years 45 57 After 10 years 172 159 Total$1,516$1,520 The Company expects that actual maturities may differ from the contractual maturities above because borrowers have the right to call or prepay certain obligations.The sale and/or maturity of available-for-sale debt securities resulted in the following realized activity(in millions):Three Months EndedMarch 29,2024March 31,2023Gross gains$1$Gross losses(7)(3)Proceeds 383 68 Captive Insurance CompaniesIn accordance with local insurance regulations,our consolidated captive insurance companies are required to meet and maintain minimum solvency capital requirements.The Company elected to invest a majority of its solvency capital in a portfolio of marketable equity and debt securities.These securities are included in the disclosures above.The Company uses one of our consolidated captive insurance companies to reinsure group annuity insurance contracts that cover the obligations of certain of our European and Canadian pension plans.This captives solvency capital funds included total equity and debt securities of$1,679 million and$1,643 million as of March 29,2024 and December 31,2023,respectively,which were classified in the line item other noncurrent assets in our consolidated balance sheets because the assets were not available to satisfy our current obligations.NOTE 5:INVENTORIESInventories consisted of the following(in millions):March 29,2024December 31,2023Raw materials and packaging$2,924$2,618 Finished goods 1,675 1,449 Other 362 357 Total inventories$4,961$4,424 10NOTE 6:HEDGING TRANSACTIONS AND DERIVATIVE FINANCIAL INSTRUMENTS The following table presents the fair values of the Companys derivative instruments that were designated and qualified as part of a hedging relationship(in millions):Fair Value1,2Derivatives Designated as Hedging InstrumentsBalance Sheet Location1March 29,2024December 31,2023Assets:Foreign currency contractsPrepaid expenses and other current assets$140$109 Foreign currency contractsOther noncurrent assets 27 13 Interest rate contractsOther noncurrent assets 5 50 Total assets$172$172 Liabilities:Foreign currency contractsAccounts payable and accrued expenses$107$111 Foreign currency contractsOther noncurrent liabilities 33 40 Commodity contractsAccounts payable and accrued expenses 1 3 Interest rate contractsAccounts payable and accrued expenses 5 Interest rate contractsOther noncurrent liabilities 1,217 1,113 Total liabilities$1,358$1,272 1All of the Companys derivative instruments are carried at fair value in our consolidated balance sheets after considering the impact of legally enforceable master netting agreements and cash collateral held or placed with the same counterparties,as applicable.Current disclosure requirements mandate that derivatives must also be disclosed without reflecting the impact of master netting agreements and cash collateral.Refer to Note 16 for the net presentation of the Companys derivative instruments.2Refer to Note 16 for additional information related to the estimated fair value.The following table presents the fair values of the Companys derivative instruments that were not designated as hedging instruments(in millions):Fair Value1,2Derivatives Not Designated as Hedging InstrumentsBalance Sheet Location1March 29,2024December 31,2023Assets:Foreign currency contractsPrepaid expenses and other current assets$94$91 Foreign currency contractsOther noncurrent assets 1 3 Commodity contractsPrepaid expenses and other current assets 7 5 Other derivative instrumentsPrepaid expenses and other current assets 1 4 Total assets$103$103 Liabilities:Foreign currency contractsAccounts payable and accrued expenses$30$106 Foreign currency contractsOther noncurrent liabilities 3 3 Commodity contractsAccounts payable and accrued expenses 51 62 Commodity contractsOther noncurrent liabilities 1 1 Other derivative instrumentsAccounts payable and accrued expenses 2 4 Total liabilities$87$176 1All of the Companys derivative instruments are carried at fair value in our consolidated balance sheets after considering the impact of legally enforceable master netting agreements and cash collateral held or placed with the same counterparties,as applicable.Current disclosure requirements mandate that derivatives must also be disclosed without reflecting the impact of master netting agreements and cash collateral.Refer to Note 16 for the net presentation of the Companys derivative instruments.2Refer to Note 16 for additional information related to the estimated fair value.11Credit Risk Associated with DerivativesWe have established strict counterparty credit guidelines and enter into transactions only with financial institutions of investment grade or better.We monitor counterparty exposures regularly and review any downgrade in credit rating immediately.If a downgrade in the credit rating of a counterparty were to occur,we have provisions requiring collateral for substantially all of our transactions.To mitigate presettlement risk,minimum credit standards become more stringent as the duration of the derivative financial instrument increases.In addition,the Companys master netting agreements reduce credit risk by permitting the Company to net settle for transactions with the same counterparty.To minimize the concentration of credit risk,we enter into derivative transactions with a portfolio of financial institutions.Furthermore,for certain derivative financial instruments,the Company has agreements with counterparties that require collateral to be exchanged based on changes in the fair value of the instruments.The Company classifies collateral payments and receipts as investing cash flows when the collateral account is in an asset position and as financing cash flows when the collateral account is in a liability position.As a result of these factors,we consider the risk of counterparty default to be minimal.Cash Flow Hedging StrategyThe Company uses cash flow hedges to minimize the variability in cash flows of assets or liabilities or forecasted transactions caused by fluctuations in foreign currency exchange rates,commodity prices or interest rates.The changes in the fair values of derivatives designated as cash flow hedges are recorded in accumulated other comprehensive income(loss)(“AOCI”)and are reclassified into the line item in our consolidated statement of income in which the hedged items are recorded in the same period the hedged items affect earnings.The changes in the fair values of hedges that are determined to be ineffective are immediately reclassified from AOCI into earnings.The maximum length of time for which the Company hedges its exposure to the variability in future cash flows is typically three years.The Company maintains a foreign currency cash flow hedging program to reduce the risk that our U.S.dollar net cash inflows from sales outside the United States and U.S.dollar net cash outflows from procurement activities will be adversely affected by fluctuations in foreign currency exchange rates.We enter into forward contracts and purchase foreign currency options and collars(principally euro,British pound and Japanese yen)to hedge certain portions of forecasted cash flows denominated in foreign currencies.When the U.S.dollar strengthens against the foreign currencies,the decline in the present value of future foreign currency cash flows is partially offset by gains in the fair value of the derivative instruments.Conversely,when the U.S.dollar weakens,the increase in the present value of future foreign currency cash flows is partially offset by losses in the fair value of the derivative instruments.The total notional values of derivatives that were designated and qualified for the Companys foreign currency cash flow hedging program were$9,145 million and$9,408 million as of March 29,2024 and December 31,2023,respectively.The Company uses cross-currency swaps to hedge the changes in cash flows of certain of its foreign currency denominated debt and other monetary assets or liabilities due to fluctuations in foreign currency exchange rates.For this hedging program,the Company recognizes in earnings each period the changes in carrying values of these foreign currency denominated assets and liabilities due to fluctuations in exchange rates.The changes in fair values of the cross-currency swap derivatives are recorded in AOCI with an immediate reclassification into earnings for the changes in fair values attributable to fluctuations in foreign currency exchange rates.The total notional value of derivatives that were designated as cash flow hedges for the Companys foreign currency denominated assets and liabilities was$958 million as of both March 29,2024 and December 31,2023.The Company has entered into commodity futures contracts and other derivative instruments on various commodities to mitigate the price risk associated with forecasted purchases of materials used in our manufacturing process.These derivative instruments were designated as part of the Companys commodity cash flow hedging program.The objective of this hedging program is to reduce the variability of cash flows associated with future purchases of certain commodities.The total notional values of derivatives that were designated and qualified for this program were$32 million and$54 million as of March 29,2024 and December 31,2023,respectively.Our Company monitors our mix of short-term debt and long-term debt regularly.We manage our risk to interest rate fluctuations through the use of derivative financial instruments.From time to time,the Company has entered into interest rate swap agreements and has designated these instruments as part of the Companys interest rate cash flow hedging program.The objective of this hedging program is to mitigate the risk of adverse changes in benchmark interest rates on the Companys future interest payments.The total notional values of derivatives that were designated and qualified for this program were$1,150 million and$750 million as of March 29,2024 and December 31,2023,respectively.12The following table presents the pretax impact that changes in the fair values of derivatives designated as cash flow hedges had on other comprehensive income(“OCI”),AOCI and earnings(in millions):Gain(Loss)Recognized in OCI Location of Gain(Loss)Recognized in IncomeGain(Loss)Reclassified from AOCI into IncomeThree Months Ended March 29,2024Foreign currency contracts$48 Net operating revenues$(17)Foreign currency contracts 11 Cost of goods sold 3 Foreign currency contracts Interest expense(1)Foreign currency contracts(15)Other income(loss)net(28)Commodity contracts 1 Cost of goods sold(1)Interest rate contracts 1 Interest expense Total$46$(44)Three Months Ended March 31,2023Foreign currency contracts$(36)Net operating revenues$1 Foreign currency contracts 4 Cost of goods sold 4 Foreign currency contracts Interest expense(1)Foreign currency contracts(13)Other income(loss)net Commodity contracts(2)Cost of goods sold(3)Total$(47)$1 As of March 29,2024,the Company estimates that it will reclassify into earnings during the next 12 months net losses of$17 million from the pretax amount recorded in AOCI as the anticipated cash flows occur.Fair Value Hedging StrategyThe Company uses interest rate swap agreements designated as fair value hedges to minimize exposure to changes in the fair value of fixed-rate debt that result from fluctuations in benchmark interest rates.The Company also uses cross-currency interest rate swaps to hedge the changes in the fair value of foreign currency denominated debt relating to fluctuations in foreign currency exchange rates and benchmark interest rates.The changes in the fair values of derivatives designated as fair value hedges and the offsetting changes in the fair values of the hedged items are recognized in earnings.As a result,any difference is reflected in earnings as ineffectiveness.When a derivative is no longer designated as a fair value hedge for any reason,including termination and maturity,the remaining unamortized difference between the carrying value of the hedged item at that time and the face value of the hedged item is amortized to earnings over the remaining life of the hedged item,or immediately if the hedged item has matured or has been extinguished.The total notional values of derivatives that were designated and qualified as fair value hedges of this type were$12,958 million and$13,693 million as of March 29,2024 and December 31,2023,respectively.The following table summarizes the pretax impact that changes in the fair values of derivatives designated as fair value hedges had on earnings(in millions):Hedging Instruments and Hedged ItemsLocation of Gain(Loss)Recognized in IncomeGain(Loss)Recognized in IncomeThree Months EndedMarch 29,2024March 31,2023Interest rate contractsInterest expense$(145)$208 Fixed-rate debtInterest expense 147 (222)Net impact of fair value hedging instruments$2$(14)13The following table summarizes the amounts recorded in our consolidated balance sheets related to hedged items in fair value hedging relationships(in millions):Cumulative Amount of Fair Value Hedging Adjustments1Carrying Values of Hedged ItemsIncluded in the Carrying Values of Hedged ItemsRemaining for Which Hedge Accounting Has Been DiscontinuedBalance Sheet Location of Hedged ItemsMarch 29,2024December 31,2023March 29,2024December 31,2023March 29,2024December 31,2023Current maturities of long-term debt$552$1$Long-term debt 11,853 12,186 (1,236)(1,135)155 162 1Cumulative amount of fair value hedging adjustments does not include changes due to foreign currency exchange rate fluctuations.In June 2023,the Company amended the terms of its interest rate swap agreements to implement a forward-looking interest rate based on the Secured Overnight Financing Rate(“SOFR”)in place of the London Interbank Offered Rate(“LIBOR”).Since the interest rate swap agreements were affected by reference rate reform,the Company applied the expedients and exceptions provided to preserve the past presentation of its derivatives without de-designating the existing hedging relationships.All amendments to interest rate swap agreements were executed with the existing counterparties and did not change the notional amounts,maturity dates or other critical terms of the hedging relationships.Hedges of Net Investments in Foreign Operations StrategyThe Company uses forward contracts and a portion of its foreign currency denominated debt,a non-derivative financial instrument,to protect the value of our net investments in a number of foreign operations.For derivative financial instruments that are designated and qualify as hedges of net investments in foreign operations,the changes in the fair values of the derivative financial instruments are recognized in net foreign currency translation adjustments,a component of AOCI,to offset the changes in the values of the net investments being hedged.For non-derivative financial instruments that are designated and qualify as hedges of net investments in foreign operations,the changes in the carrying values of the designated portions of the non-derivative financial instruments due to fluctuations in foreign currency exchange rates are recorded in net foreign currency translation adjustments.Any ineffective portions of net investment hedges are reclassified from AOCI into earnings during the period of change.The following table summarizes the notional values and pretax impact of changes in the fair values of instruments designated as net investment hedges(in millions):Notional ValuesGain(Loss)Recognized in OCIas ofThree Months Ended March 29,2024December 31,2023March 29,2024March 31,2023Foreign currency contracts$150$2$Foreign currency denominated debt 11,624 12,437 272 (154)Total$11,624$12,587$274$(154)The Company reclassified a gain of$3 million related to net investment hedges from AOCI into earnings during the three months ended March 29,2024.The Company did not reclassify any gains or losses during the three months ended March 31,2023.In addition,the Company did not have any ineffectiveness related to net investment hedges during the three months ended March 29,2024 and March 31,2023.The cash inflows and outflows associated with the Companys derivative contracts designated as net investment hedges are classified in the line item other investing activities in our consolidated statement of cash flows.Economic(Non-Designated)Hedging StrategyIn addition to derivative instruments that have been designated and qualify for hedge accounting,the Company also uses certain derivatives as economic hedges of foreign currency,interest rate and commodity exposure.Although these derivatives were not designated and/or did not qualify for hedge accounting,they are effective economic hedges.The changes in the fair values of economic hedges are immediately recognized in earnings.The Company uses foreign currency economic hedges to offset the earnings impact that fluctuations in foreign currency exchange rates have on certain monetary assets and liabilities denominated in nonfunctional currencies.The changes in the fair values of economic hedges used to offset those monetary assets and liabilities are immediately recognized in earnings in the line item other income(loss)net in our consolidated statement of income.In addition,we use foreign currency economic hedges to minimize the variability in cash flows associated with fluctuations in foreign currency exchange rates,including those related 14to certain acquisition and divestiture activities.The changes in the fair values of economic hedges used to offset the variability in U.S.dollar net cash flows are immediately recognized in earnings in the line items net operating revenues,cost of goods sold or other income(loss)net in our consolidated statement of income,as applicable.The total notional values of derivatives related to our foreign currency economic hedges were$6,023 million and$6,989 million as of March 29,2024 and December 31,2023,respectively.The Company uses interest rate contracts as economic hedges to minimize exposure to changes in the fair value of fixed-rate debt that result from fluctuations in benchmark interest rates.As of March 29,2024 and December 31,2023,we did not have any interest rate contracts used as economic hedges.The Company also uses certain derivatives as economic hedges to mitigate the price risk associated with the purchase of materials used in the manufacturing process and vehicle fuel.The changes in the fair values of these economic hedges are immediately recognized in earnings in the line items net operating revenues,cost of goods sold,or selling,general and administrative expenses in our consolidated statement of income,as applicable.The total notional values of derivatives related to our economic hedges of this type were$305 million and$325 million as of March 29,2024 and December 31,2023,respectively.The following table presents the pretax impact that changes in the fair values of derivatives not designated as hedging instruments had on earnings(in millions):Derivatives Not Designated as Hedging InstrumentsLocation of Gain(Loss)Recognized in IncomeGain(Loss)Recognized in IncomeThree Months EndedMarch 29,2024March 31,2023Foreign currency contractsNet operating revenues$61$(7)Foreign currency contractsCost of goods sold 14 28 Foreign currency contractsOther income(loss)net 38 (11)Commodity contractsCost of goods sold(19)(46)Other derivative instrumentsSelling,general and administrative expenses 6 3 Total$100$(33)NOTE 7:SUPPLY CHAIN FINANCE PROGRAMOur current payment terms with the majority of our suppliers are 120 days.Two global financial institutions offer a voluntary supply chain finance(“SCF”)program,which enables our suppliers,at their sole discretion,to sell their receivables from the Company to these financial institutions on a non-recourse basis at a rate that leverages our credit rating and thus may be more beneficial to them.The SCF program is available to suppliers of goods and services included in cost of goods sold and selling,general and administrative expenses in our consolidated statement of income.The Company and our suppliers agree on contractual terms for the goods and services we procure,including prices,quantities and payment terms,regardless of whether the supplier elects to participate in the SCF program.The suppliers sell goods or services,as applicable,to the Company and issue the associated invoices to the Company based on the agreed-upon contractual terms.Then,if they are participating in the SCF program,our suppliers,at their sole discretion,determine which invoices,if any,they want to sell to the financial institutions.Our suppliers voluntary inclusion of invoices in the SCF program has no bearing on our payment terms.No guarantees are provided by the Company or any of our subsidiaries under the SCF program.We have no economic interest in a suppliers decision to participate in the SCF program,and we have no direct financial relationship with the financial institutions,as it relates to the SCF program.Accordingly,amounts due to our suppliers that elected to participate in the SCF program are included in the line item accounts payable and accrued expenses in our consolidated balance sheet.All activity related to amounts due to suppliers that elected to participate in the SCF program is reflected within the operating activities section of our consolidated statement of cash flows.As of March 29,2024 and December 31,2023,the amount of obligations outstanding that the Company has confirmed as valid to the financial institutions under the SCF program was$1,181 million and$1,421 million,respectively.NOTE 8:DEBT AND BORROWING ARRANGEMENTSLoans and notes payable consist primarily of commercial paper issued in the United States.As of March 29,2024 and December 31,2023,we had$5,722 million and$4,209 million,respectively,in outstanding commercial paper borrowings.15NOTE 9:COMMITMENTS AND CONTINGENCIES GuaranteesAs of March 29,2024,we were contingently liable for guarantees of indebtedness owed by third parties of$762 million,of which$85 million was related to variable interest entities.Our guarantees are primarily related to third-party customers,bottlers and vendors and have arisen through the normal course of business.These guarantees have various terms,and none of these guarantees is individually significant.These amounts represent the maximum potential future payments that we could be required to make under the guarantees.However,management has concluded that the likelihood of any significant amounts being paid by our Company under these guarantees is not probable.Concentrations of Credit RiskWe believe our exposure to concentrations of credit risk is limited due to the diverse geographic areas covered by our operations.Legal ContingenciesThe Company is involved in various legal proceedings.We establish reserves for specific legal proceedings when we determine that the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated.Management has also identified certain other legal matters where we believe an unfavorable outcome is reasonably possible and/or for which no estimate of possible losses can be made.Management believes that the total liabilities of the Company that may arise as a result of currently pending legal proceedings(excluding tax audit claims)will not have a material adverse effect on the Company taken as a whole.Tax AuditsThe Company is involved in various tax matters,with respect to some of which the outcome is uncertain.These uncertain tax matters may result in the assessment of additional taxes.On September 17,2015,the Company received a Statutory Notice of Deficiency(“Notice”)from the United States Internal Revenue Service(“IRS”)seeking approximately$3.3 billion of additional federal income tax for years 2007 through 2009.In the Notice,the IRS stated its intent to reallocate over$9 billion of income to the U.S.parent company from certain of its foreign affiliates that the U.S.parent company licensed to manufacture,distribute,sell,market and promote its products in certain non-U.S.markets.The Notice concerned the Companys transfer pricing between its U.S.parent company and certain of its foreign affiliates.IRS rules governing transfer pricing require arms-length pricing of transactions between related parties such as the Companys U.S.parent and its foreign affiliates.To resolve the same transfer pricing issue for the tax years 1987 through 1995,the Company and the IRS had agreed in 1996 on an arms-length methodology for determining the amount of U.S.taxable income that the U.S.parent company would report as compensation from its foreign licensees.The Company and the IRS memorialized this accord in a closing agreement resolving that dispute(“Closing Agreement”).The Closing Agreement provided that,absent a change in material facts or circumstances or relevant federal tax law,in calculating the Companys income taxes going forward,the Company would not be assessed penalties by the IRS for using the agreed-upon tax calculation methodology that the Company and the IRS agreed would be used for the 1987 through 1995 tax years.The IRS audited and confirmed the Companys compliance with the agreed-upon Closing Agreement methodology in five successive audit cycles for tax years 1996 through 2006.The September 17,2015 Notice from the IRS retroactively rejected the previously agreed-upon methodology for the 2007 through 2009 tax years in favor of an entirely different methodology,without prior notice to the Company.Using the new tax calculation methodology,the IRS reallocated over$9 billion of income to the U.S.parent company from its foreign licensees for tax years 2007 through 2009.Consistent with the Closing Agreement,the IRS did not assert penalties,and it has yet to do so.The IRS designated the Companys matter for litigation on October 15,2015.Litigation designation is an IRS determination that forecloses to a company any and all alternative means for resolution of a tax dispute.As a result of the IRS designation of the Companys matter for litigation,the Company was forced to either accept the IRS newly imposed tax assessment and pay the full amount of the asserted tax or litigate the matter in the federal courts.The matter remains subject to the IRS litigation designation,preventing the Company from any attempt to settle or otherwise mutually resolve the matter with the IRS.The Company consequently initiated litigation by filing a petition in the U.S.Tax Court(“Tax Court”)in December 2015,challenging the tax adjustments enumerated in the Notice.16Prior to trial,the IRS increased its transfer pricing adjustment by$385 million,resulting in an additional tax adjustment of$135 million.The Company obtained a summary judgment in its favor on a different matter related to Mexican foreign tax credits,which thereafter effectively reduced the IRS potential tax adjustment by$138 million.The trial was held in the Tax Court from March through May 2018,and final post-trial briefs were filed and exchanged in April 2019.On November 18,2020,the Tax Court issued an opinion(“Opinion”)in which it predominantly sided with the IRS but agreed with the Company that dividends previously paid by the foreign licensees to the U.S.parent company in reliance upon the Closing Agreement should continue to be allowed to offset royalties,including those that would become payable to the Company in accordance with the Opinion.On November 8,2023,the Tax Court issued a supplemental opinion(together with the original Tax Court opinion,“Opinions”),siding with the IRS in concluding both that the blocked-income regulations apply to the Companys operations and that the Tax Court opinion in 3M Co.&Subs.v.Commissioner(February 9,2023)controlled as to the validity of those regulations.The Company believes that the IRS and the Tax Court misinterpreted and misapplied the applicable regulations in reallocating income earned by the Companys foreign licensees to increase the Companys U.S.tax.Moreover,the Company believes that the retroactive imposition of such tax liability using a calculation methodology different from that previously agreed upon by the IRS and the Company,and audited by the IRS for over a decade,is unconstitutional.The Company intends to assert its claims on appeal and vigorously defend its position.In determining the amount of tax reserve to be recorded as of December 31,2020,the Company completed the required two-step evaluation process prescribed by Accounting Standards Codification 740,Accounting for Income Taxes.In doing so,we consulted with outside advisors,and we reviewed and considered relevant laws,rules,and regulations,including,but not limited to,the Opinions and relevant caselaw.We also considered our intention to vigorously defend our positions and assert our various well-founded legal claims via every available avenue of appeal.We concluded,based on the technical and legal merits of the Companys tax positions,that it is more likely than not the Companys tax positions will ultimately be sustained on appeal.In addition,we considered a number of alternative transfer pricing methodologies,including the methodology asserted by the IRS and affirmed in the Opinions(“Tax Court Methodology”),that could be applied by the courts upon final resolution of the litigation.Based on the required probability analysis,we determined the methodologies we believe the federal courts could ultimately order to be used in calculating the Companys tax.As a result of this analysis,we recorded a tax reserve of$438 million during the year ended December 31,2020 related to the application of the resulting methodologies as well as the different tax treatment applicable to dividends originally paid to the U.S.parent company by its foreign licensees,in reliance upon the Closing Agreement,that would be recharacterized as royalties in accordance with the Opinions and the Companys analysis.The Companys conclusion that it is more likely than not the Companys tax positions will ultimately be sustained on appeal is unchanged as of March 29,2024.However,we updated our calculation of the methodologies we believe the federal courts could ultimately order to be used in calculating the Companys tax.As a result of the application of the required probability analysis to these updated calculations and the accrual of interest through the current reporting period,we updated our tax reserve as of March 29,2024 to$447 million.While the Company strongly disagrees with the IRS positions and the portions of the Opinions affirming such positions,it is possible that some portion or all of the adjustment proposed by the IRS and sustained by the Tax Court could ultimately be upheld.In that event,the Company would likely be subject to significant additional liabilities for tax years 2007 through 2009,and potentially also for subsequent years,which could have a material adverse impact on the Companys financial position,results of operations and cash flows.The Company calculated the potential impact of applying the Tax Court Methodology to reallocate income from foreign licensees potentially covered within the scope of the Opinions,assuming such methodology were to be ultimately upheld by the courts,and the IRS were to decide to apply that methodology to subsequent years,with consent of the federal courts.This impact would include taxes and interest accrued through December 31,2023 for the 2007 through 2009 litigated tax years and for subsequent tax years from 2010 through 2023.The calculations incorporated the estimated impact of correlative adjustments to the previously accrued transition tax payable under the 2017 Tax Cuts and Jobs Act.The Company estimates that the potential aggregate incremental tax and interest liability could be approximately$16 billion as of December 31,2023.Additional income tax and interest would continue to accrue until the time any such potential liability,or portion thereof,were to be paid.The Company estimates the impact of the continued application of the Tax Court Methodology for the three months ended March 29,2024 would increase the potential aggregate incremental tax and interest liability by approximately$500 million.We currently project the continued application of the Tax Court Methodology in future years,assuming similar facts and circumstances as of December 31,2023,would result in an incremental annual tax liability that would increase the Companys effective tax rate by approximately 3.5%.17The Company and the IRS are now in the process of agreeing on the tax impacts of the Opinions.Subsequent to the completion of this process,the Tax Court will render a decision in the case.The Company will have 90 days thereafter to file a notice of appeal to the U.S.Court of Appeals for the Eleventh Circuit.The IRS will then seek to collect,and the Company expects to pay,any additional tax related to the 2007 through 2009 tax years reflected in the Tax Court decision(and interest thereon).The Company currently estimates that the payment to be made at that time related to the 2007 through 2009 tax years,which is included in the above estimate of the potential aggregate incremental tax and interest liability,would be approximately$5.9 billion(including interest accrued through March 29,2024),plus any additional interest accrued through the time of payment.Some or all of this amount,plus accrued interest,would be refunded if the Company were to prevail on appeal.Risk Management ProgramsThe Company has numerous global insurance programs in place to help protect the Company from the risk of loss.In general,we are self-insured for large portions of many different types of claims;however,we do use commercial insurance above our self-insured retentions to reduce the Companys risk of catastrophic loss.Our reserves for the Companys self-insured losses are estimated using actuarial methods and assumptions of the insurance industry,adjusted for our specific expectations based on our claims history.Our self-insurance reserves totaled$187 million and$197 million as of March 29,2024 and December 31,2023,respectively.NOTE 10:OTHER COMPREHENSIVE INCOME AOCI attributable to shareowners of The Coca-Cola Company is separately presented in our consolidated balance sheet as a component of shareowners equity,which also includes our proportionate share of equity method investees AOCI.OCI attributable to noncontrolling interests is allocated to,and included in,our consolidated balance sheet as part of the line item equity attributable to noncontrolling interests.AOCI attributable to shareowners of The Coca-Cola Company consisted of the following,net of tax(in millions):March 29,2024December 31,2023Net foreign currency translation adjustments$(13,005)$(12,726)Accumulated net gains(losses)on derivatives(105)(154)Unrealized net gains(losses)on available-for-sale debt securities 4 (1)Adjustments to pension and other postretirement benefit liabilities(1,398)(1,394)Accumulated other comprehensive income(loss)$(14,504)$(14,275)The following table summarizes the allocation of total comprehensive income between shareowners of The Coca-Cola Company and noncontrolling interests(in millions):Three Months Ended March 29,2024Shareowners ofThe Coca-Cola CompanyNoncontrollingInterestsTotalConsolidated net income$3,177$8$3,185 Other comprehensive income:Net foreign currency translation adjustments(279)(24)(303)Net gains(losses)on derivatives1 49 49 Net change in unrealized gains(losses)on available-for-sale debt securities2 5 5 Net change in pension and other postretirement benefit liabilities(4)(4)Total comprehensive income(loss)$2,948$(16)$2,932 1Refer to Note 6 for additional information related to the net gains or losses on derivative instruments.2Refer to Note 4 for additional information related to the net unrealized gains or losses on available-for-sale debt securities.18The following tables present OCI attributable to shareowners of The Coca-Cola Company,including our proportionate share of equity method investees OCI(in millions):Three Months Ended March 29,2024Before-Tax Amount Income TaxAfter-Tax Amount Foreign currency translation adjustments:Translation adjustments arising during the period$(34)$(35)$(69)Reclassification adjustments recognized in net income 103 103 Gains(losses)on intra-entity transactions that are of a long-term investment nature(518)(518)Gains(losses)on net investment hedges arising during the period1 274 (69)205 Net foreign currency translation adjustments$(175)$(104)$(279)Derivatives:Gains(losses)arising during the period$27$(11)$16 Reclassification adjustments recognized in net income 44 (11)33 Net gains(losses)on derivatives1$71$(22)$49 Available-for-sale debt securities:Reclassification adjustments recognized in net income$6$(1)$5 Net change in unrealized gains(losses)on available-for-sale debt securities2$6$(1)$5 Pension and other postretirement benefit liabilities:Net pension and other postretirement benefit liabilities arising during the period$(13)$(8)$(21)Reclassification adjustments recognized in net income 22 (5)17 Net change in pension and other postretirement benefit liabilities$9$(13)$(4)Other comprehensive income(loss)attributable to shareowners of The Coca-Cola Company$(89)$(140)$(229)1 Refer to Note 6 for additional information related to the net gains or losses on derivative instruments.2 Refer to Note 4 for additional information related to the net unrealized gains or losses on available-for-sale debt securities.Three Months Ended March 31,2023Before-Tax Amount Income TaxAfter-Tax Amount Foreign currency translation adjustments:Translation adjustments arising during the period$437$(91)$346 Reclassification adjustments recognized in net income 101 101 Gains(losses)on intra-entity transactions that are of a long-term investment nature 292 292 Gains(losses)on net investment hedges arising during the period1(154)39 (115)Net foreign currency translation adjustments$676$(52)$624 Derivatives:Gains(losses)arising during the period$(76)$7$(69)Reclassification adjustments recognized in net income(1)(1)Net gains(losses)on derivatives1$(77)$7$(70)Available-for-sale debt securities:Unrealized gains(losses)arising during the period$9$(3)$6 Reclassification adjustments recognized in net income 3 (1)2 Net change in unrealized gains(losses)on available-for-sale debt securities2$12$(4)$8 Pension and other postretirement benefit liabilities:Net pension and other postretirement benefit liabilities arising during the period$(5)$(2)$(7)Reclassification adjustments recognized in net income 22 (4)18 Net change in pension and other postretirement benefit liabilities$17$(6)$11 Other comprehensive income(loss)attributable to shareowners of The Coca-Cola Company$628$(55)$573 1Refer to Note 6 for additional information related to the net gains or losses on derivative instruments.2Refer to Note 4 for additional information related to the net unrealized gains or losses on available-for-sale debt securities.19The following table presents the amounts and line items in our consolidated statements of income where adjustments reclassified from AOCI into income were recorded(in millions):Amount Reclassified from AOCIinto IncomeDescription of AOCI ComponentFinancial Statement Line ItemThree Months Ended March 29,2024Foreign currency translation adjustments:Divestitures,deconsolidations and other1Other income(loss)net$103 Income before income taxes 103 Income taxes Consolidated net income$103 Derivatives:Foreign currency contractsNet operating revenues$17 Foreign currency contracts and commodity contracts Cost of goods sold(2)Foreign currency contractsInterest expense 1 Foreign currency contractsOther income(loss)net 28 Income before income taxes 44 Income taxes(11)Consolidated net income$33 Available-for-sale debt securities:Sale of debt securitiesOther income(loss)net$6 Income before income taxes 6 Income taxes(1)Consolidated net income$5 Pension and other postretirement benefit liabilities:Divestitures,deconsolidations and other2Other income(loss)net$(2)Recognized net actuarial loss(gain)Other income(loss)net 25 Recognized prior service cost(credit)Other income(loss)net(1)Income before income taxes 22 Income taxes(5)Consolidated net income$17 1Related to the refranchising of our bottling operations in the Philippines and Bangladesh and the sale of our ownership interest in an equity method investee in Thailand.Refer to Note 2.2Related to the refranchising of our bottling operations in the Philippines and Bangladesh.Refer to Note 2.20NOTE 11:CHANGES IN EQUITYThe following tables provide a reconciliation of the beginning and ending carrying amounts of total equity,equity attributable to shareowners of The Coca-Cola Company and equity attributable to noncontrolling interests(in millions):Shareowners of The Coca-Cola Company Three Months Ended March 29,2024Common Shares Outstanding TotalReinvested EarningsAccumulated Other Comprehensive Income(Loss)Common StockCapital SurplusTreasury StockNon-controlling InterestsDecember 31,2023 4,308$27,480$73,782$(14,275)$1,760$19,209$(54,535)$1,539 Comprehensive income(loss)2,932 3,177 (229)(16)Dividends paid/payable to shareowners of The Coca-Cola Company($0.485 per share)(2,091)(2,091)Dividends paid to noncontrolling interests (2)(2)Divestitures,deconsolidations and other (4)(4)Purchases of treasury stock(10)(621)(621)Impact related to stock-based compensation plans 10 252 112 140 March 29,2024 4,308$27,946$74,868$(14,504)$1,760$19,321$(55,016)$1,517 Shareowners of The Coca-Cola Company Three Months Ended March 31,2023Common Shares Outstanding TotalReinvested EarningsAccumulated Other Comprehensive Income(Loss)Common StockCapital SurplusTreasury StockNon-controlling InterestsDecember 31,2022 4,328$25,826$71,019$(14,895)$1,760$18,822$(52,601)$1,721 Comprehensive income(loss)3,611 3,107 573 (69)Dividends paid/payable to shareowners of The Coca-Cola Company($0.46 per share)(1,989)(1,989)Dividends paid to noncontrolling interests (4)(4)Purchases of treasury stock(12)(749)(749)Impact related to stock-based compensation plans 9 173 70 103 Other activities (3)3 March 31,2023 4,325$26,868$72,137$(14,322)$1,760$18,889$(53,247)$1,651 NOTE 12:SIGNIFICANT OPERATING AND NONOPERATING ITEMSOther Operating ChargesDuring the three months ended March 29,2024,the Company recorded other operating charges of$1,573 million.These charges primarily consisted of$765 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with our acquisition of fairlife,LLC(“fairlife”)in 2020,$760 million related to the impairment of our BodyArmor trademark and$36 million related to the Companys productivity and reinvestment program.In addition,other operating charges included$7 million for transaction costs related to the refranchising of our bottling operations in certain territories in India,$4 million for the amortization of noncompete agreements related to the BA Sports Nutrition,LLC(“BodyArmor”)acquisition in 2021 and$1 million related to tax litigation expense.During the three months ended March 31,2023,the Company recorded other operating charges of$111 million.These charges primarily consisted of$62 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition,$27 million related to the Companys productivity and reinvestment program and$18 million related to the restructuring of our North America operating unit.In addition,other operating charges included$4 million for the amortization of noncompete agreements related to the BodyArmor acquisition.21Refer to Note 2 for additional information on the refranchising of our bottling operations in certain territories in India.Refer to Note 9 for additional information on the tax litigation.Refer to Note 13 for additional information on the Companys restructuring initiatives.Refer to Note 16 for additional information on the fairlife acquisition and the BodyArmor impairment.Refer to Note 17 for the impact these charges had on our operating segments and Corporate.Other Nonoperating ItemsEquity Income(Loss)NetDuring the three months ended March 29,2024 and March 31,2023,the Company recorded net charges of$25 million and$82 million,respectively.These amounts represent the Companys proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees.Refer to Note 17 for the impact these items had on our operating segments and Corporate.Other Income(Loss)NetDuring the three months ended March 29,2024,the Company recognized net gains of$599 million and$293 million related to the refranchising of our bottling operations in the Philippines and certain territories in India,respectively.The Company also recognized a net gain of$516 million related to the sale of our ownership interest in an equity method investee in Thailand.Additionally,the Company recognized a net gain of$178 million related to realized and unrealized gains and losses on equity securities and trading debt securities as well as realized gains and losses on available-for-sale debt securities.The Company recorded a loss of$7 million related to post-closing adjustments for the refranchising of our bottling operations in Vietnam in 2023.During the three months ended March 31,2023,the Company recognized a net gain of$439 million related to the refranchising of our bottling operations in Vietnam.Additionally,the Company recognized a net gain of$113 million related to realized and unrealized gains and losses on equity securities and trading debt securities as well as realized gains and losses on available-for-sale debt securities.Refer to Note 2 for additional information on the refranchising of our bottling operations,as well as the sale of our ownership interest in an equity method investee in Thailand.Refer to Note 4 for additional information on equity and debt securities.Refer to Note 17 for the impact these items had on our operating segments and Corporate.NOTE 13:RESTRUCTURINGProductivity and Reinvestment ProgramIn February 2012,the Company announced a productivity and reinvestment program designed to strengthen our brands and reinvest our resources to drive long-term profitable growth.The program was expanded multiple times,with the last expansion occurring in April 2017.The remaining initiatives included in this program,which are primarily designed to further simplify and standardize our organization,will be completed in 2024.During the three months ended March 29,2024 and March 31,2023,the Company incurred expenses of$36 million and$27 million,respectively,related to our productivity and reinvestment program.These expenses primarily included internal and external costs associated with the implementation of the programs initiatives and were recorded in the line item other operating charges in our consolidated statements of income.Refer to Note 17 for the impact these expenses had on our operating segments and Corporate.The Company has incurred total pretax expenses of$4,329 million related to this program since it commenced.North America Operating Unit RestructuringIn November 2022,the Company announced a restructuring program for our North America operating unit designed to better align its operating structure with its customers and bottlers.The evolved operating structure brought together all bottler-related components(franchise leadership,commercial leadership,digital,governance and technical innovation)and helped streamline how we work.During the three months ended March 31,2023,the Company incurred expenses of$18 million related to this program.These expenses primarily included severance costs and were recorded in the line item other operating charges in our consolidated statement of income.The Company has incurred total pretax expenses of$65 million related to this program since it commenced.This restructuring program was complete as of December 31,2023.22NOTE 14:PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS Net periodic benefit cost or income for our pension and other postretirement benefit plans consisted of the following(in millions):Pension PlansOther Postretirement Benefit PlansThree Months EndedMarch 29,2024March 31,2023March 29,2024March 31,2023Service cost$27$24$1$1 Interest cost 77 81 4 7 Expected return on plan assets1(118)(119)(2)(4)Amortization of prior service cost(credit)(1)(1)Amortization of net actuarial loss(gain)26 24 (1)(1)Net periodic benefit cost(income)$12$10$1$2 1The weighted-average expected long-term rates of return on plan assets used in computing 2024 net periodic benefit cost(income)were 7.00%for pension plans and 4.50%for other postretirement benefit plans.All of the amounts in the table above,other than service cost,were recorded in the line item other income(loss)net in our consolidated statements of income.During the three months ended March 29,2024,the Company contributed$6 million to our pension trusts,offset by a$44 million transfer of surplus international plan assets from pension trusts to general assets of the Company.We anticipate making additional contributions of approximately$27 million during the remainder of 2024.The Company contributed$5 million to our pension trusts during the three months ended March 31,2023.NOTE 15:INCOME TAXESThe Company recorded income taxes of$687 million(17.7fective tax rate)and$940 million(23.2fective tax rate)during the three months ended March 29,2024 and March 31,2023,respectively.The Companys effective tax rates for the three months ended March 29,2024 and March 31,2023 vary from the statutory U.S.federal tax rate of 21.0%primarily due to the tax impact of significant operating and nonoperating items,as described in Note 12,along with the tax benefits of having significant earnings generated outside of the United States and significant earnings generated in investments accounted for under the equity method,both of which are generally taxed at rates lower than the statutory U.S.federal tax rate.On November 18,2020,the Tax Court issued the Opinion regarding the Companys 2015 litigation with the IRS involving transfer pricing tax adjustments in which it predominantly sided with the IRS.On November 8,2023,the Tax Court issued a supplemental opinion,siding with the IRS in concluding both that the blocked-income regulations apply to the Companys operations and that the Tax Court opinion in 3M Co.&Subs.v.Commissioner(February 9,2023)controlled as to the validity of those regulations.The Company strongly disagrees with the Opinions and intends to vigorously defend its position.Refer to Note 9.NOTE 16:FAIR VALUE MEASUREMENTSRecurring Fair Value MeasurementsThe following tables summarize assets and liabilities measured at fair value on a recurring basis(in millions):March 29,2024Level 1Level 2Level 3Other3NettingAdjustment4Fair ValueMeasurementsAssets:Equity securities with readily determinable values1$1,814$197$7$88$2,106 Debt securities1 1,561 3 1,564 Derivatives2 275 (210)6 65 8Total assets$1,814$2,033$10$88$(210)$3,735 Liabilities:Contingent consideration liability$3,782 5$3,782 Derivatives2 1 1,444 (1,346)7 99 8Total liabilities$1$1,444$3,782$(1,346)$3,881 231Refer to Note 4 for additional information related to the composition of our equity securities with readily determinable values and debt securities.2Refer to Note 6 for additional information related to the composition of our derivatives portfolio.3Certain investments that are measured at fair value using the net asset value per share(or its equivalent)practical expedient have not been categorized in the fair value hierarchy but are included to reconcile to the amounts presented in Note 4.4Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle net positive and negative positions and also cash collateral held or placed with the same counterparties.There were no amounts subject to legally enforceable master netting agreements that management has chosen not to offset or that do not meet the offsetting requirements.Refer to Note 6.5Represents the fair value of the remaining milestone payment related to our acquisition of fairlife in 2020,which is contingent on fairlife achieving certain financial targets through 2024 and,if achieved,is payable in 2025.This milestone payment is based on agreed-upon formulas related to fairlifes operating results,the resulting value of which is not subject to a ceiling.The fair value was determined using discounted cash flow analyses.We are required to remeasure this liability to fair value quarterly,with any changes in the fair value recorded in income until the final milestone payment is made.6The Company is not obligated to return any cash collateral it has netted against its derivative position.7The Company has the right to reclaim$1,136 million in cash collateral it has netted against its derivative position.8The Companys derivative financial instruments were recorded at fair value in our consolidated balance sheet as follows:$32 million in the line item prepaid expenses and other current assets,$33 million in the line item other noncurrent assets,and$99 million in the line item other noncurrent liabilities.Refer to Note 6 for additional information related to the composition of our derivatives portfolio.December 31,2023Level 1Level 2Level 3Other3NettingAdjustment4Fair ValueMeasurementsAssets:Equity securities with readily determinable values1$1,727$188$6$85$2,006 Debt securities1 1,172 3 1,175 Derivatives2 275 (222)6 53 8Total assets$1,727$1,635$9$85$(222)$3,234 Liabilities:Contingent consideration liability$3,017 5$3,017 Derivatives2 3 1,445 (1,256)7 192 8Total liabilities$3$1,445$3,017$(1,256)$3,209 1Refer to Note 4 for additional information related to the composition of our equity securities with readily determinable values and debt securities.2Refer to Note 6 for additional information related to the composition of our derivatives portfolio.3Certain investments that are measured at fair value using the net asset value per share(or its equivalent)practical expedient have not been categorized in the fair value hierarchy but are included to reconcile to the amounts presented in Note 4.4Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle net positive and negative positions and also cash collateral held or placed with the same counterparties.There were no amounts subject to legally enforceable master netting agreements that management has chosen not to offset or that do not meet the offsetting requirements.Refer to Note 6.5Represents the fair value of the remaining milestone payment related to our acquisition of fairlife in 2020,which is contingent on fairlife achieving certain financial targets through 2024 and,if achieved,is payable in 2025.This milestone payment is based on agreed-upon formulas related to fairlifes operating results,the resulting value of which is not subject to a ceiling.The fair value was determined using a Monte Carlo valuation model.We are required to remeasure this liability to fair value quarterly,with any changes in the fair value recorded in income until the final milestone payment is made.The Company made a milestone payment of$275 million during 2023.6The Company was obligated to return$4 million in cash collateral it had netted against its derivative position.7The Company had the right to reclaim$1,039 million in cash collateral it had netted against its derivative position.8The Companys derivative financial instruments were recorded at fair value in our consolidated balance sheet as follows:$53 million in the line item other noncurrent assets and$192 million in the line item other noncurrent liabilities.Refer to Note 6 for additional information related to the composition of our derivatives portfolio.Gross realized and unrealized gains and losses on Level 3 assets and liabilities,excluding the contingent consideration liability,were not significant for the three months ended March 29,2024 and March 31,2023.The Company recognizes transfers between levels within the hierarchy as of the beginning of the reporting period.Gross transfers between levels within the hierarchy were not significant for the three months ended March 29,2024 and March 31,2023.24Nonrecurring Fair Value MeasurementsDuring the three months ended March 29,2024,the Company recorded an asset impairment charge of$760 million related to our BodyArmor trademark in North America,which was primarily driven by revised projections of future operating results and higher discount rates resulting from changes in macroeconomic conditions since the acquisition date.The fair value of this trademark was derived using discounted cash flow analyses based on Level 3 inputs.This charge was recorded in the line item other operating charges in our consolidated statement of income.The remaining carrying value of the trademark is$3,400 million.We did not recognize any gains or losses on assets measured at fair value on a nonrecurring basis during the three months ended March 31,2023.Other Fair Value DisclosuresThe carrying values of cash and cash equivalents,short-term investments,trade accounts receivable,accounts payable and accrued expenses,and loans and notes payable approximate their fair values because of the relatively short-term maturities of these financial instruments.The fair value of our long-term debt is estimated using Level 2 inputs based on quoted prices for those instruments.Where quoted prices are not available,the fair value is estimated using discounted cash flows and market-based expectations for interest rates,credit risk and the contractual terms of the debt instruments.As of March 29,2024,the carrying value and fair value of our long-term debt,including the current portion,were$36,496 million and$31,883 million,respectively.As of December 31,2023,the carrying value and fair value of our long-term debt,including the current portion,were$37,507 million and$33,445 million,respectively.NOTE 17:OPERATING SEGMENTS Information about our Companys operations by operating segment and Corporate is as follows(in millions):Europe,Middle East&Africa Latin America NorthAmericaAsia Pacific Global Ventures BottlingInvestmentsCorporateEliminationsConsolidatedAs of and for the Three Months Ended March 29,2024 Net operating revenues:Third party$1,776$1,527$4,172$1,253$730$1,815$27$11,300 Intersegment 197 2 216 2 (417)Total net operating revenues 1,973 1,527 4,174 1,469 730 1,817 27 (417)11,300 Operating income(loss)1,080 942 445 654 55 156 (1,191)2,141 Income(loss)before income taxes 1,089 947 455 658 56 424 243 3,872 Identifiable operating assets 7,244 3,301 26,002 2,568 2 7,534 7,788 2 25,313 79,750 Investments1 386 725 15 70 13,349 5,097 19,642 As of and for the Three MonthsEnded March 31,2023 Net operating revenues:Third party$1,831$1,386$3,902$1,185$707$1,944$25$10,980 Intersegment 193 2 186 2 (383)Total net operating revenues 2,024 1,386 3,904 1,371 707 1,946 25 (383)10,980 Operating income(loss)1,135 853 1,033 563 51 139 (407)3,367 Income(loss)before income taxes 1,142 855 1,041 423 57 504 31 4,053 Identifiable operating assets 7,682 2,315 26,692 2,668 3 7,388 9,653 3 21,925 78,323 Investments1 401 681 15 77 13,200 4,707 19,081 As of December 31,2023 Identifiable operating assets$7,117$3,149$25,808$2,428 2$7,607$9,871 2$21,934$77,914 Investments1 389 712 15 71 13,639 4,963 19,789 1Principally equity method investments and other investments in bottling companies.2Property,plant and equipment net in India represented 13%and 12%of consolidated property,plant and equipment net as of March 29,2024 and December 31,2023,respectively.3Property,plant and equipment net in the Philippines represented 10%of consolidated property,plant and equipment net as of March 31,2023.As of December 31,2023,the Companys bottling operations in the Philippines met the criteria to be classified as held for sale.Refer to Note 2.25During the three months ended March 29,2024,the results of our operating segments and Corporate were impacted by the following items:Operating income(loss)and income(loss)before income taxes were reduced by$765 million for Corporate due to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition.Refer to Note 16.Operating income(loss)and income(loss)before income taxes were reduced by$760 million for North America due to the impairment of our BodyArmor trademark.Refer to Note 16.Operating income(loss)and income(loss)before income taxes were reduced by$36 million for Corporate due to the Companys productivity and reinvestment program.Refer to Note 13.Operating income(loss)and income(loss)before income taxes were reduced by$7 million for Corporate due to transaction costs related to the refranchising of our bottling operations in certain territories in India.Refer to Note 2.Operating income(loss)and income(loss)before income taxes were reduced by$4 million for Corporate due to charges related to our acquisition of BodyArmor.Refer to Note 12.Income(loss)before income taxes was increased by$599 million for Corporate due to the refranchising of our bottling operations in the Philippines.Refer to Note 2.Income(loss)before income taxes was increased by$516 million for Corporate related to the sale of our ownership interest in an equity method investee in Thailand.Refer to Note 2.Income(loss)before income taxes was increased by$293 million for Corporate due to the refranchising of our bottling operations in certain territories in India.Refer to Note 2.Income(loss)before income taxes was increased by$178 million for Corporate due to realized and unrealized gains and losses on equity securities and trading debt securities as well as realized gains and losses on available-for-sale debt securities.Refer to Note 4.Income(loss)before income taxes was reduced by$23 million for Bottling Investments and$2 million for Corporate due to the Companys proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees.Income(loss)before income taxes was reduced by$7 million for Corporate related to post-closing adjustments for the refranchising of our bottling operations in Vietnam.Refer to Note 2.During the three months ended March 31,2023,the results of our operating segments and Corporate were impacted by the following items:Operating income(loss)and income(loss)before income taxes were reduced by$62 million for Corporate due to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition.Refer to Note 16.Operating income(loss)and income(loss)before income taxes were reduced by$27 million for Corporate due to the Companys productivity and reinvestment program.Refer to Note 13.Operating income(loss)and income(loss)before income taxes were reduced by$18 million for North America due to the restructuring of our North America operating unit.Refer to Note 13.Operating income(loss)and income(loss)before income taxes were reduced by$6 million for North America due to the restructuring of our manufacturing operations in the United States.Operating income(loss)and income(loss)before income taxes were reduced by$4 million for Corporate due to charges related to our acquisition of BodyArmor.Refer to Note 12.Income(loss)before income taxes was increased by$439 million for Corporate due to the refranchising of our bottling operations in Vietnam.Refer to Note 2.Income(loss)before income taxes was increased by$113 million for Corporate due to realized and unrealized gains and losses on equity securities and trading debt securities as well as realized gains and losses on available-for-sale debt securities.Refer to Note 4.Income(loss)before income taxes was reduced by$140 million for Asia Pacific and was increased by$58 million for Bottling Investments due to the Companys proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees.26Item 2.Managements Discussion and Analysis of Financial Condition and Results of OperationsWhen used in this report,the terms“The Coca-Cola Company,”“Company,”“we,”“us”and“our”mean The Coca-Cola Company and all entities included in our consolidated financial statements.CRITICAL ACCOUNTING POLICIES AND ESTIMATESRecoverability of Equity Method Investments and Indefinite-Lived Intangible AssetsOur Company faces many uncertainties and risks related to various economic,political and regulatory environments in the countries and territories in which we operate,particularly in developing and emerging markets.Refer to the headings“Item 1A.Risk Factors”in Part I and“Our Business Challenges and Risks”in Part II of our Annual Report on Form 10-K for the year ended December 31,2023,as well as the heading“Operations Review”below for additional information related to our present business environment.As a result,management must make numerous assumptions,which involve a significant amount of judgment,when performing impairment tests of equity method investments and indefinite-lived intangible assets in various regions around the world.The performance of impairment tests involves critical accounting estimates.These estimates require significant management judgment and include inherent uncertainties.Factors that management must estimate include,among others,the economic lives of the assets,sales volume,pricing,royalty rates,cost of raw materials,delivery costs,long-term growth rates,discount rates,marketing spending,foreign currency exchange rates,tax rates,capital spending and proceeds from the sale of assets.The variability of these factors depends on a number of conditions,and thus our accounting estimates may change from period to period.These factors are even more difficult to estimate when global financial markets are highly volatile.As these factors are often interdependent and may not change in isolation,we do not believe it is practicable or meaningful to present the impact of changing a single factor.In November 2021,the Company acquired the remaining 85%ownership interest in,and now owns 100%of,BA Sports Nutrition,LLC(“BodyArmor”),which offers a line of sports performance and hydration beverages.During 2021,in conjunction with acquiring the remaining ownership interest,we recognized a noncash gain of$834 million resulting from the remeasurement of our previously held equity interest in BodyArmor to fair value.The Company allocated$4.2 billion of the$5.6 billion purchase price to the BodyArmor trademark.As of December 31,2023,the fair value of the trademark approximated its carrying value.During the three months ended March 29,2024,the operating results related to the trademark were lower than expected.Therefore,the Company revised its projections of the future operating results related to the trademark which triggered the need to update its impairment analysis.As a result,the Company concluded that the fair value of the trademark was less than its carrying value and recorded an impairment charge of$760 million.The decrease in fair value was primarily driven by the revised projections of future operating results as well as higher discount rates resulting from changes in macroeconomic conditions since the acquisition date.If the near-term operating results of this trademark do not achieve our revised financial projections,or if the macroeconomic conditions change causing the discount rate to increase without an offsetting increase in the operating results,it is likely that we would be required to recognize an additional impairment charge.Management will continue to monitor the fair value of this trademark in future periods.OPERATIONS REVIEWSales of our ready-to-drink beverages are somewhat seasonal,with the second and third calendar quarters typically accounting for the highest sales volumes.The volume of sales in the beverage business may be affected by weather conditions.Structural Changes,Acquired Brands and Newly Licensed BrandsIn order to continually improve upon the Companys operating performance,from time to time,we engage in buying and selling ownership interests in bottling partners and other manufacturing operations.In addition,we periodically acquire brands and their related operations or enter into license agreements for certain brands to supplement our beverage offerings.These items impact our operating results and certain key metrics used by management in assessing the Companys performance.Unit case volume growth is a key metric used by management to evaluate the Companys performance because it measures demand for our products at the consumer level.The Companys unit case volume represents the number of unit cases(or unit case equivalents)of Company beverage products directly or indirectly sold by the Company and its bottling partners to customers or consumers and,therefore,reflects unit case volume for both consolidated and unconsolidated bottlers.Refer to the heading“Beverage Volume”below.Concentrate sales volume represents the amount of concentrates,syrups,source waters and powders/minerals(in all instances expressed in unit case equivalents)sold by,or used in finished products sold by,the Company to its bottling partners or other customers.For Costa non-ready-to-drink beverage products,concentrate sales volume represents the amount of beverages,primarily measured in number of transactions(in all instances expressed in unit case equivalents),sold by the Company to customers or consumers.Refer to the heading“Beverage Volume”below.27When we analyze our net operating revenues,we generally consider the following factors:(1)volume growth(concentrate sales volume or unit case volume,as applicable);(2)changes in price,product and geographic mix;(3)foreign currency exchange rate fluctuations;and(4)acquisitions and divestitures(including structural changes as defined below),as applicable.Refer to the heading“Net Operating Revenues”below.The Company sells concentrates and syrups to both consolidated and unconsolidated bottling partners.The ownership structure of our bottling partners impacts the timing of recognizing concentrate revenue and concentrate sales volume.When we sell concentrates or syrups to our consolidated bottling partners,we do not recognize the concentrate revenue or concentrate sales volume until the bottling partner has sold finished products manufactured from the concentrates or syrups to a third party.When we sell concentrates or syrups to our unconsolidated bottling partners,we recognize the concentrate revenue and concentrate sales volume when the concentrates or syrups are sold to the bottling partner.The subsequent sale of the finished products manufactured from the concentrates or syrups to a third party does not impact the timing of recognizing the concentrate revenue or concentrate sales volume.When we account for an unconsolidated bottling partner as an equity method investment,we eliminate the intercompany profit related to concentrate sales,to the extent of our ownership interest,until the equity method investee has sold finished products manufactured from the concentrates or syrups to a third party.We typically report unit case volume when finished products manufactured from the concentrates or syrups are sold to a third party,regardless of our ownership interest in the bottling partner,if any.We generally refer to acquisitions and divestitures of bottling operations as“structural changes,”which are a component of acquisitions and divestitures.Typically,structural changes do not impact the Companys unit case volume or concentrate sales volume on a consolidated basis or at the geographic operating segment level.We report unit case volume for all sales of Company beverage products,regardless of our ownership interest in the bottling partner,if any.However,the unit case volume reported by our Bottling Investments operating segment is generally impacted by structural changes because it only includes the unit case volume of our consolidated bottling operations.Refer to Note 2 of Notes to Consolidated Financial Statements for additional information on the Companys divestitures.“Acquired brands”refers to brands acquired during the past 12 months.Typically,the Company has not reported unit case volume or recognized concentrate sales volume related to acquired brands in periods prior to the closing of a transaction.Therefore,the unit case volume and concentrate sales volume related to an acquired brand are incremental to prior year volume.We generally do not consider the acquisition of a brand to be a structural change.“Licensed brands”refers to brands not owned by the Company but for which we hold certain rights,generally including,but not limited to,distribution rights,and from which we derive an economic benefit when the related products are sold.Typically,the Company has not reported unit case volume or recognized concentrate sales volume related to a licensed brand in periods prior to the beginning of the term of a license agreement.Therefore,in the year that a license agreement is entered into,the unit case volume and concentrate sales volume related to a licensed brand are incremental to prior year volume.We generally do not consider the licensing of a brand to be a structural change.In May 2023,the Company acquired certain brands in Asia Pacific.The impact of acquiring these brands has been included in acquisitions and divestitures in our analysis of net operating revenues on a consolidated basis as well as for the Asia Pacific operating segment.Additionally,in January 2023,the Company refranchised our bottling operations in Vietnam.In January and February 2024,the Company refranchised our bottling operations in certain territories in India,and in February 2024,the Company refranchised our bottling operations in Bangladesh and the Philippines.The impact of each of these refranchisings has been included as a structural change in our analysis of net operating revenues on a consolidated basis as well as for the Bottling Investments and Asia Pacific operating segments for the three months ended March 29,2024.Beverage VolumeWe measure the volume of Company beverage products sold in two ways:(1)unit cases of finished products and(2)concentrate sales.As used in this report,“unit case”means a unit of measurement equal to 192 U.S.fluid ounces of finished beverage(24 eight-ounce servings),with the exception of unit case equivalents for Costa non-ready-to-drink beverage products,which are primarily measured in number of transactions;and“unit case volume”means the number of unit cases(or unit case equivalents)of Company beverage products directly or indirectly sold by the Company and its bottling partners to customers or consumers.Unit case volume primarily consists of beverage products bearing Company trademarks.Also included in unit case volume are certain brands licensed to,or distributed by,our Company,and brands owned by Coca-Cola system bottlers for which our Company provides marketing support and from the sale of which we derive an economic benefit.In addition,unit c
2024-09-23
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-1-Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement,make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.AGRICULTURAL BANK OF CHINA LIMITED中國農業銀行股份有限公司(a joint stock company incorporated in the Peoples Republic of China with limited liability)(Stock Code:1288)INTERIM RESULTS ANNOUNCEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2024Agricultural Bank of China Limited(the“Bank”)is pleased to announce the unaudited interim results of the Bank and its subsidiaries(together,the“Group”)for the six months ended 30 June 2024.This results announcement contains the interim report of the Bank for the six months ended 30 June 2024,the contents of which have been prepared in accordance with the relevant disclosure requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited(the“Hong Kong Listing Rules”).The interim financial information of the Group for the six months ended 30 June 2024 has been reviewed by KPMG in accordance with International Standard on Review Engagements 2410.The interim results have also been reviewed by the Audit and Compliance Committee of the Board of Directors of the Bank(the“Audit and Compliance Committee”).The printed version of the 2024 interim report of the Bank will be despatched to the holders of H Shares of the Bank who have indicated their intention to receive printed copies of the Banks corporate communications,and will also be available on the websites of The Stock Exchange of Hong Kong Limited(www.hkexnews.hk)and the Bank(,).By Order of the BoardAgricultural Bank of China LimitedLIU QingCompany SecretaryBeijing,the PRC30 August 2024As at the date of this announcement,the executive directors of the Bank are Mr.GU Shu,Mr.ZHANG Xuguang and Mr.LIN Li;the non-executive directors of the Bank are Ms.ZHOU Ji,Mr.LI Wei,Mr.LIU Xiaopeng,Mr.XIAO Xiang and Mr.ZHANG Qi;and the independent non-executive directors of the Bank are Mr.HUANG Zhenzhong,Ms.LEUNG KO May Yee,Margaret,Mr.WU Liansheng and Mr.WANG Changyun.-2-CONTENTSDefinitions.4Basic Corporate Information and Major Financial Indicators .6Basic Corporate Information .6Financial Highlights.8Operation Overview.12Discussion and Analysis.15Situation and Prospects .15Financial Statement Analysis.17Income Statement Analysis.17Balance Sheet Analysis.26Other Financial Information .38Business Review .40Five Priorities .40Corporate Banking .42Retail Banking .45Treasury Operations .48Asset Management .49Internet Finance .52Cross-border Financial Services .53Integrated Operations .55FinTech.59Human Resources Management and Institution Management.60County Area Banking Business.63Management Mechanism.63Financial Services for Rural Revitalization .64Financial Position .66Risk Management .68Credit Risk .68Market Risk.76Liquidity Risk.80Operational Risk.82Reputational Risk .82Country Risk.83Risk Consolidated.83Capital Management .84Management of Capital Financing .84Management of Economic Capital .85Capital Adequacy Ratio and Leverage Ratio .85-3-Information on Environmental,Social and Governance.86Green Finance .86Human Capital Development.89Consumers Interests Protection .91Privacy and Data Security.93Accessibility of Finance Services .96Philanthropy.98Corporate Behavior .99Corporate Governance Report .101Operation of Corporate Governance .101Directors,Supervisors and Senior Management .103Details of Ordinary Shares .105Details of Preference Shares .109Significant Events.113Interim Financial Information(Unaudited).118-4-DefinitionsIn this results announcement,unless the context otherwise requires,the following terms shall have the meanings set out below:1.ABC/Agricultural Bank of China/the Bank/the Group/WeAgricultural Bank of China Limited,or Agricultural Bank of China Limited and its subsidiaries2.ABC-CAABC-CA Fund Management Co.,Ltd.3.ABC Financial LeasingABC Financial Leasing Co.,Ltd.4.ABC InternationalABC International Holdings Limited5.ABC InvestmentABC Financial Asset Investment Co.,Ltd.6.ABC Life InsuranceABC Life Insurance Co.,Ltd.7.ABC Wealth ManagementABC Wealth Management Co.,Ltd.8.A Share(s)Ordinary shares listed domestically which are subscribed and traded in Renminbi9.CASs/PRC GAAPThe Accounting Standards for Enterprises promulgated on 15 February 2006 by the Ministry of Finance of the Peoples Republic of China and other related rules and regulations subsequently issued10.County Area Banking DivisionAn internal division with management mechanism adopted by us for specialized operation of financial services provided to Sannong and the County Areas,as required under our restructuring into a joint stock limited liability company,which focuses on the County Area Banking Business with independence in aspects such as governance mechanism,operational decision making,financial accounting as well as incentive and constraint mechanism to a certain extent11.CSRCChina Securities Regulatory Commission12.Global Systemically Important BanksBanks recognized as key players in the financial market with global features as announced by the Financial Stability Board-5-13.Green FinanceEconomic activities designed to support environmental improvement,respond to climate change and efficient use of resources,that is,financial services provided for project investment and financing,project operation,risk management,etc.in the fields of environmental protection,energy saving,clean energy,green transportation,green building,etc.14.H Share(s)Shares listed on The Stock Exchange of Hong Kong Limited and subscribed and traded in Hong Kong Dollars,the nominal value of which are denominated in Renminbi15.Hong Kong Listing RulesThe Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited16.Hong Kong Stock ExchangeThe Stock Exchange of Hong Kong Limited17.HuijinCentral Huijin Investment Ltd.18.Independent DirectorThe independent director referred to in the Rules Governing the Listing of Stocks on Shanghai Stock Exchange,as well as the independent non-executive director referred to in the Hong Kong Listing Rules19.MOFMinistry of Finance of the Peoples Republic of China20.NFRANational Financial Regulatory Administration,or the former China Banking and Insurance Regulatory Commission21.PBOCThe Peoples Bank of China22.SannongAgriculture,rural areas and rural people23.SSFNational Council for Social Security Fund of the Peoples Republic of China-6-Basic Corporate Information and Major Financial IndicatorsBasic Corporate InformationLegal name in Chinese中國農業銀行股份有限公司Abbreviation中國農業銀行Legal name in EnglishAbbreviationAGRICULTURAL BANK OF CHINA LIMITED AGRICULTURAL BANK OF CHINA(ABC)Legal representativeGU ShuAuthorized representativeLIU QingSecretary to the Board of Directors and Company SecretaryLIU QingAddress:No.69,Jianguomen Nei Avenue,Dongcheng District,Beijing,PRCTel:86-10-85109619(Investors Relations)Fax:86-10-85126571E-mail:Selected media and websites for information disclosureChina Securities Journal()Shanghai Securities News()Securities Times()Securities Daily()Website of Shanghai Stock Exchange publishing the interim report(A Shares)Website of Hong Kong Stock Exchange publishing the interim report(H Shares)www.hkexnews.hkLocation where copies of the interim report are keptOffice of the Board of Directors of the BankListing exchange of A SharesShanghai Stock ExchangeStock name農業銀行Stock code601288Share registrarChina Securities Depository and Clearing Corporation Limited,Shanghai Branch(Address:No.188 South Yanggao Road,Pudong New Area,Shanghai,PRC)-7-Listing exchange of H SharesThe Stock Exchange of Hong Kong LimitedStock nameABCStock code1288Share registrarComputershare Hong Kong Investor Services Limited(Address:Shops 1712-1716,17th Floor,Hopewell Center,183 Queens Road East,Wanchai,Hong Kong,PRC)Trading exchange and platform of preference sharesThe Integrated Business Platform of Shanghai Stock ExchangeStock name(stock code)農行優1(360001),農行優2(360009)Share registrarChina Securities Depository and Clearing Corporation Limited,Shanghai Branch(Address:No.188 South Yanggao Road,Pudong New Area,Shanghai,PRC)Legal advisor as to laws of Chinese mainlandKing&Wood MallesonsAddress17-18/F,East Tower,World Financial Centre 1,No.1,Dongsanhuan Zhong Road,Chaoyang District,Beijing,PRCLegal advisor as to laws of Hong KongClifford ChanceAddress27/F,Jardine House,1 Connaught Place,Central,Hong Kong,PRCDomestic auditorKPMG Huazhen LLPAddress8/F,Office Tower E2,Oriental Plaza,1 East Chang An Avenue,Dongcheng District,Beijing,PRCName of the undersigned accountantsSHI Jian,HUANG AizhouInternational auditorKPMGAddress8/F,Princes Building,10 Chater Road,Central,Hong Kong,PRCName of the undersigned accountantWong Yuen Shan-8-Financial Highlights(Financial data and indicators recorded in this results announcement are prepared in accordance with the International Financial Reporting Standards(the“IFRSs”)and denominated in RMB,unless otherwise stated)31 December202231 December202330 June2024Total assets(in millions of RMB)31 December202231 December202330 June2024(in millions of RMB)(in millions of RMB)Six monthsended30 June 2022Six monthsended30 June 2023Six monthsended30 June 2024Six monthsended30 June 2022Six monthsended30 June 2023Six monthsended30 June 2024(%)Six monthsended30 June 2022Six monthsended30 June 2023Six monthsended30 June 2024Total loans and advances to customersNet proftNet interest marginCost-to-income ratio31 December202231 December202330 June2024(%)31 December202231 December202330 June2024(%)Non-performing loan ratioAllowance to non-performing loans31 December202231 December202330 June2024(in millions of RMB)Deposits from customers(%)012,000,00024,000,00036,000,00048,000,00033,925,48839,872,98941,984,55308,000,00016,000,00024,000,00032,000,00025,121,040 28,898,46829,459,2100.000.601.201.802.401.661.450.000.000.400.801.201.601.371.332.021.3207,000,00014,000,00021,000,00028,000,00019,763,82722,614,62124,388,702040,00080,000120,000160,000128,783133,831136,4940.0010.0020.0030.0026.0327.3727.4480.00160.00240.00320.00302.60303.87303.94-9-Major Financial Data30 June 202431 December 202331 December 2022At the end of the reporting period (in millions of RMB)Total assets41,984,55339,872,98933,925,488Total loans and advances to customers24,388,70222,614,62119,763,827Including:Corporate loans14,336,72512,791,11610,741,230Discounted bills934,9711,310,7471,007,548Retail loans8,652,0938,059,9157,545,282Overseas and others410,076402,491426,847Allowance for impairment losses on loans949,968882,855782,854Loans and advances to customers,net23,438,73421,731,76618,980,973Financial investments12,853,50911,213,7139,530,163Cash and balances with central banks3,037,3052,922,0472,549,130Deposits and placements with and loans to banks and other financial institutions1,095,5421,596,2571,131,215Financial assets held under resale agreements740,3551,809,5591,172,187Total liabilities38,928,09036,976,12231,251,728Deposits from customers29,459,21028,898,46825,121,040Including:Corporate deposits10,311,82710,477,2869,032,456Retail deposits17,844,26817,109,71114,977,766Overseas and others844,168852,298727,212Deposits and placements from banks and other financial institutions5,063,7134,035,7872,792,933Financial assets sold under repurchase agreements114,326100,52143,779Debt securities issued2,580,0252,295,9211,869,398Equity attributable to equity holders of the Bank3,049,7782,889,2482,668,063Net capital14,080,0933,828,1713,416,349Common Equity Tier 1(CET1)capital,net12,461,6762,394,9402,215,612Additional Tier 1 capital,net1579,565480,009440,009Tier 2 capital,net11,038,852953,222760,728Risk-weighted assets122,109,31722,338,07819,862,505 -10-Six months ended 30 June 2024Six months ended 30 June 2023Six months ended 30 June 2022Interim operating results (in millions of RMB)Operating income367,140365,794363,195Net interest income290,848290,421300,177Net fee and commission income46,73650,73149,489Operating expenses108,679107,678101,730Credit impairment losses100,998102,352105,529Total profit before tax157,471155,969156,049Net profit136,494133,831128,783Net profit attributable to equity holders of the Bank135,892133,234128,752Net cash flows generated from operating activities291,3801,353,499908,785 Financial IndicatorsSix months ended 30 June 2024Six months ended 30 June 2023Six months ended 30 June 2022Profitability(%)Return on average total assets20.67*0.74*0.84*Return on weighted average net assets310.75*11.43*11.92*Net interest margin41.45*1.66*2.02*Net interest spread51.30*1.49*1.86*Return on risk-weighted assets1,61.23*1.23*1.36*Net fee and commission income to operating income12.7313.8713.63Cost-to-income ratio727.4427.3726.03 Data per share(RMB Yuan)Basic earnings per share30.370.370.35Diluted earnings per share30.370.370.35Net cash flows per share generated from operating activities0.833.872.60 -11-30 June 202431 December 202331 December 2022Asset quality(%)Non-performing loan ratio81.321.331.37Allowance to non-performing loans9303.94303.87302.60Allowance to loan ratio104.004.054.16 Capital adequacy(%)Common Equity Tier 1(CET1)capital adequacy ratio111.1310.7211.15Tier 1 capital adequacy ratio113.7612.8713.37Capital adequacy ratio118.4517.1417.20Risk-weighted assets to total assets ratio152.6656.0258.55Total equity to total assets ratio7.287.277.88 Data per share(RMB Yuan)Net assets per ordinary share117.066.886.37 Notes:1.Since 1 January 2024,figures were calculated in accordance with the Rules on Capital Management of Commercial Banks and other relevant regulations;before 1 January 2024,figures were calculated in accordance with the Rules on Capital Management of Commercial Banks(Provisional)and other relevant regulations.2.Calculated by dividing net profit by the average balances of total assets at the beginning and the end of the period.3.Calculated in accordance with the Rules for the Compilation and Submission of Information Disclosure by Companies that Offer Securities to the Public No.9 Computation and Disclosure of Return on Net Assets and Earnings per Share(2010 Revision)issued by the CSRC and International Accounting Standard 33 Earnings per Share.4.Calculated by dividing net interest income by the average balances of interest-earning assets.5.Calculated as the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.6.Calculated by dividing net profit by risk-weighted assets at the end of the period.The risk-weighted assets are calculated in accordance with the relevant regulations of the NFRA.7.Calculated by dividing operating and administrative expenses by operating income in accordance with CASs,which is consistent with the corresponding figures as stated in the financial report of the Bank prepared in accordance with CASs.8.Calculated by dividing the balance of non-performing loans(excluding accrued interest)by the balance of total loans and advances to customers(excluding accrued interest).9.Calculated by dividing the balance of allowance for impairment losses on loans by the balance of non-performing loans(excluding accrued interest),among which,the balance of allowance for impairment losses on loans includes the allowance for impairment losses on bills and forfeiting recognized in other comprehensive income.10.Calculated by dividing the balance of allowance for impairment losses on loans by the balance of total loans and advances to customers(excluding accrued interest),among which,the balance of allowance for impairment losses on loans includes the allowance for impairment losses on bills and forfeiting recognized in other comprehensive income.11.Calculated by dividing equity attributable to ordinary equity holders of the Bank(excluding other equity instruments)at the end of the period by the total number of ordinary shares at the end of the period.*Annualized figures.-12-Operation OverviewIn the face of new situations and challenges this year,the Bank insisted on being guided by Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era,further upheld the political and people-oriented nature of financial work,faithfully implemented the decisions and plans of the Central Committee of the Communist Party of China(CPC)and the State Council,and fully implemented the plans and requirements of the Central Financial Work Conference in all aspects.Focusing on the key tasks of“Three Stabilizations and Two Advancements”,we served Sannong and the real economy precisely and efficiently,achieved sound results in businesses and operations,and made solid strides in high-quality development.The quality and efficiency of our operations continued to improve.Adhering to the general principle of pursuing progress while ensuring stability and through balancing functionality and profitability,we achieved steady growth in the scale of assets and liabilities,maintained stable asset quality,continuously improved operating performance,and properly coordinated serving the real economy and sustainable development of the Bank.In the first half of 2024,we recorded operating income of RMB367.1 billion and net profit of RMB136.5 billion,representing a year-on-year increase of 0.4%and 2.0%,respectively.With return on average total assets of 0.67%,return on weighted average net assets of 10.75%and cost-to-income ratio of 27.44%,the operating performance was generally positive.As at the end of June 2024,the Groups total assets amounted to RMB42 trillion,representing an increase of 5.3%as compared to the end of the previous year;of which,total loans and advances to customers amounted to RMB24.4 trillion,representing an increase of 7.8%as compared to the end of the previous year.Total liabilities amounted to RMB38.9 trillion,representing an increase of 5.3%as compared to the end of the previous year;of which,the all-system deposits from customers amounted to RMB34.1 trillion.The non-performing loan ratio was 1.32%,representing a decrease of 0.01 percentage point as compared to the end of the previous year.The overdue loan ratio was 1.07%,representing a decrease of 0.01 percentage point as compared to the end of the previous year.The allowance to non-performing loans was 303.94%,and the capital adequacy ratio was 18.45%.Our financial services for Sannong and County Areas achieved new results.We remained committed to our primary responsibilities and core business,and supported all-round rural revitalization and the building of a strong agricultural sector with greater efforts.As at the end of June 2024,total loans in County Areas amounted to RMB9.60 trillion,representing an increase of 9.4%as compared to the end of the previous year,with a rising proportion in our domestic loans to 40.1%.The balance of loans for sufficient supply of food and major agricultural products and related fields,rural industries,and rural construction and related fields amounted to RMB994.5 billion,RMB2.26 trillion,RMB2.22 trillion,respectively,representing an increase of 17.8%,22.8%and 13.6%,respectively,as compared to the end of the previous year.The balance of loans in 832 counties lifted out of poverty and 160 key national counties receiving assistance in pursuing rural revitalization amounted to RMB2.21 trillion and RMB413.8 billion,respectively,representing an increase of 10.0%and 8.7%,respectively,as compared to the end of the previous year,both higher than the growth of total loans of the Bank.We continuously increased credit supply to farmers by the promotion of“Huinong E-loan”.The balance of“Huinong E-loan”exceeded RMB1.4 trillion,representing an increase of 29.5%as compared to the end of the previous year,continuously meeting the needs of farmers for operation and production,and increasing incomes.We innovatively launched a number of featured products and modes such as“Fertile Farmland Loan”and“Cold Chain Loan for Farmers”.“ABC Huinong Cloud”,our digital platform targeting rural areas,had more than 6 million customers,and the breadth and depth of our services expanded continuously.-13-The services in the Five Priorities were elevated to new heights.Focusing on the primary task of promoting high-quality development,we made efforts to optimize and strengthen financial services for major strategies,key areas and weak links.Focusing on fostering new quality productive forces,we improved the service system of technology finance.As at the end of June 2024,the balance of loans for strategic emerging industries amounted to RMB2.63 trillion,representing an increase of 25.0%as compared to the end of previous year.Focusing on the green and low-carbon transition of the economy and society on all fronts,we thoroughly implemented the strategy of green finance,with the balance of green credit exceeded RMB4.8 trillion.We continued to optimize inclusive finance services.The balance of loans to inclusive finance amounted to RMB4.51 trillion according to PBOCs caliber,and the balance of loans granted to private enterprises amounted to RMB6.24 trillion,representing an increase of 25.8%and 14.4%,respectively,as compared to the end of the previous year,both higher than the growth of total loans of the Bank.We endeavored to improve the peoples wellbeing,actively explored and promoted the development of pension finance,constantly refined the product and service system,and completed the age-friendly transformation at over 20 thousand outlets.We actively engaged in the building of digital China,and continuously enhanced our digital finance service capacity,with more than 45 thousand Internet high-frequency scenarios built and the number of monthly active users of mobile banking reaching 231 million.Meanwhile,we adapted precise measures to improve financial services for the key areas of stabilizing investment and stimulating consumption,actively served large-scale equipment renewals and trade-ins of consumer goods,and fully supported the work to ensure the delivery of housing projects,facilitating the sustained economic recovery and growth.The reform momentum in key areas continued to grow.Adhering to reform as the primary driving force for development,we continuously deepened the system and mechanism reform and financial service innovation,and iteratively and innovatively promoted the implementation of reforms through a project-based system.As a result,the benefits of reforms continued to be released.We further deepened the digital transformation,and the effectiveness of precision marketing and targeted risk control were significantly enhanced.We made a solid start of the construction of smart banking,and the capability of technological empowerment was continuously strengthened.We continuously improved the organizational structure of the County Area Banking Division,constantly consolidated the results of the credit approval mechanism reform,and boosted the efficiency of our services for Sannong and the real economy.We achieved new results in optimizing operating processes,further expanded the coverage of cross-regional handling of all retail banking services,and implemented the promotion of a new process for opening corporate customer accounts across the Bank.The reforms resulted in continuous improvements of both foundation-level branch outlet satisfaction and customer satisfaction.-14-Risk control and case prevention were further strengthened.We made the prevention and mitigation of financial risks the primary task throughout the year,continuously improved the comprehensive risk management system,coordinated the management and control of traditional risks and new types of risks,and adhered to the bottom line of risk management.We endeavored to resolve credit risks in key areas such as real estate,local government debts and group customers with large loan balances,and stepped up the disposal of non-performing loans and the collection of overdue loans.While increasing credit support for the real economy,we achieved continuous upturns of forward-looking risk indicators such as the overdue loan ratio and the scissors difference between overdue loans and non-performing loans,and maintained generally stable asset quality.We actively responded to the fluctuations in the financial market,strengthened penetration monitoring of business,dynamically adjusted and improved investment portfolios and risk exposures,and thereby achieved stable operation of our market-related business.We launched the campaign of boosting the quality and striving for excellence of compliance,and took more solid steps to advance case prevention and compliance management.We prudently and consistently advanced the building of the disaster recovery system,and built a strong barrier to protect network security,so that our technological security base was further reinforced.-15-Discussion and AnalysisSituation and ProspectsIn the first half of 2024,Chinas overall economy was generally stable with steady progress,and continued the trend of sustained recovery and growth.The gross domestic product(GDP)of China grew by 5.0%year on year.The consumer prices rebounded moderately,with the consumer price index(CPI)rising by 0.1%year on year.With a reasonably ample liquidity,the broad money(M2)amounted to RMB305 trillion,representing an increase of 6.2%year on year,and the aggregate financing to the real economy(flow)amounted to RMB18.1 trillion.The overall RMB exchange rate remained basically stable at a reasonably balanced level.In the first half of 2024,to deal with complex domestic and international environments,the Chinese government intensified the implementation of macro policies,took preemptive steps to expand domestic demand,bolster confidence and prevent risks,and accelerated the promotion of a number of well-targeted and highly integrated policies and measures.The intensity of proactive fiscal policy was appropriately enhanced and the quality and effectiveness were improved.Initiatives such as supporting a new round of large-scale equipment renewals and trade-ins of consumer goods,and issuance of ultra-long-term special treasury bonds were put in place.A combination of a variety of policy tools such as deficits,special-purpose bonds,financial subsidies and interest discounts was applied.As a result,the economic recovery and growth continued to be boosted.The prudent monetary policies were flexible,appropriate,precise and effective.Counter-cyclical adjustments were enhanced.Tools were comprehensively used to maintain reasonably ample liquidity,which included the reserve requirement ratio cut,open market operations,re-lending and re-discounting facilities.The effectiveness of loan prime rate(LPR)reform and the market-based adjustment mechanism for deposit rates continued to be unleashed,promoting that the financing costs for businesses and the borrowing costs for residents remain stable with a slight decline.In the first half of 2024,Chinas banking industry continuously increased support for the real economy,achieved growth of total assets,maintained generally stable asset quality and remained resilient against risks.As at the end of June 2024,the total assets of Chinese commercial banks reached RMB370.02 trillion,representing an increase of 7.3%year on year.The non-performing loan ratio was 1.56%,and the allowance to non-performing loans was 209.32%.The capital adequacy ratio reached 15.53%.Looking ahead to the second half of 2024,the stable operation and long-term positive growth trend of Chinas economy will not change.The Chinese government will intensify macro regulations,strengthen counter-cyclical adjustments,implement proactive fiscal policies and prudent monetary policies,accelerate the comprehensive implementation of established policies and measures,and prepare in advance and launch a number of incremental policy initiatives when appropriate.-16-The Bank will closely focus on the implementation of the decisions and plans of the third plenary session of the 20th Central Committee of the Communist Party of China,enhance our capacity to serve high-quality development with a reforming spirit,and make contributions to advancing the Chinese modernization through high-quality financial services.Firstly,we will optimise the services for Sannong,which is our primary responsibilities and core business,continue to deepen the reform of the operation mechanism of the County Area Banking Division,enhance financial services for key areas such as food security and rural industries,consolidate and expand poverty alleviation achievements,and make comprehensive contributions to the integrated urban-rural development.Secondly,we will continue to optimise and strengthen financial services for the real economy,improve the service system,fully support the construction of major projects,actively serve large-scale equipment renewals and trade-ins of consumer goods,contribute to the construction of a new mode for real estate development,and promote the expansion and enhancement of the quality of green finance,inclusive finance,and pension finance.Thirdly,we will accelerate the development of the service system adaptive to the development of new quality productive forces,continue to improve specialized policies,products and organization systems,deepen the building of smart bank,and innovatively improve the service quality and efficiency of technology finance.Fourthly,we will consistently take risk prevention as our primary task,improve the comprehensive risk management system,make continuous efforts to precisely resolve the credit risks in key areas such as real estate and local government debts,continuously deepen the reform to lay a solid foundation for credit management,so as to ensure stable asset quality.-17-Financial Statement AnalysisIncome Statement AnalysisIn the first half of 2024,we achieved a net profit of RMB136,494 million,representing an increase of RMB2,663 million or 2.0%,as compared to the first half of the previous year.Changes of Significant Income Statement ItemsIn millions of RMB,except for percentagesItemSix months ended 30 June 2024Six months ended 30 June 2023Increase/(decrease)Growth rate(%)Net interest income290,848290,4214270.1Net fee and commission income46,73650,731(3,995)-7.9Other non-interest income29,55624,6424,91419.9Operating income367,140365,7941,3460.4Less:Operating expenses108,679107,6781,0010.9Credit impairment losses100,998102,352(1,354)-1.3Impairment losses on other assets3328517.9Operating profit157,430155,7361,6941.1Share of results of associates and joint ventures41233(192)-82.4Profit before tax157,471155,9691,5021.0Less:Income tax expense20,97722,138(1,161)-5.2Net profit136,494133,8312,6632.0Attributable to:Equity holders of the Bank135,892133,2342,6582.0Non-controlling interests60259750.8Net Interest IncomeNet interest income was the largest component of our operating income,accounting for 79.2%of the operating income in the first half of 2024.Our net interest income was RMB290,848 million in the first half of 2024,representing an increase of RMB427 million as compared to the first half of the previous year,among which,an increase of RMB32,223 million resulted from the increase in volume and a decrease of RMB31,796 million resulted from the changes in interest rates.In the first half of 2024,our net interest margin and net interest spread were 1.45%and 1.30%,representing a decrease of 21 and 19 basis points as compared to the first half of the previous year,respectively.The year-on-year decreases in net interest margin and net interest spread were primarily due to the decrease in the yield on interest-earning assets as a result of our support for the real economy,the LPR cut,and the overall downward movement of the market interest rates.-18-The table below presents the average balance,interest income/expense,and average yield/cost of interest-earning assets and interest-bearing liabilities.In millions of RMB,except for percentagesItemSix months ended 30 June 2024Six months ended 30 June 2023Average balanceInterest income/expenseAverage yield/cost6(%)Average balanceInterest income/expenseAverage yield/cost6(%)AssetsLoans and advances to customers23,465,528413,6283.5420,938,357401,4313.87Debt securities investments111,531,323176,7003.089,041,431148,8933.32Non-restructuring-related debt securities11,147,107171,9063.108,657,205144,1243.36Restructuring-related debt securities2384,2164,7942.51384,2264,7692.50Balances with central banks2,487,44919,7851.602,459,55819,2051.57Amounts due from banks and other financial institutions32,765,82233,9352.472,864,61231,5522.22 Total interest-earning assets40,250,122644,0483.2235,303,958601,0813.43 Allowance for impairment losses(785,528)(861,033)Non-interest-earning assets1,697,7671,629,347 Total assets41,162,36136,072,272 LiabilitiesDeposits from customers28,960,679244,4271.7026,108,588228,5591.77Amounts due to banks and other financial institutions44,591,56060,2072.643,335,09441,9492.54Other interest-bearing liabilities53,513,07548,5662.782,866,29140,1522.82 Total interest-bearing liabilities37,065,314353,2001.9232,309,973310,6601.94 Non-interest-bearing liabilities1,224,6731,129,439 Total liabilities38,289,98733,439,412 Net interest income290,848290,421Net interest spread1.301.49Net interest margin1.451.66-19-Notes:1.Debt securities investments include debt securities investments at fair value through other comprehensive income and debt securities investments at amortized cost.2.Restructuring-related debt securities include the receivable from the MOF and the special government bonds.3.Amounts due from banks and other financial institutions primarily include deposits with banks and other financial institutions,placements with and loans to banks and other financial institutions and financial assets held under resale agreements.4.Amounts due to banks and other financial institutions primarily include deposits from banks and other financial institutions,placements from banks and other financial institutions as well as financial assets sold under repurchase agreements.5.Other interest-bearing liabilities primarily include debt securities issued and borrowings from central banks.6.Annualized figures.The table below presents the changes in net interest income due to changes in volume and interest rate.In millions of RMBItemIncrease/(decrease)due toNet increase/(decrease)VolumeInterest rateAssetsLoans and advances to customers44,547(32,350)12,197Debt securities investments38,154(10,347)27,807Balances with central banks222358580Amounts due from banks and other financial institutions(1,212)3,5952,383Changes in interest income81,711(38,744)42,967LiabilitiesDeposits from customers24,072(8,204)15,868Amounts due to banks and other financial institutions16,4751,78318,258Other interest-bearing liabilities8,941(527)8,414Changes in interest expense49,488(6,948)42,540Changes in net interest income32,223(31,796)427Note:Changes caused by both volume and interest rate have been allocated to changes in volume.Interest IncomeWe achieved interest income of RMB644,048 million in the first half of 2024,representing an increase of RMB42,967 million as compared to the first half of the previous year,which was primarily due to an increase of RMB4,946,164 million in the average balance of interest-earning assets.-20-Interest Income from Loans and Advances to CustomersInterest income from loans and advances to customers increased by RMB12,197 million,or 3.0%,to RMB413,628 million as compared to the first half of the previous year,which was primarily due to an increase in the scale of loans and advances to customers.The table below presents the average balance,interest income and average yield of loans and advances to customers by business type.In millions of RMB,except for percentagesItemSix months ended 30 June 2024Six months ended 30 June 2023Average balanceInterest incomeAverage yield1(%)Average balanceInterest incomeAverage yield1(%)Corporate loans13,818,086235,5933.4311,927,106216,8923.67Short-term corporate loans3,679,13961,9643.393,413,72756,9383.36Medium-and long-term corporate loans10,138,947173,6293.448,513,379159,9543.79Discounted bills852,0965,4071.28810,6425,5671.38Retail loans8,381,397162,7163.907,741,712169,2404.41Overseas and others413,9499,9124.82458,8979,7324.28 Total loans and advances to customers23,465,528413,6283.5420,938,357401,4313.87 Note:1.Annualized figures.Interest Income from Debt Securities InvestmentsInterest income from debt securities investments was the second largest component of interest income.In the first half of 2024,interest income from debt securities investments increased by RMB27,807 million to RMB176,700 million as compared to the first half of the previous year,which was primarily due to an increase in the scale of debt securities investments.Interest Income from Balances with Central BanksInterest income from balances with central banks increased by RMB580 million to RMB19,785 million as compared to the first half of the previous year,which was primarily due to an increase in the average yield and scale of balances with central banks.-21-Interest Income from Amounts Due from Banks and Other Financial InstitutionsInterest income from amounts due from banks and other financial institutions increased by RMB2,383 million to RMB33,935 million as compared to the first half of the previous year,which was primarily due to an increase in the average yield on amounts due from banks and other financial institutions.Interest ExpenseInterest expense increased by RMB42,540 million to RMB353,200 million as compared to the first half of the previous year,which was mainly due to an increase of RMB4,755,341 million in the average balance of interest-bearing liabilities.Interest Expense on Deposits from CustomersInterest expense on deposits from customers increased by RMB15,868 million to RMB244,427 million as compared to the first half of the previous year,which was primarily due to an increase in the scale of deposits from customers.Analysis of Average Cost of Deposits by Product TypeIn millions of RMB,except for percentagesItemSix months ended 30 June 2024Six months ended 30 June 2023Average balanceInterest expenseAverage cost1(%)Average balanceInterest expenseAverage cost1(%)Corporate depositsTime5,788,63572,7112.534,682,34963,8282.75Demand5,617,97131,3121.125,688,29132,4361.15 Sub-Total11,406,606104,0231.8310,370,64096,2641.87 Retail depositsTime10,932,690132,6612.449,444,994124,3602.66Demand6,621,3837,7430.246,292,9547,9350.25 Sub-Total17,554,073140,4041.6115,737,948132,2951.70 Total deposits from customers28,960,679244,4271.7026,108,588228,5591.77 Note:1.Annualized figures.-22-Interest Expense on Amounts Due to Banks and Other Financial InstitutionsInterest expense on amounts due to banks and other financial institutions increased by RMB18,258 million to RMB60,207 million as compared to the first half of the previous year,primarily due to an increase in the deposits from banks and other financial institutions.Interest Expense on Other Interest-bearing LiabilitiesInterest expense on other interest-bearing liabilities increased by RMB8,414 million to RMB48,566 million as compared to the first half of the previous year,which was primarily due to an increase in the scale of interbank certificates of deposit.Net Fee and Commission IncomeIn the first half of 2024,we generated net fee and commission income of RMB46,736 million,representing a decrease of RMB3,995 million or 7.9%as compared to the first half of the previous year.In particular,consultancy and advisory fees increased by 6.6%,which was primarily due to an increase in the fee income from syndicated loans;agency commissions decreased by 28.8%,mainly due to a phased reduction in agency insurance income as a result of the requirement that the commission rates reported by insurers to regulators for filing shall be consistent with the actual situation.Composition of Net Fee and Commission IncomeIn millions of RMB,except for percentagesItemSix months ended 30 June 2024Six months ended 30 June 2023Increase/(decrease)Growth rate(%)Agency commissions9,73813,669(3,931)-28.8Settlement and clearing fees6,2887,139(851)-11.9Bank card fees8,3988,2851131.4Consultancy and advisory fees11,23010,5316996.6Electronic banking service fees14,82214,0138095.8Custodian and other fiduciary service fees2,2372,361(124)-5.3Credit commitment fees7541,321(567)-42.9Others216302(86)-28.5 Fee and commission income53,68357,621(3,938)-6.8Less:Fee and commission expenses6,9476,890570.8 Net fee and commission income46,73650,731(3,995)-7.9 -23-Other Non-interest IncomeIn the first half of 2024,other non-interest income amounted to RMB29,556 million,representing an increase of RMB4,914 million,as compared to the first half of the previous year.In particular,net gain on derecognition of financial assets measured at amortized cost increased by RMB4,065 million,mainly due to the increase in the disposal income of bond investments.Composition of Other Non-interest IncomeIn millions of RMBItemSix months ended 30 June 2024Six months ended 30 June 2023Net trading gain15,75815,814Net gain on financial investments11,05410,714Net gain on derecognition of financial assets measured at amortized cost4,300235Other operating expense,net(1,556)(2,121)Total29,55624,642 Operating ExpensesIn the first half of 2024,operating expenses increased by RMB1,001 million to RMB108,679 million as compared to the first half of the previous year;cost-to-income ratio increased by 0.07 percentage point to 27.44%as compared to the first half of the previous year.-24-Composition of Operating ExpensesIn millions of RMB,except for percentagesItemSix months ended 30 June 2024Six months ended 30 June 2023Increase/(decrease)Growth rate(%)Staff costs65,69165,5761150.2General operating and administrative expenses23,80024,044(244)-1.0Insurance benefits and claims2,9392,8111284.6Depreciation and amortization11,15210,4796736.4Tax and surcharges3,8433,5472968.3Others1,2541,221332.7 Total108,679107,6781,0010.9 Credit Impairment LossesIn the first half of 2024,our credit impairment losses decreased by RMB1,354 million to RMB100,998 million.In particular,impairment losses on loans increased by RMB1,864 million to RMB98,632 million as compared to the first half of the previous year.Income Tax ExpenseIn the first half of 2024,our income tax expense decreased by RMB1,161 million,or 5.2%,to RMB20,977 million as compared to the first half of the previous year.The effective tax rate was 13.32%,which was lower than the statutory tax rate.This was primarily because the interest income from the PRC treasury bonds and local government bonds held by the Bank was exempted from enterprise income tax by the relevant tax laws.Segment InformationWe assessed our performance and determined the allocation of resources based on the segment reports.Segment information has been presented in the same manner with that of internal management and reporting.At present,we manage our segments from the aspects of business lines,geographical regions and the County Area Banking Business.-25-The table below presents our operating income by business segment during the periods indicated.In millions of RMB,except for percentagesItemSix months ended 30 June 2024Six months ended 30 June 2023Amount Percentage(%)AmountPercentage(%)Corporate banking business152,12341.4151,11841.3Retail banking business203,76955.5195,45853.4Treasury operations1850.17,5432.1Other business11,0633.011,6753.2 Total operating income367,140100.0365,794100.0 The table below presents our operating income by geographic segment during the periods indicated.In millions of RMB,except for percentagesItemSix months ended 30 June 2024Six months ended 30 June 2023Amount Percentage(%)AmountPercentage(%)Head Office(27,537)(7.5)(26,001)(7.1)Yangtze River Delta92,46825.290,50024.7Pearl River Delta60,65016.562,87217.2Bohai Rim59,34916.257,78515.8Central Region68,61618.767,71818.5Western Region85,76523.486,09123.5Northeastern Region14,0933.813,7053.7Overseas and others13,7363.713,1243.7 Total operating income367,140100.0365,794100.0 -26-The table below presents our operating income from the County Area Banking Business and Urban Area Banking Business during the periods indicated.In millions of RMB,except for percentagesItemSix months ended 30 June 2024Six months ended 30 June 2023Amount Percentage(%)AmountPercentage(%)County Area Banking Business182,91249.8179,33449.0Urban Area Banking Business184,22850.2186,46051.0 Total operating income367,140100.0365,794100.0 Balance Sheet AnalysisAssetsAt 30 June 2024,our total assets amounted to RMB41,984,553 million,representing an increase of RMB2,111,564 million,or 5.3%,as compared to the end of the previous year.In particular,net loans and advances to customers increased by RMB1,706,968 million,or 7.9%;financial investments increased by RMB1,639,796 million,or 14.6%;cash and balances with central banks increased by RMB115,258 million,or 3.9%;deposits and placements with and loans to banks and other financial institutions decreased by RMB500,715 million,or 31.4%,which was primarily due to a decrease in cooperative deposits with banks and other financial institutions;financial assets held under resale agreements decreased by RMB1,069,204 million,or 59.1%,which was primarily due to a decrease in debt securities held under resale agreements.-27-Key Items of AssetsIn millions of RMB,except for percentagesItem30 June 202431 December 2023Amount Percentage(%)AmountPercentage(%)Total loans and advances to customers24,388,70222,614,621Less:Allowance for impairment losses on loans949,968882,855Loans and advances to customers,net23,438,73455.821,731,76654.5Financial investments12,853,50930.611,213,71328.1Cash and balances with central banks3,037,3057.22,922,0477.3Deposits and placements with and loans to banks and other financial institutions1,095,5422.61,596,2574.0Financial assets held under resale agreements740,3551.81,809,5594.5Others819,1082.0599,6471.6 Total assets41,984,553100.039,872,989100.0 Loans and Advances to CustomersAt 30 June 2024,our total loans and advances to customers amounted to RMB24,388,702 million,representing an increase of RMB1,774,081 million,or 7.8%,as compared to the end of the previous year.-28-Distribution of Loans and Advances to Customers by Business TypeIn millions of RMB,except for percentagesItem30 June 202431 December 2023Amount Percentage(%)AmountPercentage(%)Domestic loans23,923,78998.322,161,77898.2Corporate loans14,336,72558.912,791,11656.7Discounted bills934,9713.81,310,7475.8Retail loans8,652,09335.68,059,91535.7Overseas and others410,0761.7402,4911.8 Sub-Total24,333,865100.022,564,269100.0Accrued interest54,83750,352 Total24,388,70222,614,621 Distribution of Corporate Loans by MaturityIn millions of RMB,except for percentagesItem30 June 202431 December 2023Amount Percentage(%)AmountPercentage(%)Short-term corporate loans3,810,79126.63,310,00525.9Medium-and long-term corporate loans10,525,93473.49,481,11174.1 Total14,336,725100.012,791,116100.0 -29-Distribution of Corporate Loans by Industry1In millions of RMB,except for percentagesItem30 June 202431 December 2023Amount Percentage(%)AmountPercentage(%)Manufacturing2,522,39017.62,234,93817.6Production and supply of electricity,heating,gas and water1,532,84010.71,412,94411.0Real estate892,2586.2860,7056.7Transportation,storage and postal services2,860,38419.92,674,18420.9Wholesale and retail896,0756.3784,4956.1Water,environment and public utilities management1,297,0929.01,144,2528.9Construction611,1924.3478,2603.7Mining288,8952.0263,7862.1Leasing and commercial services2,416,98216.92,105,40416.5Finance350,3452.4227,7501.8Information transmission,software and IT services111,9110.8101,1430.8Others2556,3613.9503,2553.9 Total14,336,725100.012,791,116100.0 Notes:1.Classification of the loans in the above table is based on the industries in which the borrowers operate.2.Others mainly include agriculture,forestry,animal husbandry,fishery,public health,and social work,etc.At 30 June 2024,the top five major industries for our corporate loans include:(1)transportation,storage and postal services;(2)manufacturing;(3)leasing and commercial services;(4)production and supply of electricity,heating,gas and water;and(5)water,environment and public utilities management.Aggregate loan balance of the top five major industries accounted for 74.1%of our total corporate loans,representing a decrease of 0.8 percentage point as compared to the end of the previous year.-30-Distribution of Retail Loans by Product TypeIn millions of RMB,except for percentagesItem30 June 202431 December 2023Amount Percentage(%)AmountPercentage(%)Residential mortgage loans5,070,15458.65,170,82264.1Personal consumption loans431,0675.0340,8654.2Loans to private business957,85911.1745,9939.3Credit card balances773,2148.9700,0318.7Huinong E-loan1,404,92216.21,085,25513.5Others14,8770.216,9490.2 Total8,652,093100.08,059,915100.0 At 30 June 2024,retail loans increased by RMB592,178 million or 7.3%as compared to the end of the previous year.In particular,personal consumption loans increased by 26.5%as compared to the end of the previous year,primarily because we actively explored consumption scenarios,which improved coverage and convenience of our consumer finance;loans to private business increased by 28.4%as compared to the end of the previous year,primarily due to the continuous increase in inclusive loans to support the development of inclusive self-employed businesses;credit card balances increased by 10.5%as compared to the end of the previous year,primarily because we fully supported the trade-ins of consumer goods and continued to enhance the marketing and expansion of credit card installment products to better meet the diversified consumption needs of urban and rural residents;Huinong E-loan increased by 29.5%as compared to the end of the previous year,primarily because we increased credit support in key areas such as food security and rural industries,and strengthened technological empowerment to effectively enhance the convenience of financial services for farmers.-31-Distribution of Loans and Advances to Customers by Geographic RegionIn millions of RMB,except for percentagesItem30 June 202431 December 2023Amount Percentage(%)AmountPercentage(%)Head Office679,7352.8559,7352.5Yangtze River Delta5,994,12324.65,538,28324.5Pearl River Delta3,860,49015.93,682,22616.3Bohai Rim3,342,77513.73,142,45713.9Central Region3,995,75616.43,620,51716.1Northeastern Region750,4693.1704,5253.1Western Region5,300,44121.84,914,03521.8Overseas and others410,0761.7402,4911.8 Sub-Total24,333,865100.022,564,269100.0Accrued interest54,83750,352 Total24,388,70222,614,621 Financial InvestmentsAt 30 June 2024,our financial investments amounted to RMB12,853,509 million,representing an increase of RMB1,639,796 million or 14.6%as compared to the end of the previous year.In particular,investments in non-restructuring-related debt securities increased by RMB1,627,136 million as compared to the end of the previous year,mainly due to the increase in the investment in government bonds.-32-Distribution of Financial Investments by Product TypeIn millions of RMB,except for percentagesItem30 June 202431 December 2023Amount Percentage(%)AmountPercentage(%)Non-restructuring-related debt securities12,059,70395.210,432,56794.4Restructuring-related debt securities384,2183.0384,2173.5Equity instruments132,5741.0130,2771.2Others99,2650.898,8040.9 Sub-Total12,675,760100.011,045,865100.0Accrued interest177,749167,848 Total12,853,50911,213,713 Distribution of Non-restructuring-related Debt Securities Investments by IssuerIn millions of RMB,except for percentagesItem30 June 202431 December 2023Amount Percentage(%)AmountPercentage(%)Government bonds8,030,73666.76,847,27865.7Bonds issued by policy banks1,885,26215.62,069,69319.8Bonds issued by banks and other financial institutions1,703,96614.11,088,50110.4Bonds issued by entities in public sectors246,6212.0226,6572.2Corporate bonds193,1181.6200,4381.9 Total12,059,703100.010,432,567100.0 -33-Distribution of Non-restructuring-related Debt Securities Investments by Remaining MaturityIn millions of RMB,except for percentagesRemaining Maturity30 June 202431 December 2023Amount Percentage(%)AmountPercentage(%)Overdue1717Less than 3 months866,8887.2607,6645.83-12 months1,784,48714.81,203,31511.51-5 years3,576,36429.73,070,28429.4Over 5 years5,831,94748.35,551,28753.3 Total12,059,703100.010,432,567100.0 Distribution of Non-restructuring-related Debt Securities Investments by CurrencyIn millions of RMB,except for percentagesItem30 June 202431 December 2023Amount Percentage(%)AmountPercentage(%)RMB11,637,53896.59,959,03495.5USD347,2062.9378,9643.6Other foreign currencies74,9590.694,5690.9 Total12,059,703100.010,432,567100.0 -34-Distribution of Financial Investments by Business Models and Characteristics of Contractual Cash FlowsIn millions of RMB,except for percentagesItem30 June 202431 December 2023Amount Percentage(%)AmountPercentage(%)Financial assets at fair value through profit or loss480,3913.8547,4075.0Debt investments at amortized cost8,883,90270.18,312,46775.2Other debt instruments and other equity investments at fair value through other comprehensive income3,311,46726.12,185,99119.8 Sub-Total12,675,760100.011,045,865100.0Accrued interest177,749167,848 Total12,853,50911,213,713 Investment in Financial BondsFinancial bonds refer to securities issued by policy banks,banks and other financial institutions,the principals and interests of which are to be repaid pursuant to a pre-determined schedule.At 30 June 2024,the balance of financial bonds held by the Bank was RMB3,589,228 million,including bonds of RMB1,885,262 million issued by policy banks and bonds of RMB1,703,966 million issued by banks and other financial institutions.The table below presents the top ten financial bonds held by the Bank in terms of face value at 30 June 2024.In millions of RMB,except for percentagesBondFace valueAnnual interest rateMaturity dateAllowance12022 policy bank bond71,3723.18 32-03-112021 policy bank bond50,9513.38 31-07-162020 policy bank bond49,3813.74 30-11-162020 policy bank bond46,9803.79 30-10-262021 policy bank bond46,6913.30 31-11-052022 policy bank bond42,1542.90 32-08-192021 policy bank bond41,6883.52 31-05-242021 policy bank bond40,5613.22 26-05-142022 policy bank bond38,3503.06 32-06-062023 policy bank bond38,2603.10 33-02-13Note:1.Allowance in this table refers to allowance for impairment losses in stage II and stage III,not including allowance for impairment losses in stage I.-35-LiabilitiesAt 30 June 2024,our total liabilities amounted to RMB38,928,090 million,representing an increase of RMB1,951,968 million,or 5.3%,as compared to the end of the previous year.In particular,deposits from customers increased by RMB560,742 million,or 1.9%.The deposits and placements from banks and other financial institutions increased by RMB1,027,926 million,or 25.5%,mainly due to an increase in deposits from banks and other financial institutions.The financial assets sold under repurchase agreements increased by RMB13,805 million,or 13.7%.The debt securities issued increased by RMB284,104 million,or 12.4%,mainly due to an increase in the issuance volume of interbank certificates of deposit.Key Items of LiabilitiesIn millions of RMB,except for percentagesItem30 June 202431 December 2023Amount Percentage(%)AmountPercentage(%)Deposits from customers29,459,21075.728,898,46878.2Deposits and placements from banks and other financial institutions5,063,71313.04,035,78710.9Financial assets sold under repurchase agreements114,3260.3100,5210.3Debt securities issued2,580,0256.62,295,9216.2Other liabilities1,710,8164.41,645,4254.4 Total liabilities38,928,090100.036,976,122100.0 Deposits from CustomersAt 30 June 2024,the balance of deposits from customers of the Bank amounted to RMB29,459,210 million,representing an increase of RMB560,742 million,or 1.9%,as compared to the end of the previous year.In terms of customer structure,the proportion of retail deposits increased by 1.2 percentage points to 61.4%as compared to the end of previous year.In terms of maturity structure,the proportion of demand deposits decreased by 1.9 percentage points to 41.0%as compared to the end of previous year.-36-Distribution of Deposits from Customers by Business TypeIn millions of RMB,except for percentagesItem30 June 202431 December 2023Amount Percentage(%)AmountPercentage(%)Domestic deposits28,838,42999.428,299,68799.5Corporate deposits10,311,82735.610,477,28636.8Time5,017,25617.34,950,36217.4Demand5,294,57118.35,526,92419.4Retail deposits17,844,26861.417,109,71160.2Time11,223,45438.710,444,61136.7Demand6,620,81422.76,665,10023.5Other deposits1682,3342.4712,6902.5Overseas and others161,8340.6139,6080.5 Sub-Total29,000,263100.028,439,295100.0Accrued interest458,947459,173 Total29,459,21028,898,468 Note:1.Including margin deposits,remittance payables and outward remittance.Distribution of Deposits from Customers by Geographic RegionIn millions of RMB,except for percentagesItem30 June 202431 December 2023Amount Percentage(%)AmountPercentage(%)Head Office78,7610.363,0450.2Yangtze River Delta6,990,68524.16,984,64124.6Pearl River Delta4,164,52014.44,275,20415.0Bohai Rim5,101,07917.64,957,85517.4Central Region5,070,99117.44,768,00816.8Northeastern Region1,447,5825.01,416,1785.0Western Region5,984,81120.65,834,75620.5Overseas and others161,8340.6139,6080.5 Sub-Total29,000,263100.028,439,295100.0Accrued interest458,947459,173 Total29,459,21028,898,468 -37-Distribution of Deposits from Customers by Remaining MaturityIn millions of RMB,except for percentagesItem30 June 202431 December 2023Amount Percentage(%)AmountPercentage(%)Demand12,984,34644.714,135,87249.7Less than 3 months2,386,2938.22,618,9909.23-12 months6,026,96520.84,445,28415.61-5 years7,584,24826.27,231,50625.4Over 5 years18,4110.17,6430.1 Sub-Total29,000,263100.028,439,295100.0Accrued interest458,947459,173 Total29,459,21028,898,468 Shareholders EquityAt 30 June 2024,our shareholders equity amounted to RMB3,056,463 million,representing an increase of RMB159,596 million,as compared to the end of the previous year.Net assets per ordinary share were RMB7.06,representing an increase of RMB0.18 as compared to the end of the previous year.Composition of Shareholders EquityIn millions of RMB,except for percentagesItem30 June 202431 December 2023Amount Percentage(%)AmountPercentage(%)Ordinary shares349,98311.5349,98312.1Other equity instruments580,00019.0480,00016.6Capital reserve173,4235.7173,4256.0Surplus reserve273,9479.0273,5589.4General reserve532,45817.4456,20015.7Retained earnings1,086,39435.51,114,57638.5Other comprehensive income53,5731.741,5061.4Non-controlling interests6,6850.27,6190.3 Total3,056,463100.02,896,867100.0 -38-Off-balance Sheet ItemsOff-balance sheet items primarily include derivative financial instruments,contingent liabilities and commitments.The Bank enters into derivative transactions related to exchange rates,interest rates and precious metals for the purposes of trading,assets and liabilities management and business on behalf of customers.The Banks contingent liabilities and commitments include credit commitments,capital expenditure commitments,bond underwriting and redemption commitments,mortgaged and pledged assets,legal proceedings and other contingencies.Credit commitments are the major components of off-balance sheet items and comprise loan commitments,bank acceptances,letters of guarantee and guarantees,letters of credit and credit card commitments.Composition of Credit CommitmentsIn millions of RMB,except for percentagesItem30 June 202431 December 2023Amount Percentage(%)AmountPercentage(%)Loan commitments265,15110.5365,84712.8Bank acceptances786,71531.11,024,15035.8Letters of guarantee and guarantees389,50615.3373,91513.1Letters of credit229,7989.1218,8247.7Credit card commitments861,48034.0873,02930.6 Total2,532,650100.02,855,765100.0 Other Financial InformationChanges in Accounting PoliciesThere were no significant changes in accounting policies during the reporting period.Differences between the Consolidated Financial Statements Prepared under IFRSs and those Prepared under CASsThere were no differences in the net profit or shareholders equity between the Consolidated Interim Financial Statements of the Bank prepared under IFRSs and the corresponding figures prepared in accordance with CASs.-39-Other Financial IndicatorsRegulatory Standard30 June 202431 December 202331 December 2022Liquidity ratio1(%)RMB2580.3575.4264.21Foreign currency25151.52182.67235.12Percentage of loans to the largest single customer2(%)102.231.992.59Percentage of loans to the top ten customers3(%)13.5512.0213.54Loan migration ratio4(%)Normal1.471.391.30Special mention28.5123.8525.77Substandard64.7035.4546.35Doubtful27.8617.296.03Notes:1.Calculated by dividing current assets by current liabilities in accordance with the relevant regulations of the NFRA.2.Calculated by dividing total loans to the largest single customer(excluding accrued interest)by net capital.3.Calculated by dividing total loans to the top ten customers(excluding accrued interest)by net capital.4.The data at 30 June 2024 was annualized.-40-Business ReviewFive PrioritiesWe thoroughly implemented the decisions and plans of the CPC Central Committee and the State Council,comprehensively implemented the guiding principles of the Central Financial Work Conference,and developed a follow-up implementation plan to carry out the guiding principles of the Central Financial Work Conference.We provided high-quality financial services to promote high-quality development of the economy and society,made solid headway in the“Five Priorities”(technology finance,green finance,inclusive finance,pension finance and digital finance),adhered to our role as the national team and main force serving all-round rural revitalization and a major bank serving the real economy.We gradually improved the service system of technology finance,increasingly enriched service models of green finance,continuously improved the quality and efficiency of service in inclusive finance,accelerated the development of pension finance,and steadily enhanced the service capabilities of digital finance.Technology FinanceWe actively innovated financial products and service mechanisms to provide more effective financial resources for technological innovation.With a focus on national scientific and technological strategies and layouts,we accelerated the establishment and continuously improved a three-tiered and multi-dimensional professional service network comprising“Service Center for Technology Finance Technology Finance Division or Specialized Team Professional Sub-branch for Technology Finance”.In view of the characteristics of science and technology enterprises,such as high technology,strong innovation capability,light assets and high risks,we established and continuously optimized the exclusive credit service system,and matched the differentiated credit support policies.We created a full life cycle product matrix and actively researched and developed exclusive credit products,striving to achieve full coverage of the life cycle,the credit demands and the typical customer groups.We innovatively launched the Emerging Industries Empowerment Loan,explored the business model of“loans external direct investments”,and cultivated an ecosystem for technology finance that connects“governments,financial institutions and enterprises;industries,universities and research institutes;and investments,services and innovations”.As at the end of June 2024,the balance of loans to strategic emerging industries reached RMB2.63 trillion.Green FinanceWe identified green finance as one of our three major strategies.We continuously improved the governance structure,service system and risk control mechanism tailored for the requirements of eco-civilization construction and green and low-carbon development,to promote the high-quality development of green finance.We refined our multi-tiered policy system,continued to incorporate the requirements of green and low-carbon development into our credit policies and guidelines,and optimized industrial credit policies,to guide the investment of green funds.We improved the mechanism for the pool of major green finance projects,focused on key areas including clean energy,green upgrading of infrastructure,and energy conservation and environmental protection,and increased the supply of-41-green credit.We actively underwrote the issuance of green bonds,carried out green bond investment,deepened our cooperation with the National Green Development Fund,and innovated ESG-themed wealth management products,to improve our multi-tiered and multi-dimensional green finance service system.As at the end of June 2024,the balance of green credit exceeded RMB4.8 trillion.Inclusive FinanceWe comprehensively implemented the rural and inclusive finance strategy,and promoted the high-quality development of inclusive finance.We strengthened and improved the inclusive finance service system propelled by“County Area Banking Division Inclusive Finance Division”with our own features,and refined the long-term effective mechanisms to maintain the courage,willingness,ability and expertise in granting loans,to enhance the quality and efficiency of service in inclusive finance.Focusing on small and micro enterprises,agriculture-related business entities and targeted groups in need,we increased credit supply,and continued to boost inclusive loans in both quantities and coverage.We strengthened technological empowerment,improved“Small and Micro E-loan”,our online product system,in an innovative manner,and iteratively upgraded“Inclusive E-station”,our online service channel,to provide broad inclusive customer groups with professional,differentiated and convenient financial services.As at the end of June 2024,the balance of loans to inclusive finance was RMB4.51 trillion and the balance of inclusive loans to small and micro enterprises was RMB3.06 trillion,providing credit support for 4.43 million small and micro enterprises.Pension FinanceBased on customers full life cycle,we made a prospective and systematic layout,leveraged the synergy and collaboration of the Group,and offered differentiated products and comprehensive services for two major customer groups of elderly customers and customers preparing for elderly life,to build a bank featuring pension finance.We supported the building of a multi-tiered and multi-pillared pension system.As at the end of June 2024,the number of users of social security cards,electronic social security cards and medical insurance QR codes amounted to 272 million,143 million and 72.01 million,respectively,all holding a leading position among peers.We achieved steady growth in the number of annuity customers and the scale of annuity business,and ranked among the top in the industry in terms of the number of personal pension accounts and cumulative contributions.We optimized pension service finance,and enhanced age-friendly services in our outlets.As at the end of June 2024,we completed the age-friendly transformation at over 20 thousand outlets.We increased financial support for the pension industry,and gradually established a diversified financial service system including credit,investment and leasing for the pension industry.Digital FinanceWe continued to deepen digital transformation,accelerated the building of a new smart banking model led by technology,empowered by data and based on digitalization to continuously improve the quality and efficiency of services in digital finance.We refined the features of“ABC Huinong Cloud”,our-42-digital platform targeting rural areas,expanded the financial scenarios in key fields such as agriculture-related scenarios and smart parks in an orderly manner,and enriched the services of mobile banking in high-frequency scenarios such as campuses,healthcare and travel,to continuously refine our ecosystem of financial digital services.We improved the online“ABC E-loan”product system,promoted the innovation of products such as“Huinong E-loan”and“Huinong Internet Loan”,and further optimized the processes of loans,making financial services much more diversified,inclusive and accessible.We continued to accumulate high-quality data assets,deepened the application of label centers,decision engines and other data services,and efficiently advanced work in key areas including the construction of distributed core architecture,disaster recovery projects,and network and information security,further reinforcing data and technology support.As at the end of June 2024,the balance of“ABC E-loan”exceeded RMB5.1 trillion,including over RMB1.4 trillion in the balance of“Huinong E-loan”,and the number of our monthly active users of retail mobile banking amounted to 231 million.Corporate BankingDuring the reporting period,we adhered to the positioning of“a major bank serving the real economy”,took the initiative to integrate into national strategies,and had a profound insight into new quality productive forces.We made solid headway in the“Five Priorities”,and increased credit supply to key areas and weak links of the national economy.We further advanced the digitalization,and optimized operation and service systems in online and offline scenarios.Being customer-centric,we improved our comprehensive financial service capability and customer satisfaction focusing on customers diversified financial needs,so as to promote the high-quality development of our corporate banking business.As at the end of June 2024,the balance of domestic corporate loans and discounted bills amounted to RMB15,271,696 million.In the first half of 2024,the average daily balance of domestic corporate deposits(including insurance companies)amounted to RMB11.9 trillion,ranking first in banking industry in terms of the increment.As at the end of June 2024,we had 11,566.2 thousand corporate banking customers,among which 600.9 thousand customers had outstanding loan balances,representing an increase of 78.6 thousand customers as compared to the end of the previous year.We implemented the national strategy of building a manufacturing powerhouse.Focusing on the key tasks of new industrialization,we strengthened policy support and resource guarantee,optimized financial products and service models,increased financial supply for advanced manufacturing,industrial transformation and upgrading,industrial green development,industrial chain and supply chain and other fields,and actively supported enterprises equipment renewals and technological updates.As at the end of June 2024,the balance of loans granted to the manufacturing industry(based on the distribution of loans)exceeded RMB3.2 trillion.Among them,the balance of medium-and long-term loans granted to the manufacturing industry reached RMB1.41 trillion,representing an increase of RMB199.0 billion or 16.4%as compared to the end of the previous year,while the loans granted to high-tech manufacturing industries such as electronics and communication equipment,computer,pharmaceutical and aerospace equipment increased by RMB58.1 billion as compared to the end of the previous year.-43-We served national strategies of regional development.We took advantage of our omni-channel,full range of products and multiple licenses to comprehensively serve national strategies of regional development,such as Coordinated Development of the Beijing-Tianjin-Hebei Region,Integrated Development of the Yangtze River Delta,Guangdong-Hong Kong-Macao Greater Bay Area and Chengdu-Chongqing Economic Circle,with an increase of RMB785.5 billion in loans to corporate customers in the first half of 2024.We supported the development of private enterprises.We strengthened policy support and allocated special credit resources to actively meet the financing needs of private enterprises in areas such as technological innovation,green and low-carbon development,and projects for upgrading foundational industrial infrastructure,and supported private enterprises to participate in high-quality private investment projects under the investment-lending linkage mechanism of National Development and Reform Commission.As at the end of June 2024,the balance of loans granted to private enterprises was RMB6.24 trillion,representing an increase of RMB786.7 billion or 14.4%as compared to the end of the previous year.We promoted digital transformation.We continuously promoted the construction of corporate customers marketing management system.We iteratively updated a series of digital marketing management tools focusing on targeted chain marketing,business opportunity management,value enhancement of key corporate customer groups,and intelligent customer management.We accelerated the layout of scenarios in government,transportation,tourism,pension and consumption finance,and continued to enrich the application of online credit,transaction banking and other products.Transaction BankingWe continued to improve the transaction banking system based on accounts and payment settlement.With the focus on key areas,industries and customers,we strengthened product innovation,accelerated online penetration,deepened differentiated integrated marketing,and increased traffic through scenarios,to facilitate the high-quality development of transaction banking business.We deepened the technological empowerment,strengthened online-offline synergy,and constantly optimized the corporate account opening process.In response to the new business modalities and demands of the market,we innovated a new model of“account-opening service at any outlet nationwide”for systematic and group customers,in an effort to improve corporate account service capabilities.As at the end of June 2024,we had 14,178.2 thousand corporate RMB-denominated settlement accounts,with the RMB-denominated corporate settlement transaction volume of RMB464.18 trillion in the first half of 2024.We continued to innovate the“ABC Treasury Reach”treasury product lineup.We launched the“ABC Treasury Reach”mobile treasury service to assist enterprises in improving management and operation efficiency.We strengthened the comprehensive service capability of“Bill Connect”and developed whole-chain and intelligent bill service.We created a new model of bank-enterprise direct link,achieving efficient connections between the Bank and enterprises.As at the end of June 2024,the Bank had 3,614.8 thousand active transaction banking customers.-44-Institutional BankingAdhering to the customers-centered principle,we promoted the smart scenarios construction,and improved the customer service efficiency to promote the high-quality development of institutional banking.As at the end of June 2024,we had 725.5 thousand institutional banking customers,representing an increase of 38.1 thousand customers as compared to the end of the previous year.In terms of financial services to the governments,we deepened the intelligent services for government affairs,and promoted the extension of them to County Areas and foundation-level governments.The independently developed“Smart County”platform has been launched and taken effect in 630 counties of 31 provinces(including autonomous regions and municipalities directly under the central government)to help improve the efficiency of the county-level governments performance of duties,optimize the business environment,and render public services.In terms of fiscal and social security,we provided high-quality and efficient financial services for central and local budgetary entities.For two consecutive years,we ranked first in the correspondent banks of centralized payment for the central treasury of the MOF and in the special evaluation of the medical insurance QR codes operation channels of the National Healthcare Security Administration.We were also awarded excellent correspondent bank for central non-tax revenue collection by the MOF for 14 consecutive years.In terms of services to peoples livelihood,we cooperated with over 32 thousand schools on our smart campus,and over 6.3 thousand hospitals on our smart hospital.In terms of services to financial institutions,the contracted customers for third-party depository services exceeded 77.72 million,representing an increase of 5.13 million as compared to the end of the previous year.Investment BankingPersisting in serving the real economy,we continued to improve the“financing advisory”and“commercial banking investment banking”service solutions to meet the diversified financing needs of customers.In the first half of 2024,the income from our investment banking business was RMB10,084 million.We enhanced product innovation to serve the diversified financing needs of customers.We deeply cultivated the service scenarios of syndicated loans and M&A loans to meet large-scale financing needs in key areas such as infrastructure construction and emerging industries,with the balance of syndicated loans reaching RMB2.98 trillion.We served the integration of industrial chain and the high-quality development of listed companies,with the balance of M&A loans exceeding RMB230.0 billion.We underwrote the first equity asset-backed debt financing instrument as well as the first batch of bonds for large-scale equipment renewals and trade-ins of consumer goods in the market,to facilitate investment and construction,and technological upgrading in key areas.-45-We sped up digital transformation and improved the quality and efficiency of investment banking services.We rolled out the ABC SISON(Version 2.0),upgraded access path,improved online interactive experience,and extended core functions.We introduced the“Inclusive Zone”function to provide one-stop free online integrated advisory services for inclusive users.Retail BankingWe continued to deepen the development strategy of“One Main Body with Two Wings”for retail banking(namely,customer construction as the main body,unswervingly promoting“broad wealth management”and digital transformation as the two wings).Driven by innovation,technology and services,we improved our capability to provide refined services to customers,strengthened“broad wealth management”and digital transformation,to upgrade the driving force and engine of the high-quality development of retail banking.We continued to increase supply of retail loans to meet the diverse financing demands of residents.We enhanced financial supply in the fields related to peoples livelihoods,including pension,rural revitalization and new urban residents,expanded the boundary of our services,and delivered more considerate services.We took the first place in the ranking of the Global Retail Banking Brands for three consecutive years.Customer ManagementBased on differentiated customer demands,we followed the strategy of classifying customers by layers and groups,integrated online and offline service channels to further refine customer services.As at the end of June 2024,the total number of our retail banking customers reached 871 million,maintaining the first in banking industry.We deeply proceeded with the integration and complementation between 7-star-level customer services and the management of“6 N”customer groups(six major customer groups and N featured customer groups),to meet both the financial and non-financial demands of customers.We continued to deepen technological empowerment,advanced the construction and application of channels such as WeCom and smart outbound calls,created diverse financial scenarios for customers on mobile banking,and leveraged AI to empower the whole process of online services,which enabled us to identify customers more precisely,provide more suitable products and services and make more intelligent and convenient experience to customers.We actively transformed offline service models,proactively expanded the boundary of services,and delivered high-quality products and services to customers through tools like“Full-scenario Marketing Service Platform for Rural Revitalization”and“Into Enterprise Application”.We provided services for new urban residents,built featured outlets,and promoted exclusive products such as the Delivery Driver Card and Small and Micro Businesses Card,taking a leading position in the market in terms of the issuance volume.-46-Broad Wealth ManagementWe developed broad wealth management based on the philosophy of platformization,specialization,comprehensiveness and inclusiveness,aiming to serve as a wealth manager for customers and a major driver of industrial development.As at the end of June 2024,the asset under management of our retail banking customers reached RMB21.18 trillion,ranking among the top in banking industry.In the first half of 2024,the average daily balance of domestic retail deposits amounted to RMB17.5 trillion,ranking first in banking industry in terms of the increment.We leveraged our platform advantages,pursued extensive collaboration with wealth management institutions both inside and outside the Group to connect with more customers with quality services.We built a multi-tiered investment research team that covered the Head Office,branches and outlets to establish stronger professional forces in areas such as market insight,institutional cooperation,product screening and customer services.We vigorously promoted asset allocation,and comprehensively provided wealth growth solutions of“deposits wealth management other products/services”based on customers demands and risk appetites,to accompany customers in wealth growth and through economic cycles.We actively optimized products deployment,lowered the threshold for wealth investment,and promoted products such as“Low Volatility”wealth management product,exclusive commercial pension insurance,bond funds and low-price precious metal products to make wealth management services accessible to more customers.Retail LoansAdhering to the people-centered philosophy and focusing on benefiting peoples livelihood and serving the high-quality development of the real economy,we further increased supply of retail loans.As at the end of June 2024,the balance of domestic retail loans was RMB8,652,093 million,representing an increase of RMB592,178 million as compared to the end of the previous year,taking a leading position in banking industry.We resolutely implemented policies of financial support for real estate,actively adapted to the new changes in the supply-demand relationship in the real estate market,and facilitated the steady and healthy development of the real estate market.In the first half of 2024,we granted retail residential mortgage loans of RMB309.6 billion.We served for“expanding domestic demand,stimulating consumption and benefiting peoples livelihood”,improved consumer financial services,and further increased marketing and supply of personal consumption loans.As at the end of June 2024,the balance of personal consumption loans,including credit card loans,amounted to RMB1.20 trillion,representing an increase of RMB163.4 billion as compared to the end of the previous year.-47-We made persistent efforts on inclusive finance,optimized our credit products,precisely implemented differentiated policies,and increased credit support for the key areas and weak links such as wholesale and retail,agriculture,forestry,animal husbandry and fishery,and logistics and transport.As at the end of June 2024,the balance of loans to private business,including Huinong E-loan,amounted to RMB2.36 trillion,representing an increase of RMB531.5 billion as compared to the end of the previous year.Bank Card Business We sped up the digital transformation and innovation of the debit card business,and launched the customized debit card service.We carried out consumption promotions targeting daily life scenarios such as vehicle refueling and supermarket shopping.We constantly implemented various policies of fee reduction and interest concession.As at the end of June 2024,we had 1,096 million existing debit cards.We optimized the credit card product lines,and launched products such as UnionPay Zunran Platinum Card,MasterCard Global Payment Platinum Card and Visa Global Payment Platinum Card(Olympic Version).We enhanced penetration into key customer groups,laid out in culture and tourism scenarios and online scenarios,and refined the management of credit card customer groups.We increased the supply of consumption loans,and carried out marketing and services with the theme of trade-ins of goods in key consumption scenarios such as automobiles,home decoration and appliances,and mobile phones and digital products.We also organized special marketing activities such as“One Thousand Cities and Ten Thousand Stores:ABC Automobile Festival”and“ABC Home Decoration Festival”.We advanced the spending on new energy vehicles in rural areas,and innovated and promoted the instalment products for benefiting farmers.In the first half of 2024,the transaction volume of credit cards amounted to RMB1,113.0 billion,representing a year-on-year increase of 3.3%.Private Banking Business We improved the pyramid-type professional service system,carried out benchmark construction of private banking center led by 100 private banking centers at Head Office level and 100 private banking centers at branch level,covering all key cities nationwide.We promoted the establishment of sub-branch level wealth management centers to lower-tiered regions.The number of private banking customers in counties increased by 12%as compared to the end of the previous year,and the assets under management of private banking customers in counties exceeded RMB1 trillion.We cultivated core talents of private banking business represented by private bankers and top wealth management advisors,and improved the professional service capability of our wealth management advisory team.We made efforts to build an integrated financial service ecosystem for private banking customers families and enterprises,with the increase in the scale of family trusts exceeding RMB20.0 billion.We provided services with synergies between corporate and retail business for micro,small and medium-sized enterprises,including specialized and sophisticated enterprises that produce new and unique products,and acquired nearly 10 thousand new private-48-banking customers who were entrepreneurs.We continued to improve public welfare financial services,and launched the charitable trust activity themed“Charity Journey”.The private banking public welfare trusts have benefited 17 thousand people accumulatively.As at the end of June 2024,the number of our private banking customers reached 247.5 thousand and the balance of assets under management amounted to RMB2.85 trillion.Treasury OperationsTreasury operations of the Bank include money market activities and investment portfolio management.We adhered to serving the high-quality development of real economy and supporting the green and low-carbon development.We flexibly adjusted investment strategies on the basis of ensuring the security of bank-wide liquidity.Our investment return on assets remained at a relatively high level among peers.Money Market Activities We strengthened the research on monetary policies and forecasts of market liquidity,comprehensively used financing instruments such as placement and lending,repurchases,certificates of deposit and deposits and optimized the allocation structure of short-term assets to improve the efficiency of fund utilization on the basis of ensuring the security of our liquidity.We effectively fulfilled the responsibilities as a primary dealer of open market operations,and efficiently assisted in the transmission of prudent monetary policies.In the first half of 2024,the volume of our RMB-denominated financing transactions amounted to RMB106.99 trillion.Investment Portfolio ManagementAs at 30 June 2024,our financial investments amounted to RMB12,853,509 million,representing an increase of RMB1,639,796 million or 14.6%as compared to the end of the previous year.Trading Book Activities We continuously improved the share of the bond market-making business in the interbank market.We put more efforts into the market-making quotation in the interbank bond market,with steady growth in the number of market-making quotations and trading volume of bonds such as green bonds,rural revitalization bonds and small and micro bonds.We actively contributed to the opening-up of the bond market,and our Bond Connect business maintained a leading position in the market.We dynamically adjusted the bond trading portfolio.In the first half of 2024,the yields of domestic bond market slid down with fluctuation.Considering the market trend,we flexibly adjusted the positions of portfolio,and improved the portfolio profitability while strictly controlling the impact of market volatility.-49-Banking Book Activities We optimized investment strategies in the context of declining market interest rates,and rationalized the investment pace comprehensively considering both the trends in the bond market and the needs of portfolio management.We coordinated asset returns and risk prevention and control to enhance the quality and effectiveness of investment operations.We maintained our investment in government bonds and optimized the investment structure of credit bonds.We invested in ultra-long special treasury bonds and increased the positions of government bonds to support major national strategies and the construction of security capacities in key areas,and to facilitate the construction in transportation,industrial parks and other infrastructure sectors.The scale of investments in local government bonds and national bonds maintained a leading position among peers.Aiming to serve the high-quality development of the real economy,we actively invested in credit bonds,and supported the financing needs of green industries and strategic emerging industries such as new infrastructure construction and new energy.Asset ManagementWealth ManagementAs at the end of June 2024,the balance of the Groups wealth management products reached RMB1,802,475 million,of which RMB74,812 million was generated from the Bank and RMB1,727,663 million was generated from ABC Wealth Management.Wealth Management Products of the BankDuring the reporting period,all of the existing wealth management products of the Bank were non-principal guaranteed and publicly offered wealth management products.As at the end of June 2024,the balance of our wealth management products amounted to RMB74,812 million,representing a decrease of RMB23,178 million as compared to the end of the previous year.The table below presents the issuance,maturity and existence of wealth management products of the BankIn 100 million of RMB,except for tranchesItem31 December 2023IssuanceMaturity30 June 2024TrancheAmountTrancheAmountTrancheAmountTrancheAmountNon-principal guaranteed wealth management9979.901,159.0211,404.208748.12Note:The amount of maturity included redemption and maturity amount of wealth management products during the reporting period;net worth wealth management products were measured at net assets.-50-The table below presents the balances of direct and indirect investment assets under the Banks wealth management businessIn 100 million of RMB,except for percentagesItem30 June 2024AmountPercentage(%)Cash,deposits and interbank certificates of deposit108.3012.3Debt securities344.3339.1Non-standard debt-based assets278.0831.6Other assets149.9717.0 Total880.68100.0 Wealth Management Products of ABC Wealth ManagementAs at the end of June 2024,the balance of the wealth management products of ABC Wealth Management amounted to RMB1,727,663 million.These were all net worth wealth management products,among which publicly offered wealth management products accounted for 96.5%while privately offered wealth management products accounted for 3.5%.Custody Service We successfully marketed over 130 industrial funds,with more than 1,000 industrial funds under custody,and achieved two publicly offered REITs under custody.We newly won the bids for 18 individual enterprise annuity plans,marketed a number of semi-annuity custody projects,and the scale of pension target funds under custody maintained a leading position in the market.The scale of insurance under custody exceeded RMB7 trillion,the scale of publicly offered funds under custody increased by RMB248.6 billion and the scale of bank wealth management products under custody increased by RMB266.3 billion as compared to the end of the previous year.The competitiveness of our key products achieved new improvement.We were awarded the“Excellent ETF Custodian”of the Yinghua Award by China Fund.As at the end of June 2024,our assets under custody amounted to RMB16,633,807 million,representing an increase of 10.8%as compared to the end of the previous year.Precious Metals In the first half of 2024,we traded 3,059.62 tons of gold and 7,574.79 tons of silver for our own account as well as on behalf of customers,and maintained a leading position in the industry in terms of transaction volume.-51-We steadily developed the precious metals leasing and lending business,and further increased support for quality enterprises producing or using gold.We actively met the gold stocking needs of jewelry enterprises,and greatly supported the high-quality development of green mining enterprises.Treasury Transactions on Behalf of Customers We continuously promoted the popularization of the concept of exchange rate risk neutrality,and provided enterprises with forwards,swaps,option products and other exchange rate hedging products,to help improve the quality and stabilize the volume of foreign trade.In the first half of 2024,the transaction volume of foreign exchange sales and settlements as well as foreign exchange trading on behalf of customers amounted to USD265,328 million.We steadily developed the counter bond(Zhaishibao)business.In the first half of 2024,the amount of counter distribution of bonds exceeded RMB30.0 billion,supporting major national strategies and making more efforts to serve the real economy.We continued to optimize the functions of our system,and provided individuals,enterprises and financial institutional investors with financial products that combined safety,liquidity and profitability.Agency Insurance Business We enriched the system of agency insurance products and continued to improve our service capability to effectively meet the diversified insurance needs of customers.Our agency insurance business achieved healthy growth,with both agency insurance premium and commission income holding a leading position in the industry.We actively advanced agency sales of commercial pension insurance,and our agency sales of long-term pension insurance premiums amounted to RMB19.2 billion in the first half of 2024.Agency Distribution of Fund Products With a clear understanding of market situations,we actively deployed bond funds and monetary funds,strengthened equity fund reserves,promoted the issuance of innovation funds,continuously enriched fund product lines,and implemented the operating strategy that lays equal emphasis on fund issuance and continuous marketing.We carried out specialized training on wealth management themed“Golden Leading Geese”,to advance the building of the talent team.In the first half of 2024,the sales volume of publicly offered funds distributed by the Bank amounted to RMB149,038 million,representing a year-on-year increase of RMB32,751 million.Agency Sales of PRC Government Bonds In the first half of 2024,we,as an agent,distributed eight tranches of PRC government savings bonds with the sales amount of RMB19,477 million,including four tranches of PRC government savings bonds(in certificate form)with the sales amount of RMB7,704 million,and four tranches of PRC government savings bonds(in electronic form)with the sales amount of RMB11,773 million.-52-Internet FinanceUpholding the service principles of“finance for the people”,the Bank continuously improved the digital service channels,continued to expand online traffic,and advanced the digital transformation in depth.Smart Mobile BankingWe launched the 9.2 version of mobile banking.Driven by data,we optimized users experience,created a pension service ecology and provided inclusive and convenient financial services.As at the end of June 2024,we had 231 million of monthly active users(MAU)of mobile banking,representing an increase of 18.28 million MAU as compared to the end of the previous year,maintaining the leading position among the comparable peers.We improved the smart mobile banking system.We unveiled the English version of mobile banking,providing account inquiry,transfer,cross-border remittance,credit card repayment,phone top-up and foreign exchange price listing and other services for overseas visitors to China.We released the HarmonyOS version of mobile banking,adapting to HarmonyOS,a domestic operating system.We delivered exclusive pension services.We created a“pension zone”,which provided one-stop pension services by integrating entrances of social security,enterprise annuity and personal pension.We enriched pension finance services,launching features such as pension benefits estimation and pension contributions.We continued to empower rural revitalization.We promoted the construction of the rural revitalization channel,providing featured services like high-quality rural stores and trade-ins of home appliances.We upgraded the“Rural Version”of mobile banking,launching Huinong Lectures in the Huinong zone for the concentrated publicity of financial products,Huinong policies and anti-fraud knowledge,etc.As at the end of June 2024,we had over 40 million of MAU of the“Rural Version”of mobile banking.Online Corporate Banking We upgraded the corporate financial service platform.We unveiled features such as intelligent input for transfer and speedy interbank remittance to further optimize the transaction process.We launched the intelligent Q&A assistant to help customers address problems arising in daily use.We iteratively upgraded mobile corporate banking.We refined the processes for high-frequency transactions,such as transfer and details inquiry,tightened safety control in login,jump to external links and other features,and realized one-stop processing of services for corporate customers.We optimized the“Salary Manager”service.We enabled intelligent identification of employee card numbers,refined the solutions related to personnel,attendance,salary&tax,welfare and reimbursement,and upgraded the features of electronic payslips and the salary zone.-53-Smart Scene-based Finance We continued to improve scene-based financial services.In terms of campuses,we upgraded functions related to payment,teaching and academic administration to help to promote informationization construction capabilities in campuses.In terms of canteens,we launched services like monthly food ordering and menu comments to help enterprises achieve efficient catering management.In terms of government affairs,we optimized social security and medical insurance services,and enabled mobile payment by scanning medical insurance QR codes.In terms of travel,we focused on green travelling,introducing a new service that allows customers to pay for electrical bicycle charging by scanning QR codes on charging piles.We improved the service capabilities of open finance.We expanded the channels for applying for loans of consumption scenarios,and supported the whole-process handling of loans in cooperative platform.We deepened cooperation of mobile payment for medical insurance,enabling coordinated payment from the public medical insurance accounts,personal medical insurance accounts and self-funded accou
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Profitable growth in third quarter outlook confirmedRoland Busch,CEO Siemens AGRalf P.Thomas,CFO Siemens AGUnrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08Notes and forward-looking statements This document contains statements related to our future business and financial performance and future events or developments involving Siemens that may constitute forward-looking statements.These statements may be identified by words such as“expect,”“look forward to,”“anticipate,”“intend,”“plan,”“believe,”“seek,”“estimate,”“will,”“project”or words of similar meaning.We may also make forward-looking statements in other reports,in prospectuses,in presentations,in material delivered to shareholders and in press releases.In addition,our representatives may from time to time make oral forward-looking statements.Such statements are based on the current expectations and certain assumptions of Siemens management,of which many are beyond Siemens control.These are subject to a number of risks,uncertainties and factors,including,but not limited to those described in disclosures,in particular in the chapter Report on expected developments and associated material opportunities and risks in the Combined Management Report of the Siemens Report( in the Interim Group Management Report of the Half-year Financial Report(provided that it is already available for the current reporting year),which should be read in conjunction with the Combined Management Report.Should one or more of these risks or uncertainties materialize,should decisions,assessments or requirements of regulatory authorities deviate from our expectations,should events of force majeure,such as pandemics,unrest or acts of war,occur or should underlying expectations including future events occur at a later date or not at all or assumptions prove incorrect,actual results,performance or achievements of Siemens may(negatively or positively)vary materially from those described explicitly or implicitly in the relevant forward-looking statement.Siemens neither intends,nor assumes any obligation,to update or revise these forward-looking statements in light of developments which differ from those anticipated.This document includes in the applicable financial reporting framework not clearly defined supplemental financial measures that are or may be alternative performance measures(non-GAAP-measures).These supplemental financial measures should not be viewed in isolation or as alternatives to measures of Siemens net assets and financial positions or results of operations as presented in accordance with the applicable financial reporting framework in its Consolidated Financial Statements.Other companies that report or describe similarly titled alternative performance measures may calculate them differently.Due to rounding,numbers presented throughout this and other documents may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures.Unrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08Page 2Q3 Business highlightsUnrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08ROBUST TOPLINEOrders solid Book-to-bill 1.05,due to SI&SHS DI sequentially up,driven by SW Backlog at 113bn Clear revenue growth Up 5%SI,SHS and MO all up DI on levelCompetitive strength Large license deals at DI SW SI Electrification stands out again,revenue up 21%STRINGENT EXECUTIONStrong conversion IB profit of 3.0bn IB margin at 16.5%Consistent free cash flow 2.5bn for IB 2.1bn“all in”Full-year guidance confirmedCONSISTENT STRATEGYDriving transformation Infrastructure opportunities Capacity expansion ElectrificationSustainability leadership First EcoVadis platinum rating Siemensstadt Square as global blueprintSaaS transition fully on track ARR up 15%Cloud ARR reaching 39%sharePage 3Q3 Key FinancialsUnrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08Orders19.8bn-15%Note:Orders and Revenue growth comparableRevenue18.9bn 5%IB Profit margin16.5%EPS pre PPA2.66Free cash flow2.1bnIndustrial Net debt/EBITDA1.0 xPage 4Smart Infrastructure is at the core of driving sustainable infrastructure transformationFurther investing in the future to meet increasing demandUnrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08Additional invest of 100m until 2025Ramp-up of Blue GIS MV switchgear portfolioHigh degree of automation&digitalization in production400 jobs until 2027 Secular trendsElectrification of everything3x higher electricity demand by 2050Decarbonization of the energy system39%of global emissions are from buildingsAcceleration enabled by technology20%less emissions by 2050 by digitalization at scale3.04.05.06.07.03.83.5Q1/21Q3/21Q1/22Q3/22Q1/23Q3/23Q1/246.05.4Q3/24OrdersRevenue drive Smart Infrastructure businessCapacity expansion in ElectrificationSwitchgear factory FrankfurtUpgrade APAC presence in Data Center 3rd Competence center(CoC)in addition to U.S.&Netherlands200 designers,planners,engineers,project managersScalable and modular data center solutionsInauguration CoC ChennaiPage 5bn Since 2021,score improved by 19 points to 80 points,reflecting progress in sustainability management First time Platinum medal Among top 1%out of 73,000 companies assessed worldwide Create showcase how technologies from Siemens Xcelerator platform transform industrial site into city of the future End-to-end digital twin combines all levels:campus,buildings,energy,powered by AI Blueprint for sustainable growth and competitivenessScaling sustainability impact for customers Unrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08Resource efficiencySiemens and BASFDecarbonizationSiemensstadt SquareGovernanceTop 1%ranking Collaboration on driving circular economy Replacing fossil feedstock by biomethane from recycled biowaste in a mass balance approach Plastics for circuit breaker production with significant reduction of product carbon footprint Page 6AEROSPACE BAE SYSTEMSFactory of the future5-year framework collaboration agreement to accelerate digital innovation by transforming engineering and manufacturing processes Siemens Xcelerator and vertical know-how drive customer valueSustainability impact through decarbonization,resource efficiency&people centricityUnrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08BATTERIES ULTIUM CELLSSmart battery manufacturingJV between LG Energy Solution&General Motors(GM)started its battery mass production with Siemens automation technologyPOWER DISTRIBUTION-NORGESNETTSustainable power distributionFramework agreement for SF6 gas-free switchgear and compact substations saving 1,200 tons of CO2 over product lifetimePUBLIC TRANSPORT BVG BERLINSemi-automated operationUpgrade of two Berlin metro lines with CBTC during ongoing operations to increase capacity by 30 percent Verticaldomainknow-howCrosscollaborationCore TechnologiesBildquelle:“BVG/Oliver Lang”Page 7DI SW Annual Recurring Revenue(ARR)12%Q3 2227%Q3 2330%Q4 2333%Q1 2437%Q2 2439%Q3 243.33.74.03.94.14.2 14%1) 15%1)SaaS transition with high momentum1 ARR:FX comparable Share of Cloud ARRbnCloud ARR:Up 1.7x y-o-y to 1.7bn#Customers(accumulated):Customer transformation rate to SaaS:Cloud invest:181m after 9M YTD|FY24:targeted invest 250mShare of renewals based on total contract value(TCV)Therein 72%new customersUnrestrictedUnrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08Combining the real and digital worldsStrong underlying growth momentum with SaaS transformation at high paceTARGET40%CloudARRbyFY202483xy%Q3 22Q3 23Q4 23Q1 24Q2 24Q3 24Rolling 4Q69%Q3 2282%Q3 2384%Q4 2384%Q1 2485%Q2 2485%Q3 242,3509,26011,30012,59014,76016,550SME customersPage 8Digital Industries(DI)Exceptional Software performance,soft Automation business as expectedUnrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08 Sequential decline in Automation,above trough levels of Q4/23 Stock levels remain elevated SW driven by large license deals Book-to-bill at 0.93 Backlog 9.7bn,therein 5.4bn SW Automation down-25%PLM Software up 108%on large license contracts and progressing SaaS-transition EDA with excellent growth of 45%on large license contracts Strong conversion in Software license business Reduced capacity utilization in Automation Gain of 140bps from divestment Solid cash conversion Higher receivables related to large SW license contracts OrdersbnRevenuebnProfit marginFree cash flowmx.xProfit margin excl.severancex.xsh Conversion Ratex.xxtherein SoftwareQ3 FY 23Q3 FY 243.84.5 21%1)1.13.8Q3 FY 232.12.8Q3 FY 245.04.90%1)Q3 FY 23Q3 FY 24 110bps22.9.0#.3-23!.91Q3 FY 23Q3 FY 241,087-12%1.000.851 Comparable,excl.FX and portfoliox.xPage 9Digital Industries(DI)Unrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08Automation orders sequentially softer;however,above trough level of Q4 FY 23Muted order dynamics affect revenue growth on tough comps 25%-27%OrdersRevenueQ3 FY 24 Key regions AutomationChina-9%-32%Germany-36%-45%Italy-9%-13%U.S.Q3 FY 24 Software 82%GlobalExceptional performance driven by large license contract wins in PLM&EDA;strength across all regionsOrders sequentially lower on sluggish demand;Muted macro weighed on revenueWeak macro sentiment weighed on orders;Strong revenue decline in DiscreteOrders sequentially stabilizing and up,PYQ(-64%)very easy comps;Revenue impacted by high distributor stock levelsOrders lower on muted macro;Soft revenue in Discrete&ProcessNote:Growth rates Comparable,excl.FX and portfolioPage 10Digital Industries(DI)Vertical end market trendsUnrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08Still subdued macro environmentPersistently muted growth momentum in key end marketsAutomotiveMachine BuildingFood&BeveragePharma&ChemicalsAerospace&DefenseElectronics&SemiconductorsVertical end marketsRevenueexposureMarket trend1Q2 FY 24Market trend1Q3 FY 2420%5%1 Y-o-Y industry revenue development for next 6 months based on industry production data from statistical office sources(e.g.NBoS,US Fed,Eurostat)Page 11Smart Infrastructure(SI)Strong topline momentum,further margin expansion,excellent free cash flow-againUnrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08 Book-to-bill at 1.11 Electrification up 14%Buildings up 12%Electrical Products up 8%Massive AI driven momentum from data center customers All-time high backlog 18.6bn Electrification with further excellent growth of 21%Electrical Products up 7%on tough comps Buildings up 5%driven by solutions and services Service business up 8%Strong conversion on higher revenue and capacity utilization Net positive economic equation supported by ongoing productivity improvement Strong cash conversion,exceeding the 1bn markOrdersbnRevenuebnProfit marginFree cash flowm1 Comparable,excl.FX and portfolioProfit margin excl.severancex.xsh Conversion Ratex.xxtherein ServiceQ3 FY 23Q3 FY 245.46.0 11%1)1.13.9Q3 FY 231.14.3Q3 FY 244.95.4 10%1)733Q3 FY 23Q3 FY 241,007 37%0.951.09Q3 FY 23Q3 FY 24 140bps15.8.2-16.6.0%x.xx.xPage 12Smart Infrastructure(SI)Unrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08Order growth driven by large customer wins for data centersRevenue growth fueled by strong momentum in the U.S.Orders RevenueQ3 FY 24 Key regions Q3 FY 24 Service 8%GlobalBroad-based revenue growth driven by Asia and Europe 4% 19%U.S.Order strength on tough comps with continued major data center wins;Strong backlog execution,Electrification&Electrical Products driving revenue up 1% 4%GermanyOrder growth driven by Buildings;Revenue up in Buildings&Electrification partially offset by Electrical Products-2%-5%ChinaOrders and revenue soft across most businesses due to challenging market environment and high stock levels 39% 8%Europeexcl.GermanyOrders driven by major Electrification wins in several verticals;Revenue strength in Electrification and BuildingsNote:Growth rates Comparable,excl.FX and portfolioPage 13Smart Infrastructure(SI)Vertical end market trendsUnrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08Key verticals with consistent market trendsData Center further boosted by AI;Power Distribution strength on rising electricity demandCommercial BuildingsPublic Sector/EducationData CenterPower DistributionElectrical&ElectronicsHealthcareVertical end marketsRevenueexposureMarket trend1Q2 FY 24Market trend1Q3 FY 2415%5%5%1 Trend next 3 4 quarters,Y-o-Y vertical market development Page 14Mobility(MO)Strong bottom line despite revenue being held back,free cash flow weighted to Q4Unrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08 Book-to-bill at 0.92,following a series of excellent quarters Low level of larger orders,particularly in Rolling Stock Backlog at 48bn,therein 13bn service Rail Infrastructure up MSD Rolling Stock moderately down due to temporary production slow-down resulting from supplier quality issues Service up 15%Profit improvement in most businesses,led by Rail Infrastructure More favorable business and project mix Lower level of milestone payments and build-up of inventories Clear catch-up in Q4 with strong cash collection expectedOrdersbnRevenueProfit marginFree cash flowmCash Conversion Ratex.xxtherein ServiceQ3 FY 23Q3 FY 248.32.4-71%1)0.42.1Q3 FY 230.52.1Q3 FY 242.62.6 2%1)709-263Q3 FY 23Q3 FY 24-100%3.40-1.16Q3 FY 23Q3 FY 24 60bps8.7-13%8.1%1 Comparable,excl.FX and portfoliox.xx.xRevenuebn8.3%8.9%Profit margin excl.severancex.x%Page 15Below Industrial BusinessReporting structure simplified,strong operational performanceUnrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08m131IBSFS-132Other Below IB items-181PPA-694TaxIncome Cont.Ops-25Disc.Ops.Net Income3,0332,1582,133Minorities154mTax Rate 24%Q3 FY 24 Reporting structure simplifiedInnomotics now part of Discontinued OperationsRemaining Portfolio Companies now in Other below IB items SFS Consistently solid performance Net Income Driven by strong operational performanceNote:Other Below IB items contains SE Investment;Portfolio Companies;SRE;Innovation;Governance;Pensions;Financing,Elimination,OtherDetailed split 9M YTD 24 and Outlook FY 2024 see page 23 Key developmentsPage 16Consistent free cash flowUnrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08FCF Industrial BusinessmFCF“all in”mIndustrial Business mainly impacted by sharply lower level from advance payments in MobilityOutside Industrial Business,tax payments increased by 0.5bn y-o-yCash Conversion Ratex.xQ3 cash performanceCapital allocation for shareholdersShare buyback program accelerated(0.7bn since inception in Feb 2024)9M FY 23Q1 FY 24Q2 FY 24Q3 FY 249M FY 246,2091,2812,1002,5325,913-5%9M FY 23Q1 FY 24Q2 FY 24Q3 FY 249M FY 245,3861,3442,1214,5131,048-16%0.780.470.840.710.830.810.410.610.660.99Page 17Outlook FY 2024 confirmedUnrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08This outlook excludes burdens from legal and regulatory mattersSiemens GroupSiemens BusinessesRevenue growthComparable Profit marginDigital Industries-8%-4!%expected at lower endSmart Infrastructure8%expected at upper endMobility8%8%Book-to-bill1Revenue growthComparable4%8%expected at lower endEPS pre PPA excl.SE Investment10.40 11.00Page 18Unrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08Questions and AnswersPage 19Unrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08AppendixPage 20Order backlogGrowth aspirations well underpinned for SiemensUnrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08613503648191052Order backlog June 2024334FY 2024eFY 2025eAfter FY 2025e11316Expected revenue generation from backlogKey developmentsbnShort-cycle product businesses in DI further normalized,Software backlog stableContinued increase of backlog in systems,solution and service business of SI providing strong basis for revenue growth trajectoryMO with high visibility for utilization of well-structured manufacturing footprint;execution excellence is key Attractive long-term share in SHS-backlogDIMOSHSSIOtherPage 21Siemens Financial Services(SFS)Strong FY 24 YTD performance in both,Equity and Debt businessUnrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08Page 22m149Q1 FY 2454Q2 FY 2423Q3 FY 24260149131bnDecrease in total assets compared to September 30,2023,mainly driven by negative currency translation effectsStrong performance of Debt business mainly driven by lower credit risk provisionsSolid result from the Equity business;prior year quarter included a gain on sale of a stake in an investment2.1Q1 FY 242.1Q2 FY 242.0Q3 FY 2432.032.632.7Earnings before Taxes(EBT)Total AssetsROE:1979M FY 232259M FY 24468540 15%2.1Q4 FY 232.09M FY 2432.932.718.5 .1%therein Equity business therein Equity business Below Industrial Business Outlook updated due to simplification in reportingInnomotics reported as Discontinued OperationsUnrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-089M YTDExpectation for FY 2024Profit Industrial Business8,270SFS540Further gradual improvement over FY 2023SE Investment479No further P&L impact;excluded from EPS guidanceSRE22On FY 2023 level,dependent on disposal gainsInnovation-128On FY 2023 levelGovernance-122Further improvement vs.FY 2023;around-0.3bnPensions-55On FY 2023 levelPPA-566-0.7 to-0.8bn,based on current portfolioFinancing,Elim.,Other-114-0.1bn to 0.1bn,depending on market developmentsTax-1,594Tax Rate:20 23%w/o impact from potential tax reformsIncome C/O6,731Discontinued Operations146Including Innomotics(Operations,Carve-out&Transaction)0.1 to 0.2bnNet Income6,878Page 23UpdatedNet Debt bridgeCapital Structure remains rock solidUnrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08Net Debt Q2 20243.6-0.9 OWC-0.4Cash flows from investing activities-1.6Financing and other topicsNet Debt Q3 202426.8Net Debt adjustmentsInd.Net Debt Q3 202441.040.313.5Q3 Q2 SFS debt 28.5-0.1 Provisions for pensions-1.3 0.1 Credit guarantees-0.3 0.0Ind.Net Debt/EBITDA(c/o)1.0 x(Q2 FY24:1.1x)Cash&cash equiv.8.8bn1)Cash&cash equiv.8.8bn2)Operating ActivitiesbnCash flows from operating activities(w/o OWC)1 Sum Cash&cash equivalents of 8.8bn incl.current interest bearing debt securities of 1.1bn2 Sum Cash&cash equivalents of 8.8bn incl.current interest bearing debt securities of 1.1bn3 Mainly Siemens Healthineerstherein:Inventories-0.2 Trade and other receivables-0.2 Trade payables-0.2 Contract assets/liabilities-0.4therein:Share buyback-0.3 Interest paid-0.3 Dividends attr.to NCI3)-0.3 FX -0.1therein:CAPEX-0.5Page 24Strong capital structureUnrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08Capital structure1.6x1.0 x1.1x1.0 x0.8x0.6x0.7x1.1x1.0 xQ3 22 Q4 22 Q1 23 Q2 23 Q3 23 Q4 23 Q1 24 Q2 24 Q3 24Industrial net debt/EBITDA(c/o)Consistent cash generation Excellent financial position recognized with industry leading credit ratings Pension deficit at new low of 1.3bn Share buyback program accelerated Opportunities from further portfolio optimizationTargetUp to 1.5xFinancial strengthPage 25Provisions for pensions on a new lowUnrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08Page 26Q FY 2020 Pensions and similar obligations 1)All figures are reported on a continuing basis(w/o Liabilities held for disposal related to Innomotics)2)Fair value of plan assets including effects from asset ceiling(Q3 2024:-0.6bn);Difference between DBO and fair value of plan assets additionally resulted in net defined benefit assets(Q3 2024:1.4bn)in bnFY 2021FY 2022Q1 FY 2023Q2 FY 2023Q3 FY 2023Q4 FY 2023Q1 FY 2024Q2 FY 2024Q3 FY 2024Defined benefit obligation(DBO)-35.5-27.8-27.2-27.3-28.1-26.6-28.8-28.3-27.6Fair value of plan assets33.525.925.725.926.725.527.727.927.6Provisions for pensions and similar obligations-2.8-2.3-1.8-1.8-1.7-1.4-1.5-1.4-1.3Discount rate1.3%3.9%3.9%3.8%3.8%4.6%3.5%3.7%3.8%Interest income0.30.30.20.20.20.20.30.30.3Actual return on plan assets2.5-6.70.40.70.1-1.01.70.70.2Profit Bridge from SHS disclosure to SAG disclosureDifferent profit definitions at SHS and SAG to be considered in modelsUnrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08Page 27mQ3 FY 249M FY 24SHS EBIT(adjusted)82515.2%2,38914.9%PPA(SHS logic)1-95-286Transaction,integration,retention,carve-out cost-5-16Gains and losses from divestments0-1Severance-27-81Expenses for other portfolio-related measures00Other restructuring expenses-17-143SHS EBIT(as reported)68012.5%1,86211.6%PPA(SAG logic)2 86 268Consolidation/Accounting Differences-3 4SAG Profit(as reported)76214.1%2,13513.3%Severance 27 81SAG Profit(excl.severance)79014.6%2,21613.8%1PPA on intangible assets as well as other effects from IFRS 3 PPA adjustments2 PPA on intangible assetsUnrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08-08Outlook FY 2024 as presented by Siemens Healthineers on July 31,2024Page 28Tobias ANikola PChristopher HJulia BFinancial calendarUnrestricted|Siemens 2024|Investor Relations|Q3 Analyst Call|2024-08- 89 7805-32474Investor Relations ContactsMartin BNico ZAugust 8,2024Q3 Earnings ReleaseSeptember 4,2024Morgan Stanley Conference(London)September 24,2024Goldman Sachs Conference(Munich)Cinzia FSeptember 11,2024UBS Quo Vadis Event(virtual)September 26,2024Innotrans Fair(Berlin)November 14,2024Q4 Earnings ReleasePage 29
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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON,D.C.20549FORM 10-Q(Mark One)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 28,2024 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission File Number 001-02217 COCA COLA CO (Exact name of Registrant as specified in its charter)Delaware 58-0628465(State or other jurisdiction of incorporation or organization)(I.R.S.Employer Identification No.)One Coca-Cola PlazaAtlanta Georgia30313(Address of principal executive offices)(Zip Code)Registrants telephone number,including area code:(404)676-2121 Securities registered pursuant to Section 12(b)of the Act:Title of each classTrading Symbol(s)Name of each exchange on which registeredCommon Stock,$0.25 Par ValueKONew York Stock Exchange1.875%Notes Due 2026KO26New York Stock Exchange0.750%Notes Due 2026KO26CNew York Stock Exchange1.125%Notes Due 2027KO27New York Stock Exchange0.125%Notes Due 2029KO29ANew York Stock Exchange0.125%Notes Due 2029KO29BNew York Stock Exchange0.400%Notes Due 2030KO30BNew York Stock Exchange1.250%Notes Due 2031KO31New York Stock Exchange3.125%Notes Due 2032KO32New York Stock Exchange0.375%Notes Due 2033KO33New York Stock Exchange0.500%Notes Due 2033KO33ANew York Stock Exchange1.625%Notes Due 2035KO35New York Stock Exchange1.100%Notes Due 2036KO36New York Stock Exchange0.950%Notes Due 2036KO36ANew York Stock Exchange0.800%Notes Due 2040KO40BNew York Stock Exchange1.000%Notes Due 2041KO41New York Stock Exchange3.500%Notes Due 2044KO44New York Stock ExchangeIndicate by check mark whether the Registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the Registrant was required to file such reports)and(2)has been subject to such filing requirements for the past 90 days.Yes No Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the Registrant was required to submit such files).Yes No Indicate by check mark whether the Registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company or an emerging growth company.See the definitions of“large accelerated filer,”“accelerated filer,”“smaller reporting company”and“emerging growth company”in Rule 12b-2 of the Exchange Act.Large accelerated filerAccelerated filer Non-accelerated filerSmaller reporting companyEmerging growth companyIf an emerging growth company,indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark if the Registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act).Yes No Indicate the number of shares outstanding of each of the issuers classes of common stock as of the latest practicable date.Class of Common Stock Shares Outstanding as of July 25,2024$0.25 Par Value 4,309,868,150THE COCA-COLA COMPANY AND SUBSIDIARIESTable of Contents PageForward-Looking Statements1Part I.Financial Information Item 1.Financial Statements2Consolidated Statements of Income Three and Six Months Ended June 28,2024 and June 30,20232Consolidated Statements of Comprehensive Income Three and Six Months Ended June 28,2024 andJune 30,20233Consolidated Balance Sheets June 28,2024 and December 31,20234Consolidated Statements of Cash Flows Six Months Ended June 28,2024 and June 30,20235Notes to Consolidated Financial Statements6Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations33Item 3.Quantitative and Qualitative Disclosures About Market Risk49Item 4.Controls and Procedures49Part II.Other Information Item 1.Legal Proceedings50Item 1A.Risk Factors52Item 2.Unregistered Sales of Equity Securities and Use of Proceeds52Item 5.Other Information52Item 6.Exhibits52Signatures56FORWARD-LOOKING STATEMENTSThis report contains information that may constitute“forward-looking statements.”Generally,the words“believe,”“expect,”“intend,”“estimate,”“anticipate,”“project,”“will”and similar expressions identify forward-looking statements,which generally are not historical in nature.However,the absence of these words or similar expressions does not mean that a statement is not forward-looking.All statements that address operating performance,events or developments that we expect or anticipate will occur in the future including statements relating to volume growth,share of sales and net income per share growth,and statements expressing general views about future operating results are forward-looking statements.Management believes that these forward-looking statements are reasonable as and when made.However,caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made.Our Company undertakes no obligation to publicly update or revise any forward-looking statements,whether as a result of new information,future events or otherwise,except as required by law.In addition,forward-looking statements are subject to certain risks and uncertainties that could cause our Companys actual results to differ materially from historical experience and our present expectations or projections.These risks and uncertainties include,but are not limited to,the possibility that the assumptions used to calculate our estimated aggregate incremental tax and interest liability related to the potential unfavorable outcome of the ongoing tax dispute with the U.S.Internal Revenue Service could significantly change;those described in Part II,“Item 1A.Risk Factors”and elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31,2023;and those described from time to time in our future reports filed with the Securities and Exchange Commission.1Part I.Financial InformationItem 1.Financial StatementsTHE COCA-COLA COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(In millions except per share data)Three Months EndedSix Months EndedJune 28,2024June 30,2023June 28,2024June 30,2023Net Operating Revenues$12,363$11,972$23,663$22,952 Cost of goods sold 4,812 4,912 9,047 9,229 Gross Profit 7,551 7,060 14,616 13,723 Selling,general and administrative expenses 3,549 3,321 6,900 6,506 Other operating charges 1,370 1,338 2,943 1,449 Operating Income 2,632 2,401 4,773 5,768 Interest income 275 224 521 392 Interest expense 418 374 800 746 Equity income(loss)net 537 538 891 813 Other income(loss)net 2 91 1,515 706 Income Before Income Taxes 3,028 2,880 6,900 6,933 Income taxes 627 359 1,314 1,299 Consolidated Net Income 2,401 2,521 5,586 5,634 Less:Net income(loss)attributable to noncontrolling interests(10)(26)(2)(20)Net Income Attributable to Shareowners of The Coca-Cola Company$2,411$2,547$5,588$5,654 Basic Net Income Per Share1$0.56$0.59$1.30$1.31 Diluted Net Income Per Share1$0.56$0.59$1.29$1.30 Average Shares Outstanding Basic 4,309 4,325 4,309 4,325 Effect of dilutive securities 10 16 12 18 Average Shares Outstanding Diluted 4,319 4,341 4,321 4,343 1 Calculated based on net income attributable to shareowners of The Coca-Cola Company.Refer to Notes to Consolidated Financial Statements.2THE COCA-COLA COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(In millions)Three Months EndedSix Months EndedJune 28,2024June 30,2023June 28,2024June 30,2023Consolidated Net Income$2,401$2,521$5,586$5,634 Other Comprehensive Income:Net foreign currency translation adjustments(1,014)252 (1,317)801 Net gains(losses)on derivatives 118 (25)167 (95)Net change in unrealized gains(losses)on available-for-sale debt securities(27)1 (22)9 Net change in pension and other postretirement benefit liabilities 27 2 23 13 Total Comprehensive Income 1,505 2,751 4,437 6,362 Less:Comprehensive income(loss)attributable to noncontrolling interests 48 (101)32 (170)Total Comprehensive Income Attributable to Shareowners of The Coca-Cola Company$1,457$2,852$4,405$6,532 Refer to Notes to Consolidated Financial Statements.3THE COCA-COLA COMPANY AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In millions except par value)June 28,2024December 31,2023ASSETSCurrent Assets Cash and cash equivalents$13,708$9,366 Short-term investments 3,691 2,997 Total Cash,Cash Equivalents and Short-Term Investments 17,399 12,363 Marketable securities 1,594 1,300 Trade accounts receivable,less allowances of$502 and$502,respectively 4,545 3,410 Inventories 4,763 4,424 Prepaid expenses and other current assets 3,298 5,235 Total Current Assets 31,599 26,732 Equity method investments 18,940 19,671 Other investments 167 118 Other noncurrent assets 7,274 7,162 Deferred income tax assets 1,409 1,561 Property,plant and equipment,less accumulated depreciation of$9,492 and$9,233,respectively 9,508 9,236 Trademarks with indefinite lives 13,510 14,349 Goodwill 18,324 18,358 Other intangible assets 471 516 Total Assets$101,202$97,703 LIABILITIES AND EQUITYCurrent Liabilities Accounts payable and accrued expenses$21,909$15,485 Loans and notes payable 3,793 4,557 Current maturities of long-term debt 1,939 1,960 Accrued income taxes 1,622 1,569 Total Current Liabilities 29,263 23,571 Long-term debt 38,085 35,547 Other noncurrent liabilities 4,077 8,466 Deferred income tax liabilities 2,366 2,639 The Coca-Cola Company Shareowners Equity Common stock,$0.25 par value;authorized 11,200 shares;issued 7,040 shares 1,760 1,760 Capital surplus 19,468 19,209 Reinvested earnings 75,189 73,782 Accumulated other comprehensive income(loss)(15,458)(14,275)Treasury stock,at cost 2,731 and 2,732 shares,respectively(55,106)(54,535)Equity Attributable to Shareowners of The Coca-Cola Company 25,853 25,941 Equity attributable to noncontrolling interests 1,558 1,539 Total Equity 27,411 27,480 Total Liabilities and Equity$101,202$97,703 Refer to Notes to Consolidated Financial Statements.4THE COCA-COLA COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In millions)Six Months Ended June 28,2024June 30,2023Operating Activities Consolidated net income$5,586$5,634 Adjustments to reconcile consolidated net income to net cash provided by operating activities:Depreciation and amortization 531 567 Stock-based compensation expense 140 120 Deferred income taxes(202)(211)Equity(income)loss net of dividends(274)(467)Foreign currency adjustments(87)34 Significant(gains)losses net(1,398)(442)Other operating charges 2,867 1,375 Other items(66)(225)Net change in operating assets and liabilities(2,984)(1,756)Net Cash Provided by Operating Activities 4,113 4,629 Investing Activities Purchases of investments(3,827)(2,103)Proceeds from disposals of investments 2,662 1,608 Acquisitions of businesses,equity method investments and nonmarketable securities(25)(43)Proceeds from disposals of businesses,equity method investments and nonmarketable securities 2,907 320 Purchases of property,plant and equipment(792)(615)Proceeds from disposals of property,plant and equipment 21 38 Collateral(paid)received associated with hedging activities net(76)(15)Other investing activities 127 44 Net Cash Provided by(Used in)Investing Activities 997 (766)Financing Activities Issuances of loans,notes payable and long-term debt 6,832 4,638 Payments of loans,notes payable and long-term debt(4,734)(2,366)Issuances of stock 437 359 Purchases of stock for treasury(874)(1,084)Dividends(2,184)(2,089)Other financing activities(9)(456)Net Cash Provided by(Used in)Financing Activities(532)(998)Effect of Exchange Rate Changes on Cash,Cash Equivalents,Restricted Cash and Restricted Cash Equivalents(357)162 Cash,Cash Equivalents,Restricted Cash and Restricted Cash EquivalentsNet increase(decrease)in cash,cash equivalents,restricted cash and restricted cash equivalents during the period 4,221 3,027 Cash,cash equivalents,restricted cash and restricted cash equivalents at beginning of period 9,692 9,825 Cash,Cash Equivalents,Restricted Cash and Restricted Cash Equivalents at End of Period 13,913 12,852 Less:Restricted cash and restricted cash equivalents at end of period 205 288 Cash and Cash Equivalents at End of Period$13,708$12,564 Refer to Notes to Consolidated Financial Statements.5THE COCA-COLA COMPANY AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 1:SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of PresentationThe accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States(“U.S.GAAP”)for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.They do not include all information and notes required by U.S.GAAP for complete financial statements.However,except as disclosed herein,there has been no material change in the information disclosed in the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K of The Coca-Cola Company for the year ended December 31,2023.When used in these notes,the terms“The Coca-Cola Company,”“Company,”“we,”“us”and“our”mean The Coca-Cola Company and all entities included in our consolidated financial statements.In the opinion of management,all adjustments(including normal recurring accruals)considered necessary for a fair presentation have been included.Operating results for the three and six months ended June 28,2024 are not necessarily indicative of the results that may be expected for the year ending December 31,2024.Sales of our ready-to-drink beverages are somewhat seasonal,with the second and third calendar quarters typically accounting for the highest sales volumes.The volume of sales in the beverage business may be affected by weather conditions.Each of our quarterly reporting periods,other than the fourth quarter,ends on the Friday closest to the last day of the corresponding quarterly calendar period.The second quarter of 2024 and the second quarter of 2023 ended on June 28,2024 and June 30,2023,respectively.Our fourth quarter and our fiscal year end on December 31 regardless of the day of the week on which December 31 falls.Advertising CostsThe Companys accounting policy related to advertising costs for annual reporting purposes is to expense production costs of print,radio,television and other advertisements as of the first date the advertisements take place.All other marketing expenditures are expensed in the annual period in which the expenditure is incurred.For quarterly reporting purposes,we allocate our estimated full year marketing expenditures that benefit multiple quarters to each of those quarters.We use the proportion of each quarters actual unit case volume to the estimated full year unit case volume as the basis for the allocation.This methodology results in our marketing expenditures being recognized at a standard rate per unit case.At the end of each quarter,we review our estimated full year unit case volume and our estimated full year marketing expenditures that benefit multiple quarters in order to evaluate if a change in estimate is necessary.The impact of any change in the full year estimate is recognized in the quarter in which the change in estimate occurs.Our full year marketing expenditures are not impacted by this interim accounting policy.Cash,Cash Equivalents,Restricted Cash and Restricted Cash EquivalentsWe classify time deposits and other investments that are highly liquid and have maturities of three months or less at the date of purchase as cash equivalents or restricted cash equivalents,as applicable.Restricted cash and restricted cash equivalents generally consist of amounts held by our captive insurance companies,which are included in the line item other noncurrent assets in our consolidated balance sheet,and when applicable,cash and cash equivalents related to assets held for sale are included in the line item prepaid expenses and other current assets in our consolidated balance sheet.We manage our exposure to counterparty credit risk through specific minimum credit standards,diversification of counterparties and procedures to monitor our concentrations of credit risk.Refer to Note 2 for additional information on our assets held for sale and Note 4 for additional information on our captive insurance companies.The following tables provide a summary of cash,cash equivalents,restricted cash and restricted cash equivalents that constitute the total amounts shown in our consolidated statements of cash flows(in millions):June 28,2024December 31,2023Cash and cash equivalents$13,708$9,366 Restricted cash and restricted cash equivalents 205 326 Cash,cash equivalents,restricted cash and restricted cash equivalents$13,913$9,692 6June 30,2023December 31,2022Cash and cash equivalents$12,564$9,519 Restricted cash and restricted cash equivalents 288 306 Cash,cash equivalents,restricted cash and restricted cash equivalents$12,852$9,825 Recently Issued Accounting GuidanceIn November 2023,the Financial Accounting Standards Board(“FASB”)issued Accounting Standards Update(“ASU”)2023-07,Segment Reporting(Topic 280):Improvements to Reportable Segment Disclosures,which expands annual and interim disclosure requirements for reportable segments,primarily through enhanced disclosures about significant segment expenses.The expanded annual disclosures are effective for the year ending December 31,2024,and the expanded interim disclosures are effective in 2025 and will be applied retrospectively to all prior periods presented.The Company is currently evaluating the impact that ASU 2023-07 will have on our consolidated financial statements.In December 2023,the FASB issued ASU 2023-09,Income Taxes(Topic 740):Improvements to Income Tax Disclosures,which requires,among other things,additional disclosures primarily related to the income tax rate reconciliation and income taxes paid.The expanded annual disclosures are effective for the year ending December 31,2025.The Company is currently evaluating the impact that ASU 2023-09 will have on our consolidated financial statements and whether we will apply the standard prospectively or retrospectively.NOTE 2:ACQUISITIONS AND DIVESTITURESAcquisitionsOur Companys acquisitions of businesses,equity method investments and nonmarketable securities totaled$25 million and$43 million during the six months ended June 28,2024 and June 30,2023,respectively.DivestituresProceeds from disposals of businesses,equity method investments and nonmarketable securities during the six months ended June 28,2024 totaled$2,907 million,which primarily related to the refranchising of the Companys bottling operations that were classified as held for sale as of December 31,2023.Also included was the sale of our ownership interest in an equity method investee in Thailand for which we received cash proceeds of$728 million and recognized a net gain of$516 million,which was recorded in the line item other income(loss)net in our consolidated statement of income.Proceeds from disposals of businesses,equity method investments and nonmarketable securities during the six months ended June 30,2023 totaled$320 million,which primarily related to the sale of our ownership interest in an equity method investee in Indonesia to Coca-Cola Europacific Partners plc(“CCEP”),an equity method investee,for which we received cash proceeds of$302 million and recognized a net gain of$12 million.The Company also refranchised its bottling operations in Vietnam in January 2023 and recognized a net gain of$439 million as a result of the sale.The Company received the related cash proceeds of$823 million in December 2022.These gains were recorded in the line item other income(loss)net in our consolidated statement of income.Assets and Liabilities Held for SaleAs of December 31,2023,the Companys bottling operations in the Philippines,Bangladesh and certain territories in India met the criteria to be classified as held for sale.As a result,we were required to record the related assets and liabilities at the lower of carrying value or fair value less any costs to sell.As the fair values less any costs to sell exceeded the carrying values,the related assets and liabilities were recorded at their carrying values.These assets and liabilities were included in the Bottling Investments operating segment.The Company refranchised its bottling operations in certain territories in India in January and February of 2024,for which we received net cash proceeds of$476 million and recognized a net gain of$290 million,including the impact of post-closing adjustments.The Company refranchised its bottling operations in Bangladesh to Coca-Cola İecek A.(“CCI”),an equity method investee,in February 2024,for which we received net cash proceeds of$27 million and a note receivable of$29 million and recognized a net loss of$18 million,primarily due to the related reversal of cumulative translation adjustments.Additionally,in February 2024,the Company refranchised its bottling operations in the Philippines to CCEP and a local business partner,for which we received net cash proceeds of$1,656 million and recognized a net gain of$599 million.These gains and losses were recorded in the line item other income(loss)net in our consolidated statement of income.7The following table presents information related to the major classes of assets and liabilities that were classified as held for sale and were included in the line items prepaid expenses and other current assets and accounts payable and accrued expenses,respectively,in our consolidated balance sheet(in millions):December 31,2023Cash,cash equivalents and short-term investments$37 Marketable securities 8 Trade accounts receivable,less allowances 95 Inventories 299 Prepaid expenses and other current assets 60 Equity method investments 4 Other noncurrent assets 51 Deferred income tax assets 28 Property,plant and equipment net 1,267 Goodwill 231 Other intangible assets 14 Assets held for sale$2,094 Accounts payable and accrued expenses$464 Loans and notes payable 63 Accrued income taxes 24 Long-term debt 2 Other noncurrent liabilities 108 Deferred income tax liabilities 58 Liabilities held for sale$719 NOTE 3:NET OPERATING REVENUES The following tables present net operating revenues disaggregated between the United States and International and further by line of business(in millions):United StatesInternationalTotalThree Months Ended June 28,2024Concentrate operations$2,278$5,216$7,494 Finished product operations 2,462 2,407 4,869 Total$4,740$7,623$12,363 Three Months Ended June 30,2023Concentrate operations$2,347$4,703$7,050 Finished product operations 1,955 2,967 4,922 Total$4,302$7,670$11,972 United StatesInternationalTotalSix Months Ended June 28,2024Concentrate operations$4,403$9,746$14,149 Finished product operations 4,455 5,059 9,514 Total$8,858$14,805$23,663 Six Months Ended June 30,2023Concentrate operations$4,336$9,047$13,383 Finished product operations 3,815 5,754 9,569 Total$8,151$14,801$22,952 Refer to Note 17 for disclosures of net operating revenues by operating segment and Corporate.8NOTE 4:INVESTMENTSEquity SecuritiesThe carrying values of our equity securities were included in the following line items in our consolidated balance sheets(in millions):June 28,2024Marketable securities$381$Other investments 125 42 Other noncurrent assets 1,628 Total equity securities$2,134$42 December 31,2023Marketable securities$345$Other investments 76 42 Other noncurrent assets 1,585 Total equity securities$2,006$42 Fair Value with Changes Recognized in IncomeMeasurement Alternative No Readily Determinable Fair Value The calculation of net unrealized gains and losses recognized during the period related to equity securities still held at the end of the period is as follows(in millions):Three Months EndedJune 28,2024June 30,2023Net gains(losses)recognized during the period related to equity securities$52$130 Less:Net gains(losses)recognized during the period related to equity securities sold during the period 4 22 Net unrealized gains(losses)recognized during the period related to equity securitiesstill held at the end of the period$48$108 Six Months EndedJune 28,2024June 30,2023Net gains(losses)recognized during the period related to equity securities$235$255 Less:Net gains(losses)recognized during the period related to equity securities sold during the period 21 33 Net unrealized gains(losses)recognized during the period related to equity securitiesstill held at the end of the period$214$222 Debt SecuritiesOur debt securities consisted of the following(in millions):Gross UnrealizedEstimatedFair Value CostGainsLossesJune 28,2024Trading securities$44$1$(1)$44 Available-for-sale securities 1,575 22 (58)1,539 Total debt securities$1,619$23$(59)$1,583 December 31,2023Trading securities$43$(2)$41 Available-for-sale securities 1,136 26 (28)1,134 Total debt securities$1,179$26$(30)$1,175 9The carrying values of our debt securities were included in the following line items in our consolidated balance sheets(in millions):June 28,2024December 31,2023Trading Securities Available-for-Sale Securities Trading Securities Available-for-Sale Securities Marketable securities$44$1,169$41$914 Other noncurrent assets 370 220 Total debt securities$44$1,539$41$1,134 The contractual maturities of these available-for-sale debt securities as of June 28,2024 were as follows(in millions):CostEstimated Fair Value Within 1 year$187$187 After 1 year through 5 years 1,156 1,125 After 5 years through 10 years 46 56 After 10 years 186 171 Total$1,575$1,539 The Company expects that actual maturities may differ from the contractual maturities above because borrowers have the right to call or prepay certain obligations.The sale and/or maturity of available-for-sale debt securities resulted in the following realized activity(in millions):Three Months EndedSix Months EndedJune 28,2024June 30,2023June 28,2024June 30,2023Gross gains$4$2$5$2 Gross losses(2)(1)(9)(4)Proceeds 57 40 440 108 Captive Insurance CompaniesIn accordance with local insurance regulations,our consolidated captive insurance companies are required to meet and maintain minimum solvency capital requirements.The Company elected to invest a majority of its solvency capital in a portfolio of marketable equity and debt securities.These securities are included in the disclosures above.The Company uses one of our consolidated captive insurance companies to reinsure group annuity insurance contracts that cover the obligations of certain of our European and Canadian pension plans.This captives solvency capital funds included total equity and debt securities of$1,877 million and$1,643 million as of June 28,2024 and December 31,2023,respectively,which were classified in the line item other noncurrent assets in our consolidated balance sheets because the assets were not available to satisfy our current obligations.NOTE 5:INVENTORIESInventories consisted of the following(in millions):June 28,2024December 31,2023Raw materials and packaging$2,801$2,618 Finished goods 1,615 1,449 Other 347 357 Total inventories$4,763$4,424 10NOTE 6:HEDGING TRANSACTIONS AND DERIVATIVE FINANCIAL INSTRUMENTS The following table presents the fair values of the Companys derivative instruments that were designated and qualified as part of a hedging relationship(in millions):Fair Value1,2Derivatives Designated as Hedging InstrumentsBalance Sheet Location1June 28,2024December 31,2023Assets:Foreign currency contractsPrepaid expenses and other current assets$232$109 Foreign currency contractsOther noncurrent assets 38 13 Interest rate contractsPrepaid expenses and other current assets 7 Interest rate contractsOther noncurrent assets 14 50 Total assets$291$172 Liabilities:Foreign currency contractsAccounts payable and accrued expenses$20$111 Foreign currency contractsOther noncurrent liabilities 46 40 Commodity contractsAccounts payable and accrued expenses 2 3 Interest rate contractsAccounts payable and accrued expenses 1 5 Interest rate contractsOther noncurrent liabilities 1,245 1,113 Total liabilities$1,314$1,272 1All of the Companys derivative instruments are carried at fair value in our consolidated balance sheets after considering the impact of legally enforceable master netting agreements and cash collateral held or placed with the same counterparties,as applicable.Current disclosure requirements mandate that derivatives must also be disclosed without reflecting the impact of master netting agreements and cash collateral.Refer to Note 16 for the net presentation of the Companys derivative instruments.2Refer to Note 16 for additional information related to the estimated fair value.The following table presents the fair values of the Companys derivative instruments that were not designated as hedging instruments(in millions):Fair Value1,2Derivatives Not Designated as Hedging InstrumentsBalance Sheet Location1June 28,2024December 31,2023Assets:Foreign currency contractsPrepaid expenses and other current assets$125$91 Foreign currency contractsOther noncurrent assets 1 3 Commodity contractsPrepaid expenses and other current assets 6 5 Commodity contractsOther noncurrent assets 1 Other derivative instrumentsPrepaid expenses and other current assets 1 4 Total assets$134$103 Liabilities:Foreign currency contractsAccounts payable and accrued expenses$43$106 Foreign currency contractsOther noncurrent liabilities 12 3 Commodity contractsAccounts payable and accrued expenses 63 62 Commodity contractsOther noncurrent liabilities 4 1 Other derivative instrumentsAccounts payable and accrued expenses 4 Total liabilities$122$176 1All of the Companys derivative instruments are carried at fair value in our consolidated balance sheets after considering the impact of legally enforceable master netting agreements and cash collateral held or placed with the same counterparties,as applicable.Current disclosure requirements mandate that derivatives must also be disclosed without reflecting the impact of master netting agreements and cash collateral.Refer to Note 16 for the net presentation of the Companys derivative instruments.2Refer to Note 16 for additional information related to the estimated fair value.11Credit Risk Associated with DerivativesWe have established strict counterparty credit guidelines and enter into transactions only with financial institutions of investment grade or better.We monitor counterparty exposures regularly and review any downgrade in credit rating immediately.If a downgrade in the credit rating of a counterparty were to occur,we have provisions requiring collateral for substantially all of our transactions.To mitigate pre-settlement risk,minimum credit standards become more stringent as the duration of the derivative financial instrument increases.In addition,the Companys master netting agreements reduce credit risk by permitting the Company to net settle for transactions with the same counterparty.To minimize the concentration of credit risk,we enter into derivative transactions with a portfolio of financial institutions.Furthermore,for certain derivative financial instruments,the Company has agreements with counterparties that require collateral to be exchanged based on changes in the fair value of the instruments.The Company classifies collateral payments and receipts as investing cash flows when the collateral account is in an asset position and as financing cash flows when the collateral account is in a liability position.As a result of these factors,we consider the risk of counterparty default to be minimal.Cash Flow Hedging StrategyThe Company uses cash flow hedges to minimize the variability in cash flows of assets or liabilities or forecasted transactions caused by fluctuations in foreign currency exchange rates,commodity prices or interest rates.The changes in the fair values of derivatives designated as cash flow hedges are recorded in accumulated other comprehensive income(loss)(“AOCI”)and are reclassified into the line item in our consolidated statement of income in which the hedged items are recorded in the same period the hedged items affect earnings.The changes in the fair values of hedges that are determined to be ineffective are immediately reclassified from AOCI into earnings.The maximum length of time for which the Company hedges its exposure to the variability in future cash flows is typically three years.The Company maintains a foreign currency cash flow hedging program to reduce the risk that our U.S.dollar net cash inflows from sales outside the United States and U.S.dollar net cash outflows from procurement activities will be adversely affected by fluctuations in foreign currency exchange rates.We enter into forward contracts and purchase foreign currency options and collars(principally euro,British pound and Japanese yen)to hedge certain portions of forecasted cash flows denominated in foreign currencies.When the U.S.dollar strengthens against the foreign currencies,the decline in the present value of future foreign currency cash flows is partially offset by gains in the fair value of the derivative instruments.Conversely,when the U.S.dollar weakens,the increase in the present value of future foreign currency cash flows is partially offset by losses in the fair value of the derivative instruments.The total notional values of derivatives that were designated and qualified for the Companys foreign currency cash flow hedging program were$9,199 million and$9,408 million as of June 28,2024 and December 31,2023,respectively.The Company uses cross-currency swaps to hedge the changes in cash flows of certain of its foreign currency denominated debt and other monetary assets or liabilities due to fluctuations in foreign currency exchange rates.For this hedging program,the Company recognizes in earnings each period the changes in carrying values of these foreign currency denominated assets and liabilities due to fluctuations in exchange rates.The changes in fair values of the cross-currency swap derivatives are recorded in AOCI with an immediate reclassification into earnings for the changes in fair values attributable to fluctuations in foreign currency exchange rates.The total notional values of derivatives that were designated as cash flow hedges for the Companys foreign currency denominated assets and liabilities were$557 million and$958 million as of June 28,2024 and December 31,2023,respectively.The Company has entered into commodity futures contracts and other derivative instruments on various commodities to mitigate the price risk associated with forecasted purchases of materials used in our manufacturing process.These derivative instruments were designated as part of the Companys commodity cash flow hedging program.The objective of this hedging program is to reduce the variability of cash flows associated with future purchases of certain commodities.The total notional values of derivatives that were designated and qualified for this program were$28 million and$54 million as of June 28,2024 and December 31,2023,respectively.Our Company monitors our mix of short-term debt and long-term debt regularly.We manage our risk related to interest rate fluctuations through the use of derivative financial instruments.From time to time,the Company has entered into interest rate swap agreements and has designated these instruments as part of the Companys interest rate cash flow hedging program.The objective of this hedging program is to mitigate the risk of adverse changes in benchmark interest rates on the Companys future interest payments.The total notional values of derivatives that were designated and qualified for this program were$1,250 million and$750 million as of June 28,2024 and December 31,2023,respectively.12The following tables present the pretax impact that changes in the fair values of derivatives designated as cash flow hedges had on other comprehensive income(“OCI”),AOCI and earnings(in millions):Gain(Loss)Recognized in OCI Location of Gain(Loss)Recognized in IncomeGain(Loss)Reclassified from AOCI into IncomeThree Months Ended June 28,2024Foreign currency contracts$160 Net operating revenues$(1)Foreign currency contracts 9 Cost of goods sold 6 Foreign currency contracts Interest expense(1)Foreign currency contracts(9)Other income(loss)net 2 Commodity contracts(3)Cost of goods sold(2)Interest rate contracts 1 Interest expense Total$158$4 Three Months Ended June 30,2023Foreign currency contracts$(22)Net operating revenues$(7)Foreign currency contracts 13 Cost of goods sold 4 Foreign currency contracts Interest expense(1)Foreign currency contracts 22 Other income(loss)net 3 Commodity contracts(9)Cost of goods sold(3)Total$4$(4)Gain(Loss)Recognized in OCI Location of Gain(Loss)Recognized in IncomeGain(Loss)Reclassified from AOCI into IncomeSix Months Ended June 28,2024Foreign currency contracts$208 Net operating revenues$(18)Foreign currency contracts 20 Cost of goods sold 9 Foreign currency contracts Interest expense(2)Foreign currency contracts(24)Other income(loss)net(26)Commodity contracts(2)Cost of goods sold(3)Interest rate contracts 2 Interest expense Total$204$(40)Six Months Ended June 30,2023Foreign currency contracts$(58)Net operating revenues$(6)Foreign currency contracts 17 Cost of goods sold 8 Foreign currency contracts Interest expense(2)Foreign currency contracts 9 Other income(loss)net 3 Commodity contracts(11)Cost of goods sold(6)Total$(43)$(3)As of June 28,2024,the Company estimates that it will reclassify into earnings during the next 12 months net gains of$132 million from the pretax amount recorded in AOCI as the anticipated cash flows occur.Fair Value Hedging StrategyThe Company uses interest rate swap agreements designated as fair value hedges to minimize exposure to changes in the fair value of fixed-rate debt that result from fluctuations in benchmark interest rates.The Company also uses cross-currency interest rate swaps to hedge the changes in the fair value of foreign currency denominated debt relating to fluctuations in foreign currency exchange rates and benchmark interest rates.The changes in the fair values of derivatives designated as fair value hedges and the offsetting changes in the fair values of the hedged items are recognized in earnings.As a result,any difference is reflected in earnings as ineffectiveness.When a derivative is no longer designated as a fair value hedge for any reason,including termination and maturity,the remaining unamortized difference between the carrying value of the hedged item at that time and the face value of the hedged item is amortized to earnings over the remaining life of the hedged item,or immediately if the hedged item has matured or has been extinguished.The total notional values of derivatives that were designated and 13qualified as fair value hedges of this type were$12,898 million and$13,693 million as of June 28,2024 and December 31,2023,respectively.The following tables summarize the pretax impact that changes in the fair values of derivatives designated as fair value hedges had on earnings(in millions):Hedging Instruments and Hedged ItemsLocation of Gain(Loss)Recognized in IncomeGain(Loss)Recognized in IncomeThree Months EndedJune 28,2024June 30,2023Interest rate contractsInterest expense$(19)$(102)Fixed-rate debtInterest expense 20 131 Net impact of fair value hedging instruments$1$29 Hedging Instruments and Hedged ItemsLocation of Gain(Loss)Recognized in IncomeGain(Loss)Recognized in IncomeSix Months EndedJune 28,2024June 30,2023Interest rate contractsInterest expense$(164)$106 Fixed-rate debtInterest expense 167 (91)Net impact of fair value hedging instruments$3$15 The following table summarizes the amounts recorded in our consolidated balance sheets related to hedged items in fair value hedging relationships(in millions):Cumulative Amount of Fair Value Hedging Adjustments1Carrying Values of Hedged ItemsIncluded in the Carrying Values of Hedged ItemsRemaining for Which Hedge Accounting Has Been DiscontinuedBalance Sheet Location of Hedged ItemsJune 28,2024December 31,2023June 28,2024December 31,2023June 28,2024December 31,2023Current maturities of long-term debt$552$1$Long-term debt 11,767 12,186 (1,258)(1,135)146 162 1Cumulative amount of fair value hedging adjustments does not include changes due to foreign currency exchange rate fluctuations.In June 2023,the Company amended the terms of its interest rate swap agreements to implement a forward-looking interest rate based on the Secured Overnight Financing Rate in place of the London Interbank Offered Rate.Since the interest rate swap agreements were affected by reference rate reform,the Company applied the expedients and exceptions provided to preserve the past presentation of its derivatives without de-designating the existing hedging relationships.All amendments to interest rate swap agreements were executed with the existing counterparties and did not change the notional amounts,maturity dates or other critical terms of the hedging relationships.Hedges of Net Investments in Foreign Operations StrategyThe Company uses forward contracts and a portion of its foreign currency denominated debt,a non-derivative financial instrument,to protect the value of our net investments in a number of foreign operations.For derivative financial instruments that are designated and qualify as hedges of net investments in foreign operations,the changes in the fair values of the derivative financial instruments are recognized in net foreign currency translation adjustments,a component of AOCI,to offset the changes in the values of the net investments being hedged.For non-derivative financial instruments that are designated and qualify as hedges of net investments in foreign operations,the changes in the carrying values of the designated portions of the non-derivative financial instruments due to fluctuations in foreign currency exchange rates are recorded in net foreign currency translation adjustments.Any ineffective portions of net investment hedges are reclassified from AOCI into earnings during the period of change.14The following table summarizes the notional values and pretax impact of changes in the fair values of instruments designated as net investment hedges(in millions):Notional ValuesGain(Loss)Recognized in OCIas ofThree Months EndedSix Months Ended June 28,2024December 31,2023June 28,2024June 30,2023June 28,2024June 30,2023Foreign currency contracts$360$150$22$(1)$24$(1)Foreign currency denominated debt 12,609 12,437 85 (80)357 (234)Total$12,969$12,587$107$(81)$381$(235)The Company reclassified a gain of$3 million related to net investment hedges from AOCI into earnings during the six months ended June 28,2024.The Company did not reclassify any gains or losses during the three months ended June 28,2024 nor the three and six months ended June 30,2023.In addition,the Company did not have any ineffectiveness related to net investment hedges during the three and six months ended June 28,2024 and June 30,2023.The cash inflows and outflows associated with the Companys derivative contracts designated as net investment hedges are classified in the line item other investing activities in our consolidated statement of cash flows.Economic(Non-Designated)Hedging StrategyIn addition to derivative instruments that have been designated and qualify for hedge accounting,the Company also uses certain derivatives as economic hedges of foreign currency,interest rate and commodity exposure.Although these derivatives were not designated and/or did not qualify for hedge accounting,they are effective economic hedges.The changes in the fair values of economic hedges are immediately recognized in earnings.The Company uses foreign currency economic hedges to offset the earnings impact that fluctuations in foreign currency exchange rates have on certain monetary assets and liabilities denominated in nonfunctional currencies.The changes in the fair values of economic hedges used to offset those monetary assets and liabilities are immediately recognized in earnings in the line item other income(loss)net in our consolidated statement of income.In addition,we use foreign currency economic hedges to minimize the variability in cash flows associated with fluctuations in foreign currency exchange rates,including those related to certain acquisition and divestiture activities.The changes in the fair values of economic hedges used to offset the variability in U.S.dollar net cash flows are immediately recognized in earnings in the line items net operating revenues,cost of goods sold or other income(loss)net in our consolidated statement of income,as applicable.The total notional values of derivatives related to our foreign currency economic hedges were$7,570 million and$6,989 million as of June 28,2024 and December 31,2023,respectively.The Company uses interest rate contracts as economic hedges to minimize exposure to changes in the fair value of fixed-rate debt that result from fluctuations in benchmark interest rates.As of June 28,2024 and December 31,2023,we did not have any interest rate contracts used as economic hedges.The Company also uses certain derivatives as economic hedges to mitigate the price risk associated with the purchase of materials used in the manufacturing process and vehicle fuel.The changes in the fair values of these economic hedges are immediately recognized in earnings in the line items net operating revenues,cost of goods sold,or selling,general and administrative expenses in our consolidated statement of income,as applicable.The total notional values of derivatives related to our economic hedges of this type were$303 million and$325 million as of June 28,2024 and December 31,2023,respectively.The following tables present the pretax impact that changes in the fair values of derivatives not designated as hedging instruments had on earnings(in millions):Derivatives Not Designated as Hedging InstrumentsLocation of Gain(Loss)Recognized in IncomeGain(Loss)Recognized in IncomeThree Months EndedJune 28,2024June 30,2023Foreign currency contractsNet operating revenues$58$(10)Foreign currency contractsCost of goods sold(22)23 Foreign currency contractsOther income(loss)net(96)11 Commodity contractsCost of goods sold(49)(84)Other derivative instrumentsSelling,general and administrative expenses 6 1 Total$(103)$(59)15Derivatives Not Designated as Hedging InstrumentsLocation of Gain(Loss)Recognized in IncomeGain(Loss)Recognized in IncomeSix Months EndedJune 28,2024June 30,2023Foreign currency contractsNet operating revenues$119$(17)Foreign currency contractsCost of goods sold(8)51 Foreign currency contractsOther income(loss)net(58)Commodity contractsCost of goods sold(68)(130)Other derivative instrumentsSelling,general and administrative expenses 12 4 Total$(3)$(92)NOTE 7:SUPPLY CHAIN FINANCE PROGRAMOur current payment terms with the majority of our suppliers are 120 days.Two global financial institutions offer a voluntary supply chain finance(“SCF”)program,which enables our suppliers,at their sole discretion,to sell their receivables from the Company to these financial institutions on a non-recourse basis at a rate that leverages our credit rating and thus may be more beneficial to them.The SCF program is available to suppliers of goods and services included in cost of goods sold and selling,general and administrative expenses in our consolidated statement of income.The Company and our suppliers agree on contractual terms for the goods and services we procure,including prices,quantities and payment terms,regardless of whether the supplier elects to participate in the SCF program.The suppliers sell goods or services,as applicable,to the Company and issue the associated invoices to the Company based on the agreed-upon contractual terms.Then,if they are participating in the SCF program,our suppliers sell their invoices to the financial institutions.Our suppliers voluntary participation in the SCF program has no bearing on our payment terms.No guarantees are provided by the Company or any of our subsidiaries under the SCF program.We have no economic interest in a suppliers decision to participate in the SCF program,and we have no direct financial relationship with the financial institutions,as it relates to the SCF program.Accordingly,amounts due to our suppliers that elected to participate in the SCF program are included in the line item accounts payable and accrued expenses in our consolidated balance sheet.All activity related to amounts due to suppliers that elected to participate in the SCF program is reflected within the operating activities section of our consolidated statement of cash flows.As of June 28,2024 and December 31,2023,the amount of obligations outstanding that the Company has confirmed as valid to the financial institutions under the SCF program was$1,352 million and$1,421 million,respectively.NOTE 8:DEBT AND BORROWING ARRANGEMENTSLoans and notes payable consist primarily of commercial paper issued in the United States.As of June 28,2024 and December 31,2023,we had$3,502 million and$4,209 million,respectively,in outstanding commercial paper borrowings.During 2024,the Company issued fixed interest rate U.S.dollar-and euro-denominated debt of$3,000 million and 1,000 million,respectively,with maturity dates ranging from 2032 to 2064 and interest rates ranging from 3.125%to 5.400%.The carrying value of this debt as of June 28,2024 was$4,017 million.NOTE 9:COMMITMENTS AND CONTINGENCIES GuaranteesAs of June 28,2024,we were contingently liable for guarantees of indebtedness owed by third parties of$811 million,of which$84 million was related to variable interest entities.Our guarantees are primarily related to third-party customers,bottlers and vendors and have arisen through the normal course of business.These guarantees have various terms,and none of these guarantees is individually significant.These amounts represent the maximum potential future payments that we could be required to make under the guarantees.However,management has concluded that the likelihood of any significant amounts being paid by our Company under these guarantees is not probable.Concentrations of Credit RiskWe believe our exposure to concentrations of credit risk is limited due to the diverse geographic areas covered by our operations.Legal ContingenciesThe Company is involved in various legal proceedings.We establish reserves for specific legal proceedings when we determine that the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated.Management has also identified certain other legal matters where we believe an unfavorable outcome is reasonably possible and/or for which no 16estimate of possible losses can be made.Management believes that the total liabilities of the Company that may arise as a result of currently pending legal proceedings(excluding tax audit claims)will not have a material adverse effect on the Company taken as a whole.Tax AuditsThe Company is involved in various tax matters,with respect to some of which the outcome is uncertain.These uncertain tax matters may result in the assessment of additional taxes.On September 17,2015,the Company received a Statutory Notice of Deficiency(“Notice”)from the United States Internal Revenue Service(“IRS”)seeking approximately$3.3 billion of additional federal income tax for years 2007 through 2009.In the Notice,the IRS stated its intent to reallocate over$9 billion of income to the U.S.parent company from certain of its foreign affiliates that the U.S.parent company licensed to manufacture,distribute,sell,market and promote its products in certain non-U.S.markets.The Notice concerned the Companys transfer pricing between its U.S.parent company and certain of its foreign affiliates.IRS rules governing transfer pricing require arms-length pricing of transactions between related parties such as the Companys U.S.parent and its foreign affiliates.To resolve the same transfer pricing issue for the tax years 1987 through 1995,the Company and the IRS had agreed in 1996 on an arms-length methodology for determining the amount of U.S.taxable income that the U.S.parent company would report as compensation from its foreign licensees.The Company and the IRS memorialized this accord in a closing agreement resolving that dispute(“Closing Agreement”).The Closing Agreement provided that,absent a change in material facts or circumstances or relevant federal tax law,in calculating the Companys income taxes going forward,the Company would not be assessed penalties by the IRS for using the agreed-upon tax calculation methodology that the Company and the IRS agreed would be used for the 1987 through 1995 tax years.The IRS audited and confirmed the Companys compliance with the agreed-upon Closing Agreement methodology in five successive audit cycles for tax years 1996 through 2006.The September 17,2015 Notice from the IRS retroactively rejected the previously agreed-upon methodology for the 2007 through 2009 tax years in favor of an entirely different methodology,without prior notice to the Company.Using the new tax calculation methodology,the IRS reallocated over$9 billion of income to the U.S.parent company from its foreign licensees for tax years 2007 through 2009.Consistent with the Closing Agreement,the IRS did not assert penalties,and it has yet to do so.The IRS designated the Companys matter for litigation on October 15,2015.Litigation designation is an IRS determination that forecloses to a company any and all alternative means for resolution of a tax dispute.As a result of the IRS designation of the Companys matter for litigation,the Company was forced to either accept the IRS newly imposed tax assessment and pay the full amount of the asserted tax or litigate the matter in the federal courts.The matter remains subject to the IRS litigation designation,preventing the Company from any attempt to settle or otherwise mutually resolve the matter with the IRS.The Company consequently initiated litigation by filing a petition in the U.S.Tax Court(“Tax Court”)in December 2015,challenging the tax adjustments enumerated in the Notice.Prior to trial,the IRS increased its transfer pricing adjustment by$385 million,resulting in an additional tax adjustment of$135 million.The Company obtained a summary judgment in its favor on a different matter related to Mexican foreign tax credits,which thereafter effectively reduced the IRS potential tax adjustment by$138 million.The trial was held in the Tax Court from March through May 2018,and final post-trial briefs were filed and exchanged in April 2019.On November 18,2020,the Tax Court issued an opinion(“Opinion”)in which it predominantly sided with the IRS but agreed with the Company that dividends previously paid by the foreign licensees to the U.S.parent company in reliance upon the Closing Agreement should continue to be allowed to offset royalties,including those that would become payable to the Company in accordance with the Opinion.On November 8,2023,the Tax Court issued a supplemental opinion(together with the original Tax Court opinion,“Opinions”),siding with the IRS in concluding both that certain U.S.tax regulations(known as the blocked-income regulations)that address the effect of certain Brazilian legal restrictions on royalty payments by the Companys licensee in Brazil apply to the Companys operations and that the Tax Court opinion in 3M Co.&Subs.v.Commissioner(February 9,2023)controlled as to the validity of those regulations.The Company believes that the IRS and the Tax Court misinterpreted and misapplied the applicable regulations in reallocating income earned by the Companys foreign licensees to increase the Companys U.S.tax.Moreover,the Company believes that the retroactive imposition of such tax liability using a calculation methodology different from that previously agreed upon by the IRS and the Company,and audited by the IRS for over a decade,is unconstitutional.The Company intends to assert its 17claims on appeal and vigorously defend its position.In addition,for its litigation with the IRS and for purposes of its appeal of the Tax Court decision,the Company is currently evaluating the implications of several significant administrative law cases recently decided by the U.S.Supreme Court,most notably Loper Bright v.Raimondo,which overruled Chevron U.S.A.,Inc.v.NRDC(“Chevron”).Since 1984,Chevron had required that courts defer to agency interpretations of statutes and agency action.In Ohio v.EPA and Garland v.Cargill,two of the recent decisions,the U.S.Supreme Court demonstrated how courts are to rule on agency interpretations and actions without the deference previously required by Chevron.In determining the amount of tax reserve to be recorded as of December 31,2020,the Company completed the required two-step evaluation process prescribed by Accounting Standards Codification 740,Accounting for Income Taxes.In doing so,we consulted with outside advisors,and we reviewed and considered relevant laws,rules,and regulations,including,but not limited to,the Opinions and relevant caselaw.We also considered our intention to vigorously defend our positions and assert our various well-founded legal claims via every available avenue of appeal.We concluded,based on the technical and legal merits of the Companys tax positions,that it is more likely than not the Companys tax positions will ultimately be sustained on appeal.In addition,we considered a number of alternative transfer pricing methodologies,including the methodology asserted by the IRS and affirmed in the Opinions(“Tax Court Methodology”),that could be applied by the courts upon final resolution of the litigation.Based on the required probability analysis,we determined the methodologies we believe the federal courts could ultimately order to be used in calculating the Companys tax.As a result of this analysis,we recorded a tax reserve of$438 million during the year ended December 31,2020 related to the application of the resulting methodologies as well as the different tax treatment applicable to dividends originally paid to the U.S.parent company by its foreign licensees,in reliance upon the Closing Agreement,that would be recharacterized as royalties in accordance with the Opinions and the Companys analysis.The Companys conclusion that it is more likely than not the Companys tax positions will ultimately be sustained on appeal is unchanged as of June 28,2024.However,we updated our calculation of the methodologies we believe the federal courts could ultimately order to be used in calculating the Companys tax.As a result of the application of the required probability analysis to these updated calculations and the accrual of interest through the current reporting period,we updated our tax reserve as of June 28,2024 to$456 million.While the Company strongly disagrees with the IRS positions and the portions of the Opinions affirming such positions,it is possible that some portion or all of the adjustment proposed by the IRS and sustained by the Tax Court could ultimately be upheld.In that event,the Company would likely be subject to significant additional liabilities for tax years 2007 through 2009,and potentially also for subsequent years,which could have a material adverse impact on the Companys financial position,results of operations and cash flows.The Company calculated the potential impact of applying the Tax Court Methodology to reallocate income from foreign licensees potentially covered within the scope of the Opinions,assuming such methodology were to be ultimately upheld by the courts,and the IRS were to decide to apply that methodology to subsequent years,with consent of the federal courts.This impact would include taxes and interest accrued through December 31,2023 for the 2007 through 2009 litigated tax years and for subsequent tax years from 2010 through 2023.The calculations incorporated the estimated impact of correlative adjustments to the previously accrued transition tax payable under the 2017 Tax Cuts and Jobs Act.The Company estimates that the potential aggregate incremental tax and interest liability could be approximately$16 billion as of December 31,2023.Additional income tax and interest would continue to accrue until the time any such potential liability,or portion thereof,were to be paid.The Company estimates the impact of the continued application of the Tax Court Methodology for the three and six months ended June 28,2024 would increase the potential aggregate incremental tax and interest liability by approximately$500 million and$1.0 billion,respectively.We currently project the continued application of the Tax Court Methodology in future years,assuming similar facts and circumstances as of December 31,2023,would result in an incremental annual tax liability that would increase the Companys effective tax rate by approximately 3.5%.The Company and the IRS are now in the process of agreeing on the tax impacts of the Opinions.Subsequent to the completion of this process,the Tax Court will render a decision in the case.The Company will have 90 days thereafter to file a notice of appeal to the U.S.Court of Appeals for the Eleventh Circuit.The IRS will then seek to collect any additional tax related to the 2007 through 2009 tax years reflected in the Tax Court decision(and interest thereon).The Company expects to pay such amounts at some point between the issuance of the Tax Court decision and the date the amounts are due pursuant to the notice of collection from the IRS.The Company currently estimates that the payment to be made at that time related to the 2007 through 2009 tax years,which is included in the above estimate of the potential aggregate incremental tax and interest liability,would be approximately$6.0 billion(including interest accrued through June 28,2024),plus any additional interest accrued through the time of payment.Some or all of this amount,plus accrued interest,would be refunded if the Company were to prevail on appeal.18Risk Management ProgramsThe Company has numerous global insurance programs in place to help protect the Company from the risk of loss.In general,we are self-insured for large portions of many different types of claims;however,we do use commercial insurance above our self-insured retentions to reduce the Companys risk of catastrophic loss.Our reserves for the Companys self-insured losses are estimated using actuarial methods and assumptions of the insurance industry,adjusted for our specific expectations based on our claims history.Our self-insurance reserves totaled$175 million and$197 million as of June 28,2024 and December 31,2023,respectively.NOTE 10:OTHER COMPREHENSIVE INCOME AOCI attributable to shareowners of The Coca-Cola Company is separately presented in our consolidated balance sheet as a component of shareowners equity,which also includes our proportionate share of equity method investees AOCI.OCI attributable to noncontrolling interests is allocated to,and included in,our consolidated balance sheet as part of the line item equity attributable to noncontrolling interests.AOCI attributable to shareowners of The Coca-Cola Company consisted of the following,net of tax(in millions):June 28,2024December 31,2023Net foreign currency translation adjustments$(14,077)$(12,726)Accumulated net gains(losses)on derivatives 13 (154)Unrealized net gains(losses)on available-for-sale debt securities(23)(1)Adjustments to pension and other postretirement benefit liabilities(1,371)(1,394)Accumulated other comprehensive income(loss)$(15,458)$(14,275)The following table summarizes the allocation of total comprehensive income between shareowners of The Coca-Cola Company and noncontrolling interests(in millions):Six Months Ended June 28,2024Shareowners ofThe Coca-Cola CompanyNoncontrollingInterestsTotalConsolidated net income$5,588$(2)$5,586 Other comprehensive income:Net foreign currency translation adjustments(1,351)34 (1,317)Net gains(losses)on derivatives1 167 167 Net change in unrealized gains(losses)on available-for-sale debt securities2(22)(22)Net change in pension and other postretirement benefit liabilities 23 23 Total comprehensive income(loss)$4,405$32$4,437 1Refer to Note 6 for additional information related to the net gains or losses on derivative instruments.2Refer to Note 4 for additional information related to the net unrealized gains or losses on available-for-sale debt securities.19The following tables present OCI attributable to shareowners of The Coca-Cola Company,including our proportionate share of equity method investees OCI(in millions):Three Months Ended June 28,2024Before-Tax Amount Income TaxAfter-Tax Amount Foreign currency translation adjustments:Translation adjustments arising during the period$(1,109)$127$(982)Gains(losses)on intra-entity transactions that are of a long-term investment nature(170)(170)Gains(losses)on net investment hedges arising during the period1 107 (27)80 Net foreign currency translation adjustments$(1,172)$100$(1,072)Derivatives:Gains(losses)arising during the period$156$(35)$121 Reclassification adjustments recognized in net income(4)1 (3)Net gains(losses)on derivatives1$152$(34)$118 Available-for-sale debt securities:Unrealized gains(losses)arising during the period$(38)$13$(25)Reclassification adjustments recognized in net income(2)(2)Net change in unrealized gains(losses)on available-for-sale debt securities2$(40)$13$(27)Pension and other postretirement benefit liabilities:Net pension and other postretirement benefit liabilities arising during the period$4$6$10 Reclassification adjustments recognized in net income 23 (6)17 Net change in pension and other postretirement benefit liabilities$27$27 Other comprehensive income(loss)attributable to shareowners of The Coca-Cola Company$(1,033)$79$(954)1 Refer to Note 6 for additional information related to the net gains or losses on derivative instruments.2 Refer to Note 4 for additional information related to the net unrealized gains or losses on available-for-sale debt securities.Six Months Ended June 28,2024Before-Tax Amount Income TaxAfter-Tax Amount Foreign currency translation adjustments:Translation adjustments arising during the period$(1,143)$92$(1,051)Reclassification adjustments recognized in net income 103 103 Gains(losses)on intra-entity transactions that are of a long-term investment nature(688)(688)Gains(losses)on net investment hedges arising during the period1 381 (96)285 Net foreign currency translation adjustments$(1,347)$(4)$(1,351)Derivatives:Gains(losses)arising during the period$183$(46)$137 Reclassification adjustments recognized in net income 40 (10)30 Net gains(losses)on derivatives1$223$(56)$167 Available-for-sale debt securities:Unrealized gains(losses)arising during the period$(38)$13$(25)Reclassification adjustments recognized in net income 4 (1)3 Net change in unrealized gains(losses)on available-for-sale debt securities2$(34)$12$(22)Pension and other postretirement benefit liabilities:Net pension and other postretirement benefit liabilities arising during the period$(9)$(2)$(11)Reclassification adjustments recognized in net income 45 (11)34 Net change in pension and other postretirement benefit liabilities$36$(13)$23 Other comprehensive income(loss)attributable to shareowners of The Coca-Cola Company$(1,122)$(61)$(1,183)1 Refer to Note 6 for additional information related to the net gains or losses on derivative instruments.2 Refer to Note 4 for additional information related to the net unrealized gains or losses on available-for-sale debt securities.20Three Months Ended June 30,2023Before-Tax Amount Income TaxAfter-Tax Amount Foreign currency translation adjustments:Translation adjustments arising during the period$300$(63)$237 Gains(losses)on intra-entity transactions that are of a long-term investment nature 151 151 Gains(losses)on net investment hedges arising during the period1(81)20 (61)Net foreign currency translation adjustments$370$(43)$327 Derivatives:Gains(losses)arising during the period$(31)$3$(28)Reclassification adjustments recognized in net income 4 (1)3 Net gains(losses)on derivatives1$(27)$2$(25)Available-for-sale debt securities:Unrealized gains(losses)arising during the period$4$(3)$1 Reclassification adjustments recognized in net income(1)1 Net change in unrealized gains(losses)on available-for-sale debt securities2$3$(2)$1 Pension and other postretirement benefit liabilities:Net pension and other postretirement benefit liabilities arising during the period$(11)$(4)$(15)Reclassification adjustments recognized in net income 22 (5)17 Net change in pension and other postretirement benefit liabilities$11$(9)$2 Other comprehensive income(loss)attributable to shareowners of The Coca-Cola Company$357$(52)$305 1Refer to Note 6 for additional information related to the net gains or losses on derivative instruments.2Refer to Note 4 for additional information related to the net unrealized gains or losses on available-for-sale debt securities.Six Months Ended June 30,2023Before-Tax Amount Income TaxAfter-Tax Amount Foreign currency translation adjustments:Translation adjustments arising during the period$737$(154)$583 Reclassification adjustments recognized in net income 101 101 Gains(losses)on intra-entity transactions that are of a long-term investment nature 443 443 Gains(losses)on net investment hedges arising during the period1(235)59 (176)Net foreign currency translation adjustments$1,046$(95)$951 Derivatives:Gains(losses)arising during the period$(107)$10$(97)Reclassification adjustments recognized in net income 3 (1)2 Net gains(losses)on derivatives1$(104)$9$(95)Available-for-sale debt securities:Unrealized gains(losses)arising during the period$13$(6)$7 Reclassification adjustments recognized in net income 2 2 Net change in unrealized gains(losses)on available-for-sale debt securities2$15$(6)$9 Pension and other postretirement benefit liabilities:Net pension and other postretirement benefit liabilities arising during the period$(16)$(6)$(22)Reclassification adjustments recognized in net income 44 (9)35 Net change in pension and other postretirement benefit liabilities$28$(15)$13 Other comprehensive income(loss)attributable to shareowners of The Coca-Cola Company$985$(107)$878 1Refer to Note 6 for additional information related to the net gains or losses on derivative instruments.2Refer to Note 4 for additional information related to the net unrealized gains or losses on available-for-sale debt securities.21The following table presents the amounts and line items in our consolidated statements of income where adjustments reclassified from AOCI into income were recorded(in millions):Amount Reclassified from AOCIinto IncomeDescription of AOCI ComponentFinancial Statement Line ItemThree Months Ended June 28,2024Six Months Ended June 28,2024Foreign currency translation adjustments:Divestitures,deconsolidations and other1Other income(loss)net$103 Income before income taxes 103 Income taxes Consolidated net income$103 Derivatives:Foreign currency contractsNet operating revenues$1$18 Foreign currency contracts and commodity contractsCost of goods sold(4)(6)Foreign currency contractsInterest expense 1 2 Foreign currency contractsOther income(loss)net(2)26 Income before income taxes(4)40 Income taxes 1 (10)Consolidated net income$(3)$30 Available-for-sale debt securities:Sale of debt securitiesOther income(loss)net$(2)$4 Income before income taxes(2)4 Income taxes (1)Consolidated net income$(2)$3 Pension and other postretirement benefit liabilities:Divestitures,deconsolidations and other2Other income(loss)net$(1)$(3)Recognized net actuarial loss(gain)Other income(loss)net 24 49 Recognized prior service cost(credit)Other income(loss)net (1)Income before income taxes 23 45 Income taxes(6)(11)Consolidated net income$17$34 1Related to the refranchising of our bottling operations in the Philippines and Bangladesh and the sale of our ownership interest in an equity method investee in Thailand.Refer to Note 2.2Primarily related to the refranchising of our bottling operations in the Philippines and Bangladesh.Refer to Note 2.22NOTE 11:CHANGES IN EQUITYThe following tables provide a reconciliation of the beginning and ending carrying amounts of total equity,equity attributable to shareowners of The Coca-Cola Company and equity attributable to noncontrolling interests(in millions):Shareowners of The Coca-Cola Company Three Months Ended June 28,2024Common Shares Outstanding TotalReinvested EarningsAccumulated Other Comprehensive Income(Loss)Common StockCapital SurplusTreasury StockNon-controlling InterestsMarch 29,2024 4,308$27,946$74,868$(14,504)$1,760$19,321$(55,016)$1,517 Comprehensive income(loss)1,505 2,411 (954)48 Dividends paid/payable to shareowners of The Coca-Cola Company($0.485 per share)(2,090)(2,090)Dividends paid to noncontrolling interests (7)(7)Purchases of treasury stock(3)(156)(156)Impact related to stock-based compensation plans 4 213 147 66 June 28,2024 4,309$27,411$75,189$(15,458)$1,760$19,468$(55,106)$1,558 Shareowners of The Coca-Cola Company Six Months Ended June 28,2024Common Shares Outstanding TotalReinvested EarningsAccumulated Other Comprehensive Income(Loss)Common StockCapital SurplusTreasury StockNon-controlling InterestsDecember 31,2023 4,308$27,480$73,782$(14,275)$1,760$19,209$(54,535)$1,539 Comprehensive income(loss)4,437 5,588 (1,183)32 Dividends paid/payable to shareowners of The Coca-Cola Company($0.97 per share)(4,181)(4,181)Dividends paid to noncontrolling interests (9)(9)Divestitures,deconsolidations and other (4)(4)Purchases of treasury stock(13)(777)(777)Impact related to stock-based compensation plans 14 465 259 206 June 28,2024 4,309$27,411$75,189$(15,458)$1,760$19,468$(55,106)$1,558 23 Shareowners of The Coca-Cola Company Three Months Ended June 30,2023Common Shares Outstanding TotalReinvested EarningsAccumulated Other Comprehensive Income(Loss)Common StockCapital SurplusTreasury StockNon-controlling InterestsMarch 31,2023 4,325$26,868$72,137$(14,322)$1,760$18,889$(53,247)$1,651 Comprehensive income(loss)2,751 2,547 305 (101)Dividends paid/payable to shareowners of The Coca-Cola Company($0.46 per share)(1,989)(1,989)Dividends paid to noncontrolling interests (9)(9)Acquisition of interests held by noncontrolling owners (22)(20)(2)Purchases of treasury stock(4)(230)(230)Impact related to stock-based compensation plans 3 183 124 59 June 30,2023 4,324$27,552$72,695$(14,017)$1,760$18,993$(53,418)$1,539 Shareowners of The Coca-Cola Company Six Months Ended June 30,2023Common Shares Outstanding TotalReinvested EarningsAccumulated Other Comprehensive Income(Loss)Common StockCapital SurplusTreasury StockNon-controlling InterestsDecember 31,2022 4,328$25,826$71,019$(14,895)$1,760$18,822$(52,601)$1,721 Comprehensive income(loss)6,362 5,654 878 (170)Dividends paid/payable to shareowners of The Coca-Cola Company($0.92 per share)(3,978)(3,978)Dividends paid to noncontrolling interests (13)(13)Acquisition of interests held by noncontrolling owners (22)(20)(2)Purchases of treasury stock(16)(979)(979)Impact related to stock-based compensation plans 12 356 194 162 Other activities (3)3 June 30,2023 4,324$27,552$72,695$(14,017)$1,760$18,993$(53,418)$1,539 NOTE 12:SIGNIFICANT OPERATING AND NONOPERATING ITEMSOther Operating ChargesDuring the three months ended June 28,2024,the Company recorded other operating charges of$1,370 million.These charges primarily consisted of$1,337 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with our acquisition of fairlife,LLC(“fairlife”)in 2020,$32 million related to the Companys productivity and reinvestment program and$3 million for the amortization of noncompete agreements related to the BA Sports Nutrition,LLC(“BodyArmor”)acquisition in 2021.These charges were partially offset by a net benefit of$2 million related to a revision of managements estimates for tax litigation expense.During the six months ended June 28,2024,the Company recorded other operating charges of$2,943 million.These charges primarily consisted of$2,102 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with our acquisition of fairlife,$760 million related to the impairment of our BodyArmor trademark and$68 million related to the Companys productivity and reinvestment program.In addition,other operating charges included$7 million of transaction costs related to the refranchising of our bottling operations in certain territories in India and$7 million for the amortization of noncompete agreements related to the BodyArmor acquisition.These charges were partially offset by a net benefit of$1 million related to a revision of managements estimates for tax litigation expense.During the three months ended June 30,2023,the Company recorded other operating charges of$1,338 million.These charges primarily consisted of$1,262 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition,$35 million related to the discontinuation of certain manufacturing operations in Asia 24Pacific and$24 million related to the Companys productivity and reinvestment program.In addition,other operating charges included$8 million related to the restructuring of our North America operating unit,$6 million related to tax litigation expense and$3 million for the amortization of noncompete agreements related to the BodyArmor acquisition.During the six months ended June 30,2023,the Company recorded other operating charges of$1,449 million.These charges primarily consisted of$1,324 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition,$51 million related to the Companys productivity and reinvestment program and$35 million related to the discontinuation of certain manufacturing operations in Asia Pacific.In addition,other operating charges included$26 million related to the restructuring of our North America operating unit,$7 million for the amortization of noncompete agreements related to the BodyArmor acquisition and$6 million related to tax litigation expense.Refer to Note 2 for additional information on the refranchising of our bottling operations in certain territories in India.Refer to Note 9 for additional information on the tax litigation.Refer to Note 13 for additional information on the Companys restructuring initiatives.Refer to Note 16 for additional information on the fairlife acquisition and the BodyArmor impairment.Refer to Note 17 for the impact these charges had on our operating segments and Corporate.Other Nonoperating ItemsEquity Income(Loss)NetDuring the three and six months ended June 28,2024,the Company recorded net charges of$24 million and$49 million,respectively.During the three and six months ended June 30,2023,the Company recorded net charges of$2 million and$84 million,respectively.These amounts represent the Companys proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees.Refer to Note 17 for the impact these items had on our operating segments and Corporate.Other Income(Loss)NetDuring the three months ended June 28,2024,the Company recognized a net gain of$50 million related to realized and unrealized gains and losses on equity securities and trading debt securities as well as realized gains and losses on available-for-sale debt securities and an other-than-temporary impairment charge of$34 million related to an equity method investee in Latin America.During the six months ended June 28,2024,the Company recognized net gains of$599 million and$290 million related to the refranchising of our bottling operations in the Philippines and certain territories in India,respectively.The Company also recognized a net gain of$516 million related to the sale of our ownership interest in an equity method investee in Thailand.Additionally,the Company recognized a net gain of$228 million related to realized and unrealized gains and losses on equity securities and trading debt securities as well as realized gains and losses on available-for-sale debt securities.These gains were partially offset by an other-than-temporary impairment charge of$34 million related to an equity method investee in Latin America and a loss of$7 million related to post-closing adjustments for the refranchising of our bottling operations in Vietnam in 2023.During the three months ended June 30,2023,the Company recognized a net gain of$127 million related to realized and unrealized gains and losses on equity securities and trading debt securities as well as realized gains and losses on available-for-sale debt securities.During the six months ended June 30,2023,the Company recognized a net gain of$439 million related to the refranchising of our bottling operations in Vietnam.Additionally,the Company recognized a net gain of$240 million related to realized and unrealized gains and losses on equity securities and trading debt securities as well as realized gains and losses on available-for-sale debt securities.Refer to Note 2 for additional information on the refranchising of our bottling operations as well as the sale of our ownership interest in an equity method investee in Thailand.Refer to Note 4 for additional information on equity and debt securities.Refer to Note 16 for additional information on the other-than-temporary impairment charge.Refer to Note 17 for the impact these items had on our operating segments and Corporate.NOTE 13:RESTRUCTURINGProductivity and Reinvestment ProgramIn February 2012,the Company announced a productivity and reinvestment program designed to strengthen our brands and reinvest our resources to drive long-term profitable growth.The program was expanded multiple times,with the last expansion occurring in April 2017.The remaining initiatives included in this program,which are primarily designed to further simplify and standardize our organization,will be completed in 2024.25During the three and six months ended June 28,2024,the Company incurred expenses of$32 million and$68 million,respectively,and during the three and six months ended June 30,2023 incurred expenses of$24 million and$51 million,respectively,related to our productivity and reinvestment program.These expenses primarily included internal and external costs associated with the implementation of the programs initiatives and were recorded in the line item other operating charges in our consolidated statements of income.Refer to Note 17 for the impact these expenses had on our operating segments and Corporate.The Company has incurred total pretax expenses of$4,361 million related to this program since it commenced.North America Operating Unit RestructuringIn November 2022,the Company announced a restructuring program for our North America operating unit designed to better align its operating structure with its customers and bottlers.The evolved operating structure brought together all bottler-related components(franchise leadership,commercial leadership,digital,governance and technical innovation)and helped streamline how we work.During the three and six months ended June 30,2023,the Company incurred expenses of$8 million and$26 million,respectively,related to this program.These expenses primarily included severance costs and were recorded in the line item other operating charges in our consolidated statements of income.The Company has incurred total pretax expenses of$65 million related to this program since it commenced.This restructuring program was complete as of December 31,2023.NOTE 14:PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS Net periodic benefit cost or income for our pension and other postretirement benefit plans consisted of the following(in millions):Pension PlansOther Postretirement Benefit PlansThree Months EndedJune 28,2024June 30,2023June 28,2024June 30,2023Service cost$26$23$1$1 Interest cost 77 81 5 7 Expected return on plan assets1(117)(119)(2)(3)Amortization of prior service cost(credit)1 1 (1)(1)Amortization of net actuarial loss(gain)25 24 (1)(2)Net periodic benefit cost(income)$12$10$2$2 1The weighted-average expected long-term rates of return on plan assets used in computing 2024 net periodic benefit cost(income)were 7.00%for pension plans and 4.50%for other postretirement benefit plans.Pension PlansOther Postretirement Benefit PlansSix Months EndedJune 28,2024June 30,2023June 28,2024June 30,2023Service cost$53$47$2$2 Interest cost 154 162 9 14 Expected return on plan assets1(235)(238)(4)(7)Amortization of prior service cost(credit)1 1 (2)(2)Amortization of net actuarial loss(gain)51 48 (2)(3)Net periodic benefit cost(income)$24$20$3$4 1The weighted-average expected long-term rates of return on plan assets used in computing 2024 net periodic benefit cost(income)were 7.00%for pension plans and 4.50%for other postretirement benefit plans.All of the amounts in the tables above,other than service cost,were recorded in the line item other income(loss)net in our consolidated statements of income.During the six months ended June 28,2024,the Company contributed$16 million to our pension trusts,offset by a$44 million transfer of surplus international plan assets from pension trusts to general assets of the Company.We anticipate making additional contributions of approximately$19 million during the remainder of 2024.The Company contributed$23 million to our pension trusts during the six months ended June 30,2023.NOTE 15:INCOME TAXESThe Company recorded income taxes of$627 million(20.7fective tax rate)and$359 million(12.5fective tax rate)during the three months ended June 28,2024 and June 30,2023,respectively.The Company recorded income taxes of 26$1,314 million(19.0fective tax rate)and$1,299 million(18.7fective tax rate)during the six months ended June 28,2024 and June 30,2023,respectively.The Companys effective tax rates for the three and six months ended June 28,2024 and June 30,2023 vary from the statutory U.S.federal tax rate of 21.0%primarily due to the tax impact of significant operating and nonoperating items,as described in Note 12,along with the tax benefits of having significant earnings generated outside of the United States and significant earnings generated in investments accounted for under the equity method,both of which are generally taxed at rates lower than the statutory U.S.federal tax rate.The Companys effective tax rates for the three and six months ended June 28,2024 included$119 million and$60 million,respectively,of net tax expense related to various discrete tax items,including the resolution of certain foreign tax matters.The Companys effective tax rates for the three and six months ended June 30,2023 included$120 million and$125 million,respectively,of net tax benefits related to various discrete tax items,including a change in tax law in a certain foreign jurisdiction.On November 18,2020,the Tax Court issued the Opinion regarding the Companys 2015 litigation with the IRS involving transfer pricing tax adjustments in which it predominantly sided with the IRS.On November 8,2023,the Tax Court issued a supplemental opinion,siding with the IRS in concluding both that the blocked-income regulations apply to the Companys operations and that the Tax Court opinion in 3M Co.&Subs.v.Commissioner(February 9,2023)controlled as to the validity of those regulations.The Company strongly disagrees with the Opinions and intends to vigorously defend its position.Refer to Note 9.NOTE 16:FAIR VALUE MEASUREMENTSRecurring Fair Value MeasurementsThe following tables summarize assets and liabilities measured at fair value on a recurring basis(in millions):June 28,2024Level 1Level 2Level 3Other3NettingAdjustment4Fair ValueMeasurementsAssets:Equity securities with readily determinable values1$1,890$150$6$88$2,134 Debt securities1 1,583 1,583 Derivatives2 425 (317)6 108 8Total assets$1,890$2,158$6$88$(317)$3,825 Liabilities:Contingent consideration liability$5,119 5$5,119 Derivatives2 2 1,434 (1,377)7 59 8Total liabilities$2$1,434$5,119$(1,377)$5,178 1Refer to Note 4 for additional information related to the composition of our equity securities with readily determinable values and debt securities.2Refer to Note 6 for additional information related to the composition of our derivatives portfolio.3Certain investments that are measured at fair value using the net asset value per share(or its equivalent)practical expedient have not been categorized in the fair value hierarchy but are included to reconcile to the amounts presented in Note 4.4Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle net positive and negative positions and also cash collateral held or placed with the same counterparties.There were no amounts subject to legally enforceable master netting agreements that management has chosen not to offset or that do not meet the offsetting requirements.Refer to Note 6.5Represents the fair value of the remaining milestone payment related to our acquisition of fairlife in 2020,which is contingent on fairlife achieving certain financial targets through 2024 and,if achieved,is payable in 2025.This milestone payment is based on agreed-upon formulas related to fairlifes operating results,the resulting value of which is not subject to a ceiling.The fair value was determined using discounted cash flow analyses.We are required to remeasure this liability to fair value quarterly,with any changes in the fair value recorded in income until the final milestone payment is made.6The Company is obligated to return$4 million in cash collateral it has netted against its derivative position.7The Company has the right to reclaim$1,065 million in cash collateral it has netted against its derivative position.8The Companys derivative financial instruments were recorded at fair value in our consolidated balance sheet as follows:$54 million in the line item prepaid expenses and other current assets,$54 million in the line item other noncurrent assets,and$59 million in the line item other noncurrent liabilities.Refer to Note 6 for additional information related to the composition of our derivatives portfolio.27December 31,2023Level 1Level 2Level 3Other3NettingAdjustment4Fair ValueMeasurementsAssets:Equity securities with readily determinable values1$1,727$188$6$85$2,006 Debt securities1 1,172 3 1,175 Derivatives2 275 (222)6 53 8Total assets$1,727$1,635$9$85$(222)$3,234 Liabilities:Contingent consideration liability$3,017 5$3,017 Derivatives2 3 1,445 (1,256)7 192 8Total liabilities$3$1,445$3,017$(1,256)$3,209 1Refer to Note 4 for additional information related to the composition of our equity securities with readily determinable values and debt securities.2Refer to Note 6 for additional information related to the composition of our derivatives portfolio.3Certain investments that are measured at fair value using the net asset value per share(or its equivalent)practical expedient have not been categorized in the fair value hierarchy but are included to reconcile to the amounts presented in Note 4.4Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle net positive and negative positions and also cash collateral held or placed with the same counterparties.There were no amounts subject to legally enforceable master netting agreements that management has chosen not to offset or that do not meet the offsetting requirements.Refer to Note 6.5Represents the fair value of the remaining milestone payment related to our acquisition of fairlife in 2020,which is contingent on fairlife achieving certain financial targets through 2024 and,if achieved,is payable in 2025.This milestone payment is based on agreed-upon formulas related to fairlifes operating results,the resulting value of which is not subject to a ceiling.The fair value was determined using a Monte Carlo valuation model.We are required to remeasure this liability to fair value quarterly,with any changes in the fair value recorded in income until the final milestone payment is made.The Company made a milestone payment of$275 million during 2023.6The Company was obligated to return$4 million in cash collateral it had netted against its derivative position.7The Company had the right to reclaim$1,039 million in cash collateral it had netted against its derivative position.8The Companys derivative financial instruments were recorded at fair value in our consolidated balance sheet as follows:$53 million in the line item other noncurrent assets and$192 million in the line item other noncurrent liabilities.Refer to Note 6 for additional information related to the composition of our derivatives portfolio.Gross realized and unrealized gains and losses on Level 3 assets and liabilities,excluding the contingent consideration liability,were not significant for the three and six months ended June 28,2024 and June 30,2023.The Company recognizes transfers between levels within the hierarchy as of the beginning of the reporting period.Gross transfers between levels within the hierarchy were not significant for the three and six months ended June 28,2024 and June 30,2023.Nonrecurring Fair Value MeasurementsDuring the three and six months ended June 28,2024,the Company recorded an other-than-temporary impairment charge of$34 million related to an equity method investee in Latin America.This impairment charge was derived using Level 3 inputs and was primarily driven by revised projections of future operating results.During the six months ended June 28,2024,the Company recorded an asset impairment charge of$760 million related to our BodyArmor trademark in North America,which was primarily driven by revised projections of future operating results and higher discount rates resulting from changes in macroeconomic conditions since the acquisition date.The fair value of this trademark was derived using discounted cash flow analyses based on Level 3 inputs.This charge was recorded in the line item other operating charges in our consolidated statement of income.The remaining carrying value of the trademark is$3,400 million.During the three and six months ended June 30,2023,the Company recorded an asset impairment charge of$25 million related to the discontinuation of certain manufacturing operations in Asia Pacific.This impairment charge was derived using Level 3 inputs and was primarily driven by managements best estimate of the potential proceeds from the disposal of the related assets.Other Fair Value DisclosuresThe carrying values of cash and cash equivalents,short-term investments,trade accounts receivable,accounts payable and accrued expenses,and loans and notes payable approximate their fair values because of the relatively short-term maturities of these financial instruments.The fair value of our long-term debt is estimated using Level 2 inputs based on quoted prices for those instruments.Where quoted prices are not available,the fair value is estimated using discounted cash flows and market-based expectations for interest rates,credit risk and the contractual terms of the debt instruments.As of June 28,2024,the 28carrying value and fair value of our long-term debt,including the current portion,were$40,024 million and$35,137 million,respectively.As of December 31,2023,the carrying value and fair value of our long-term debt,including the current portion,were$37,507 million and$33,445 million,respectively.NOTE 17:OPERATING SEGMENTS Information about our Companys operations by operating segment and Corporate is as follows(in millions):Europe,Middle East&Africa Latin America NorthAmericaAsia Pacific Global Ventures BottlingInvestmentsCorporateEliminationsConsolidatedAs of and for the Three Months Ended June 28,2024 Net operating revenues:Third party$2,184$1,650$4,808$1,386$768$1,537$30$12,363 Intersegment 155 4 126 2 (287)Total net operating revenues 2,339 1,650 4,812 1,512 768 1,539 30 (287)12,363 Operating income(loss)1,252 920 1,312 647 92 98 (1,689)2,632 Income(loss)before income taxes 1,267 887 1,324 648 94 548 (1,740)3,028 Identifiable operating assets 7,475 3,064 25,972 2,532 2 7,576 7,888 2 27,588 82,095 Investments1 402 671 15 54 12,751 5,214 19,107 As of and for the Three MonthsEnded June 30,2023 Net operating revenues:Third party$2,043$1,378$4,365$1,349$765$2,042$30$11,972 Intersegment 145 2 218 (365)Total net operating revenues 2,188 1,378 4,367 1,567 765 2,042 30 (365)11,972 Operating income(loss)1,133 797 1,216 673 78 122 (1,618)2,401 Income(loss)before income taxes 1,147 802 1,227 675 78 577 (1,626)2,880 Identifiable operating assets 7,729 2,474 26,109 2,453 2,3 7,622 9,281 2,3 23,368 79,036 Investments1 394 728 15 76 13,406 4,801 19,420 As of December 31,2023 Identifiable operating assets$7,117$3,149$25,808$2,428 2$7,607$9,871 2$21,934$77,914 Investments1 389 712 15 71 13,639 4,963 19,789 1Principally equity method investments and other investments in bottling companies.2Property,plant and equipment net in India represented 14%,10%and 12%of consolidated property,plant and equipment net as of June 28,2024,June 30,2023 and December 31,2023,respectively.3Property,plant and equipment net in the Philippines represented 10%of consolidated property,plant and equipment net as of June 30,2023.As of December 31,2023,the Companys bottling operations in the Philippines met the criteria to be classified as held for sale.Refer to Note 2.During the three months ended June 28,2024,the results of our operating segments and Corporate were impacted by the following items:Operating income(loss)and income(loss)before income taxes were reduced by$1,337 million for Corporate due to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition.Refer to Note 16.Operating income(loss)and income(loss)before income taxes were reduced by$32 million for Corporate due to the Companys productivity and reinvestment program.Refer to Note 13.Operating income(loss)and income(loss)before income taxes were reduced by$7 million for North America due to the restructuring of our manufacturing operations in the United States.Operating income(loss)and income(loss)before income taxes were reduced by$3 million for Corporate due to charges related to our acquisition of BodyArmor.Refer to Note 12.Income(loss)before income taxes was increased by$50 million for Corporate due to realized and unrealized gains and losses on equity securities and trading debt securities as well as realized gains and losses on available-for-sale debt securities.Refer to Note 4.29 Income(loss)before income taxes was reduced by$34 million for Latin America due to an other-than-temporary impairment charge related to an equity method investee.Refer to Note 16.Income(loss)before income taxes was reduced by$21 million for Bottling Investments and$3 million for Latin America due to the Companys proportionate share of significant operating and nonoperating items recorded by certain of our equity method investees.During the three months ended June 30,2023,the results of our operating segments and Corporate were impacted by the following items:Operating income(loss)and income(loss)before income taxes were reduced by$1,262 million for Corporate due to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition.Refer to Note 16.Operating inc
2024-09-23
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1Public Information onsemi 2024Public Information onsemi 2024Quarterly Investor PresentationFirst Qu.
2024-09-21
29页
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Consolidated Financial Summary for the First Quarter Ended June 30,2024(In accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board(“IFRS Accounting Standards”)August 7,2024Company name:Sony Group CorporationStock exchange listing:Tokyo Stock Exchange(“TSE”)Securities code:6758URL:https:/ Yoshida,Representative Corporate Executive OfficerContact person:Sadahiko Hayakawa,Senior Vice PresidentTelephone: 81-3-6748-2111Scheduled date to commence dividend payment:-Preparation of supplementary materials on financial results:YesHolding of financial results briefing:Yes(for investors and analysts)(Amounts are rounded to the nearest million yen,unless otherwise noted.)(1)Consolidated operating results(cumulative)(Percentages indicate year-on-year changes.)ConsolidatedSales and financial services revenueOperating incomeIncome before income taxesNet incomeNet income attributable to Sony Group Corporations stockholdersThree months endedYen in millions%Yen in millions%Yen in millions%Yen in millions%Yen in millions%June 30,20243,011,6491.6279,10610.3316,86714.8235,8288.2231,6386.5June 30,20232,963,65232.9253,042-30.6276,034-21.0217,942-16.6217,545-16.7ConsolidatedTotal comprehensive incomeAdjusted OIBDA*Adjusted EBITDA*Basic earningsper shareDiluted earningsper shareThree months endedYen in millions%Yen in millions%Yen in millions%YenYenJune 30,2024377,881-15.2454,68214.8461,25613.5189.90189.43June 30,2023445,4590.5396,122-19.0406,221-18.2176.26175.67For all segments excluding Financial Services*Sales and financial services revenueOperating incomeIncome beforeincome taxesNet income attributable to Sony Group Corporations stockholdersAdjusted OIBDA*Adjusted EBITDA*Three months endedYen in millions%Yen in millions%Yen in millions%Yen in millions%Yen in millions%Yen in millions%June 30,20242,567,43612.3249,12425.5286,8855.6210,025-8.3417,87024.9424,4447.5June 30,20232,285,78913.3198,531-12.0271,5598.0229,12613.0334,696-2.5394,8310.6Total assetsTotal equityEquity attributable to Sony Group Corporations stockholdersRatio of equity attributable to Sony Group Corporations stockholders to total assetsAs ofYen in millionsYen in millionsYen in millions%June 30,202434,677,8098,148,9597,857,45222.7March 31,202434,107,4907,756,1057,587,17722.21.Consolidated financial results for the three months ended June 30,2024(from April 1,2024 to June 30,2024)(2)Consolidated financial positionAnnual dividends per shareFirst quarter-endSecond quarter-endThird quarter-endYear-endTotalYenYenYenYenYenFiscal year endedMarch 31,2024-40.00-45.0085.00Fiscal year endingMarch 31,2025-Fiscal year endingMarch 31,2025(Forecast)*150.00-10.00-(Percentages indicate year-on-year changes.)Fiscal year ending March 31,2025Sales and financial services revenueOperating incomeIncome before income taxesNet income attributable to Sony Group Corporations stockholdersAdjusted OIBDA*Adjusted EBITDA*Yen in millions%Yen in millions%Yen in millions%Yen in millions%Yen in millions%Yen in millions%Consolidated12,610,000-3.21,310,0008.41,335,0005.2980,0001.01,990,0009.01,990,0009.5For all segments excluding Financial Services*11,700,0003.91,165,00012.51,190,0003.9875,000-2.41,820,00010.71,820,0007.92.DividendsNote:Revisions to the forecast of dividends most recently announced:No*1 Sony Group Corporation decided at the Board of Directors meeting held on May 14,2024 to conduct a stock split,scheduled to be effective on October 1,2024 with a record date of September 30,2024.Each share of Sony Group Corporations common stock will be split into five(5)shares per share.The above year-end dividend per share forecast for the fiscal year ending March 31,2025 is based on a number of shares taking into account the stock split.The total annual dividend per share forecast for the fiscal year ending March 31,2025 is not presented because the total of the interim dividend and the year-end dividend cannot be calculated due to the effect of the stock split.Without taking the stock split into account,the year-end dividend per share forecast for the fiscal year ending March 31,2025 would be 50 yen and the total annual dividend per share forecast for the fiscal year ending March 31,2025 would be 100 yen.3.Forecast for Consolidated Results for the Fiscal Year Ending March 31,2025(from April 1,2024 to March 31,2025)Note:Revisions to the forecast for the fiscal year ending March 31,2025 most recently announced:Yes*Adjusted OIBDA(Operating Income Before Depreciation and Amortization),Adjusted EBITDA(Earnings Before Interest,Taxes,Depreciation and Amortization)and figures for all segments excluding Financial Services are not measures in accordance with IFRS Accounting Standards.However,Sony Group Corporation believes that these disclosures may be useful information to investors.Adjusted OIBDA and Adjusted EBITDA are calculated by the following formulas,respectively.For the reconciliations for Adjusted OIBDA and Adjusted EBITDA,please refer to“Q1 FY2024 Consolidated Financial Results”(the presentation material for the earnings announcement)disclosed on the same date as this document on the Timely Disclosure Network(“TDnet”)of the TSE,the Electronic Data Gathering,Analysis,and Retrieval(“EDGAR”)system of the U.S.Securities and Exchange Commission(“SEC”)and the website of Sony Group Corporation.Adjusted OIBDA=Operating income Depreciation and amortization expense excluding amortization for film costs and broadcasting rights,as well as for internally developed game content and master recordings included in Content assets-the profit and loss amount that Sony deems non-recurring.Adjusted EBITDA=Net income attributable to Sony Group Corporations stockholders Net income attributable to noncontrolling interests Income taxes Interest expenses,net,recorded in Financial income and Financial expense-Gain on revaluation of equity instruments,net,recorded in Financial income and Financial expense Depreciation and amortization expense excluding amortization for film costs and broadcasting rights,as well as for internally developed game content and master recordings included in Content assets-the profit and loss amount that Sony deems non-recurring.For details about the preparation of the Financial Statements for all segments excluding Financial Services,please refer to page 12 of the Appendix.As of June 30,20241,248,619,589 sharesAs of March 31,20241,261,231,889 sharesAs of June 30,202430,868,630 sharesAs of March 31,202439,783,003 sharesThree months ended June 30,20241,219,769,683 sharesThree months ended June 30,20231,234,242,212 shares*Notes(1)Significant changes in scope of consolidation during the period :No(2)Changes in accounting policies and changes in accounting estimates:(i)Changes in accounting policies required by IFRS Accounting Standards:Yes(ii)Changes in accounting policies due to other reasons :No(iii)Changes in accounting estimates :No(3)Number of issued shares(common stock):(i)Total number of issued shares at the end of the period(including treasury stock)(ii)Number of shares of treasury stock at the end of the period(iii)Average number of shares outstanding during the period(cumulative from the beginning of the fiscal year)Note:Please refer to“Notes to Condensed Quarterly Consolidated Financial Statements-Accounting Policy and Other Information(Net Income Attributable to Sony Group Corporations Stockholders and Weighted-average Number of Outstanding Shares Used for the Computation of EPS of Common Stock)”for number of shares used as basis for calculating consolidated per share data.*Review of the attached condensed quarterly consolidated financial statements by certified public accountants or an audit firm:No*Proper use of earnings forecasts,and other special matters:Please refer to“Cautionary Statement”on page 17 of the Appendix for assumptions and other matters related to the forecast of financial results.Supplementary materials on financial results including the presentation material for the earnings announcement are available on Sony Group Corporations website along with this document.Condensed Quarterly Consolidated Financial Statements(Unaudited)2Condensed Quarterly Consolidated Statements of Financial Position2Condensed Quarterly Consolidated Statements of Income(Three months ended June 30)4Condensed Quarterly Consolidated Statements of Comprehensive Income(Three months ended June 30)5Condensed Quarterly Consolidated Statements of Changes in Stockholders Equity(Three months ended June 30)6Condensed Quarterly Consolidated Statements of Cash Flows(Three months ended June 30)7Notes to Condensed Quarterly Consolidated Financial Statements9-Business Segment Information9-Going Concern Assumption15-Accounting Policy and Other Information15Overview of Operating Results17Cautionary Statement17(Appendix)Table of Contents for AppendixAll financial information is presented on the basis of IFRS Accounting Standards.Sony Group Corporation and its consolidated subsidiaries are together referred to as“Sony”or“Sony Group.”-1-Yen in millionsMarch 31,2024June 30,2024Change fromMarch 31,2024ASSETSCurrent assets:Cash and cash equivalents1,907,1131,477,098(430,015)Investments and advances in the Financial Services segment398,153412,27514,122Trade and other receivables,and contract assets2,158,1962,080,143(78,053)Inventories1,518,6441,692,709174,065Other financial assets125,365127,6562,291Other current assets669,335765,85696,521Total current assets6,776,8066,555,737(221,069)Non-current assets:Investments accounted for using the equity method423,744429,1285,384Investments and advances in the Financial Services segment18,939,79418,959,27219,478Property,plant and equipment1,522,6401,596,69074,050Right-of-use assets503,395576,71073,315Goodwill1,487,1001,583,08895,988Content assets1,928,1132,317,397389,284Other intangible assets615,602663,73148,129Deferred tax assets499,550507,9718,421Other financial assets897,341945,58748,246Other non-current assets513,405542,49829,093Total non-current assets27,330,68428,122,072791,388Total assets34,107,49034,677,809570,319(Unaudited)Condensed Quarterly Consolidated Financial StatementsCondensed Quarterly Consolidated Statements of Financial Position(Continued on the following page.)-2-Yen in millionsMarch 31,2024June 30,2024Change fromMarch 31,2024LIABILITIESCurrent liabilities:Short-term borrowings1,812,6051,823,41910,814Current portion of long-term debt217,711214,847(2,864)Trade and other payables2,064,9052,252,860187,955Deposits from customers in the banking business3,670,5673,690,95820,391Income taxes payables152,07491,243(60,831)Participation and residual liabilities in the Pictures segment251,743264,04912,306Other financial liabilities116,044130,32114,277Other current liabilities1,906,3961,899,211(7,185)Total current liabilities10,192,04510,366,908174,863Non-current liabilities:Long-term debt2,058,1172,134,84476,727Defined benefit liabilities247,583252,3544,771Deferred tax liabilities166,424179,81713,393Insurance contract liabilities12,931,99512,776,766(155,229)Participation and residual liabilities in the Pictures segment206,081220,84214,761Other financial liabilities386,761415,20828,447Other non-current liabilities162,379182,11119,732Total non-current liabilities16,159,34016,161,9422,602Total liabilities26,351,38526,528,850177,465EQUITYSony Group Corporations stockholders equity:Common stock881,357881,357-Additional paid-in capital1,483,4101,484,4491,039Retained earnings6,002,4076,025,36222,955Accumulated other comprehensive income(376,063)(209,524)166,539Treasury stock,at cost(403,934)(324,192)79,742Equity attributable to Sony Group Corporations stockholders7,587,1777,857,452270,275Noncontrolling interests168,928291,507122,579Total equity7,756,1058,148,959392,854Total liabilities and equity34,107,49034,677,809570,319Condensed Quarterly Consolidated Statements of Financial Position(Continued)-3-Yen in millionsThree months ended June 3020232024ChangeSales and financial services revenue:Sales2,284,5432,565,361280,818Financial services revenue Insurance revenue142,750152,91210,162 Other financial services revenue536,359293,376(242,983)Total financial services revenue679,109446,288(232,821)Total sales and financial services revenue2,963,6523,011,64947,997Costs and expenses:Cost of sales1,624,5101,784,389159,879Selling,general and administrative474,939543,41468,475Financial services expenses Insurance service expenses97,366110,81313,447 Insurance finance expenses(income)489,352261,480(227,872)Other financial services expenses37,82543,9616,136 Total financial services expenses624,543416,254(208,289)Other operating(income)expense,net(8,742)(9,820)(1,078)Total costs and expenses2,715,2502,734,23718,987Share of profit(loss)of investments accounted for using the equity method4,6401,694(2,946)Operating income253,042279,10626,064Financial income31,91253,23021,318Financial expenses8,92015,4696,549Income before income taxes276,034316,86740,833Income taxes58,09281,03922,947Net income217,942235,82817,886Net income attributable toSony Group Corporations stockholders217,545231,63814,093Noncontrolling interests3974,1903,793YenThree months ended June 3020232024ChangePer share data:Net income attributable to Sony Group Corporations stockholders -Basic176.26189.9013.64 -Diluted175.67189.4313.76Condensed Quarterly Consolidated Statements of Income-4-Yen in millionsThree months ended June 3020232024Change Net income217,942235,82817,886 Other comprehensive income,net of tax-Items that will not be reclassified to profit or lossChanges in equity instruments measured at fair value through other comprehensive income(6,917)(15,062)(8,145)Remeasurement of defined benefit pension plans(425)(787)(362)Share of other comprehensive income of investments accounted for using the equity method139(1,140)(1,279)Items that may be reclassified subsequently to profit or lossChanges in debt instruments measured at fair value through other comprehensive income(72,542)(432,256)(359,714)Cash flow hedges(2,230)(2,277)(47)Insurance finance income(expenses)20,517350,402329,885Exchange differences on translating foreign operations285,771239,701(46,070)Share of other comprehensive income of investments accounted for using the equity method3,1503,811661Other54(339)(393)Total other comprehensive income,net of tax227,517142,053(85,464)Comprehensive income445,459377,881(67,578)Comprehensive income attributable to Sony Group Corporations stockholders443,428372,839(70,589)Noncontrolling interests2,0315,0423,011Condensed Quarterly Consolidated Statements of Comprehensive Income-5-Yen in millionsCommonstockAdditionalpaid-incapitalRetainedearningsAccumulatedothercomprehensiveincomeTreasurystock,atcostSony GroupCorporationsstockholdersequityNoncontrollinginterestsTotal equityBalance at April 1,2023880,3651,463,8075,092,442(614,570)(223,507)6,598,53758,6136,657,150Comprehensive income:Net income217,545217,545397217,942Other comprehensive income,net of tax225,883225,8831,634227,517Total comprehensive income217,545225,883443,4282,031445,459Transfer to retained earnings1,152(1,152)-Transactions with stockholders and other:Exercise of stock acquisition rights(1)(144)4,6004,4554,455Stock-based compensation3,1273,1273,127Dividends declared(49,380)(49,380)(1,604)(50,984)Purchase of treasury stock(10,150)(10,150)(10,150)Reissuance of treasury stock1233Transactions with noncontrolling interests shareholders and other12,96812,96816,55029,518Balance at June 30,2023880,3651,479,9025,261,615(389,839)(229,055)7,002,98875,5907,078,578Yen in millionsCommonstockAdditionalpaid-incapitalRetainedearningsAccumulatedothercomprehensiveincomeTreasurystock,atcostSony GroupCorporationsstockholdersequityNoncontrollinginterestsTotal equityBalance at April 1,2024881,3571,483,4106,002,407(376,063)(403,934)7,587,177168,9287,756,105Comprehensive income:Net income231,638231,6384,190235,828Other comprehensive income,net of tax141,201141,201852142,053Total comprehensive income231,638141,201372,8395,042377,881Transfer to retained earnings(25,338)25,338-Transactions with stockholders and other:Exercise of stock acquisition rights and other(1)(642)2,4171,7741,774Stock-based compensation5,5045,5045,504Dividends declared(54,965)(54,965)(2,076)(57,041)Purchase of treasury stock(51,255)(51,255)(51,255)Reissuance of treasury stock1344Cancellation of treasury stock(839)(127,738)128,577-Transactions with noncontrolling interests shareholders and other(3,626)(3,626)119,613115,987Balance at June 30,2024881,3571,484,4496,025,362(209,524)(324,192)7,857,452291,5078,148,959Condensed Quarterly Consolidated Statements of Changes in Stockholders Equity-6-Yen in millionsThree months ended June 3020232024Cash flows from operating activities:Income before income taxes276,034316,867 Adjustments to reconcile income before income taxes to net cash used in operating activities:Depreciation and amortization,including amortization of contract costs251,767268,504 Other operating(income)expense,net(8,742)(9,820)Gain on securities,net(other than Financial Services segment)(14,189)(31,406)Share of loss of investments accounted for using the equity method,net of dividends2,2755,122 Changes in assets and liabilities:(Increase)decrease in trade receivables and contract assets(11,342)165,792Increase in inventories(283,152)(123,840)Increase in investments and advances in the Financial Services segment(560,038)(633,041)Increase in content assets(137,465)(257,588)Increase in trade payables174,512132,780Increase in insurance contract liabilities,net of insurance contract assets561,732341,752Increase in deposits from customers in the banking business144,11935,540Decrease in borrowings in the life insurance business and the banking business(54,691)(41,126)Increase(decrease)in taxes payable other than income taxes,net20,014(3,893)Increase in other financial assets and other current assets(34,283)(41,010)Decrease in other financial liabilities and other current liabilities(130,303)(113,984)Income taxes paid(121,147)(109,918)Other(87,770)(27,016)Net cash used in operating activities(12,669)(126,285)Condensed Quarterly Consolidated Statements of Cash Flows(Continued on the following page.)-7-Yen in millionsThree months ended June 3020232024 Cash flows from investing activities:Payments for property,plant and equipment and other intangible assets(130,501)(211,780)Proceeds from sales of property,plant and equipment and other intangible assets6,2355,619Payments for investments and advances(other than Financial Services segment)(21,319)(15,747)Proceeds from sales or return of investments and collections of advances (other than Financial Services segment)4,41030,896Payments for purchases of businesses and other(59,480)(169,794)Proceeds from sales of businesses-1,609Other2,00875Net cash used in investing activities(198,647)(359,122)Cash flows from financing activities:Increase in short-term borrowings,net294,03924,983Proceeds from issuance of long-term debt5,5996,276Payments of long-term debt(28,414)(30,091)Dividends paid(48,955)(54,451)Payments for purchases of treasury stock(10,150)(51,255)Capital contribution from non-controlling interests-109,527Other1,748(3,457)Net cash provided by financing activities213,8671,532 Effect of exchange rate changes on cash and cash equivalents48,64853,860 Net increase(decrease)in cash and cash equivalents51,199(430,015)Cash and cash equivalents at beginning of the fiscal year1,480,9001,907,113 Cash and cash equivalents at end of the period1,532,0991,477,098Condensed Quarterly Consolidated Statements of Cash Flows(Continued)-8-Yen in millionsThree months ended June 3020232024ChangeSales and financial services revenue:Game&Network Services-Customers755,003844,28889,285Intersegment16,87720,6233,746Total771,880864,91193,031Music-Customers355,756435,72679,970Intersegment2,4736,2963,823Total358,229442,02283,793Pictures-Customers320,178336,55616,378Intersegment188790602Total320,366337,34616,980Entertainment,Technology&Services-Customers563,292594,17930,887Intersegment8,4916,736(1,755)Total571,783600,91529,132Imaging&Sensing Solutions-Customers270,476333,30862,832Intersegment22,26420,172(2,092)Total292,740353,48060,740Financial Services-Customers679,109446,288(232,821)Intersegment2,3022,3075Total681,411448,595(232,816)All Other-Customers16,40218,9332,531Intersegment3,0912,157(934)Total19,49321,0901,597Corporate and elimination(52,250)(56,710)(4,460)Consolidated total2,963,6523,011,64947,997Notes to Condensed Quarterly Consolidated Financial StatementsBusiness Segment Information(Business Segments)Segment sales and financial services revenueGame&Network Services(“G&NS”)intersegment amounts primarily consist of transactions with the Entertainment,Technology&Services(“ET&S”)segment.ET&S intersegment amounts primarily consist of transactions with the G&NS segment.Imaging&Sensing Solutions(“I&SS”)intersegment amounts primarily consist of transactions with the G&NS segment and the ET&S segment.Corporate and elimination includes certain brand and patent royalty income.-9-Yen in millionsThree months ended June 3020232024ChangeOperating income(loss):Game&Network Services49,16065,20916,049Music73,38085,89312,513Pictures15,97111,308(4,663)Entertainment,Technology&Services55,64664,0838,437Imaging&Sensing Solutions12,73136,64723,916Financial Services54,51429,985(24,529)All Other2,4751,275(1,200)Total263,877294,40030,523Corporate and elimination(10,835)(15,294)(4,459)Consolidated operating income253,042279,10626,064Segment profit(loss)Operating income(loss)is sales and financial services revenue less costs and expenses,and includes the share of profit(loss)of investments accounted for using the equity method.-10-Yen in millionsThree months ended June 30Sales and financial services revenue:20232024ChangeGame&Network ServicesDigital Software and Add-on Content365,346432,75267,406Network Services124,499159,34634,847Hardware and Others265,158252,190(12,968)Total755,003844,28889,285MusicRecorded Music-Streaming164,887196,66331,776Recorded Music-Others72,885102,61629,731Music Publishing75,13996,67621,537Visual Media and Platform42,84539,771(3,074)Total355,756435,72679,970PicturesMotion Pictures125,504133,0347,530Television Productions104,23194,285(9,946)Media Networks90,443109,23718,794Total320,178336,55616,378Entertainment,Technology&ServicesTelevisions135,982129,124(6,858)Audio and Video89,14997,3218,172Still and Video Cameras161,874192,45330,579Mobile Communications87,36281,041(6,321)Other88,92594,2405,315Total563,292594,17930,887Imaging&Sensing Solutions270,476333,30862,832Financial Services679,109446,288(232,821)All Other16,40218,9332,531Corporate3,4362,371(1,065)Consolidated total2,963,6523,011,64947,997(Sales to Customers by Product Category)The following table is a breakdown of sales and financial services revenue to external customers by product category for each segment.Sony management views each segment as a single operating segment.In the G&NS segment,Digital Software and Add-on Content includes distribution of software titles and add-on content through the network;Network Services includes network services relating to game,video and music content;Hardware and Others includes home gaming consoles,packaged software,game software sold bundled with home gaming consoles,peripheral devices and first-party software for third-party platforms.In the Music segment,Recorded Music-Streaming includes the distribution of digital recorded music by streaming;Recorded Music-Others includes the distribution of recorded music by physical media and digital download as well as revenue derived from artists live performances and merchandising;Music Publishing includes the management and licensing of the words and music of songs;Visual Media and Platform includes the production and distribution of animation titles and game applications,and various service offerings for music and visual products.In the Pictures segment,Motion Pictures includes the worldwide production,acquisition and distribution of live-action and animated motion pictures;Television Productions includes the production,acquisition and distribution of television programming;Media Networks includes the operation of television networks and direct-to-consumer streaming services worldwide.In the ET&S segment,Televisions includes LCD and OLED televisions;Audio and Video includes Blu-ray disc players and recorders,home audio,headphones and memory-based portable audio devices;Still and Video Cameras includes interchangeable lens cameras,compact digital cameras,consumer video cameras and video cameras for broadcast;Mobile Communications includes smartphones and an internet-related service business;Other includes display products such as projectors and medical equipment.-11-Yen in millionsFinancial ServicesSony withoutFinancial ServicesConsolidatedMarch 31,2024June 30,2024March 31,2024June 30,2024March 31,2024June 30,2024 ASSETSCurrent assets:Cash and cash equivalents913,815 630,317 993,298 846,781 1,907,113 1,477,098Investments and advances in the Financial Services segment398,153412,275-398,153412,275Trade and other receivables,and contract assets127,016148,2742,033,1701,934,8782,158,1962,080,143Inventories-1,518,6441,692,7091,518,6441,692,709Other financial assets57,25451,27568,11176,382125,365127,656Other current assets50,48764,444625,539709,232669,335765,856 Total current assets1,546,7251,306,5855,238,7625,259,9826,776,8066,555,737Non-current assets:Investments accounted for using the equity method4,9054,943418,839424,185423,744429,128Investments and advances in the Financial Services segment18,939,79418,959,272-18,939,79418,959,272Investments in Financial Services,at cost-550,483550,483-Property,plant and equipment14,16213,8981,508,1511,582,4661,522,6401,596,690Right-of-use assets76,28878,259428,224499,555503,395576,710Goodwill and intangible assets,including content assets77,32376,9243,953,4924,487,2924,030,8154,564,216Deferred tax assets-520,613511,748499,550507,971Other financial assets52,88253,981848,599895,754897,341945,587Other non-current assets165,049165,158421,258450,075513,405542,498 Total non-current assets19,330,40319,352,4358,649,6599,401,55827,330,68428,122,072 Total assets20,877,128 20,659,020 13,888,421 14,661,540 34,107,490 34,677,809 LIABILITIES AND EQUITYCurrent liabilities:Short-term borrowings1,802,337 1,774,775 227,979 263,491 2,030,316 2,038,266Trade and other payables61,15378,3292,005,1122,177,2762,064,9052,252,860Deposits from customers in the banking business3,670,5673,690,958-3,670,5673,690,958Income taxes payables10,0502,973142,02488,270152,07491,243Participation and residual liabilities in the Pictures segment-251,743264,049251,743264,049Other financial liabilities77,52379,92638,52250,395116,044130,321Other current liabilities209,555216,7971,704,1581,690,5001,906,3961,899,211 Total current liabilities5,831,1855,843,7584,369,5384,533,98110,192,04510,366,908Non-current liabilities:Long-term debt703,106691,6971,355,0111,443,1472,058,1172,134,844Defined benefit liabilities39,28439,221208,299213,133247,583252,354Deferred tax liabilities36,36818,599165,877179,880166,424179,817Insurance contract liabilities12,931,99512,776,766-12,931,99512,776,766Participation and residual liabilities in the Pictures segment-206,081220,842206,081220,842Other financial liabilities214,414228,456175,263189,688386,761415,208Other non-current liabilities7,6077,557176,767196,356162,379182,111 Total non-current liabilities13,932,77413,762,2962,287,2982,443,04616,159,34016,161,942 Total liabilities19,763,95919,606,0546,656,8366,977,02726,351,38526,528,850Equity:Stockholders equity of Financial Services1,113,1691,052,966-Stockholders equity of Sony without Financial Services-7,062,6577,393,006-Sony Group Corporations stockholders equity-7,587,1777,857,452Noncontrolling interests-168,928291,507168,928291,507 Total equity1,113,1691,052,9667,231,5857,684,5137,756,1058,148,959 Total liabilities and equity20,877,128 20,659,020 13,888,421 14,661,540 34,107,490 34,677,809(Condensed Quarterly Financial Services Financial Statements)The following schedules show unaudited condensed quarterly financial statements for the Financial Services segment and all other segments excluding Financial Services.These presentations are not in accordance with IFRS Accounting Standards,which is used by Sony to prepare its condensed quarterly consolidated financial statements.However,because the Financial Services segment is different in nature from Sonys other segments,Sony believes that a comparative presentation may be useful in understanding and analyzing Sonys condensed quarterly consolidated financial statements.Both financial statements include transactions between the Financial Services segment and Sony without the Financial Services segment.The figures shown in the respective presentations for the Financial Services segment and Sony without the Financial Services segment are prior to the elimination and/or offset of such transactions and deferred tax assets and deferred tax liabilities of each.The consolidated column is presented net of the elimination and/or offset of such intercompany balances and deferred tax assets and liabilities.Condensed Quarterly Statements of Financial Position-12-Yen in millionsThree months ended June 30Financial ServicesSony withoutFinancial ServicesConsolidated202320242023202420232024Sales-2,285,7892,567,4362,284,5432,565,361Financial services revenue681,411448,595-679,109446,288Total sales and financial services revenue681,411448,5952,285,7892,567,4362,963,6523,011,649Cost of sales-1,627,5621,786,6031,624,5101,784,389Selling,general and administrative-473,129543,274474,939543,414Financial services expenses626,846418,561-624,543416,254Other operating(income)expense,net5187(8,793)(9,909)(8,742)(9,820)Total costs and expenses626,897418,6482,091,8982,319,9682,715,2502,734,237Share of profit(loss)of investments accounted for using the equity method-384,6401,6564,6401,694Operating income54,51429,985198,531249,124253,042279,106Financial income(expenses),net-73,02837,76122,99237,761Income before income taxes54,51429,985271,559286,885276,034316,867Income taxes15,9058,50042,18772,67058,09281,039Net income38,60921,485229,372214,215217,942235,828 Net income of Financial Services38,45821,485-Net income of Sony without Financial Services-229,126210,025-Net income attributable to Sony Group Corporations stockholders-217,545231,638 Net income attributable to noncontrolling interests151-2464,1903974,190Condensed Quarterly Statements of Income-13-Yen in millionsThree months ended June 30Financial ServicesSony withoutFinancial ServicesConsolidated202320242023202420232024Cash flows from operating activities:Income(loss)before income taxes54,51429,985271,559286,885276,034316,867Adjustments to reconcile income(loss)before income taxes to net cash provided by(used in)operating activities:Depreciation and amortization,including amortization of contract costs6,9156,830244,852261,674251,767268,504Other operating(income)expense,net5187(8,793)(9,909)(8,742)(9,820)(Gain)loss on securities,net(other than Financial Services segment)-(14,189)(31,406)(14,189)(31,406)Changes in assets and liabilities:(Increase)decrease in trade receivables and contract assets(21,911)(21,258)13,650186,030(11,342)165,792(Increase)decrease in inventories-(283,152)(123,840)(283,152)(123,840)(Increase)decrease in investments and advances in the Financial Services segment(560,038)(633,041)-(560,038)(633,041)(Increase)decrease in content assets-(137,465)(257,588)(137,465)(257,588)Increase(decrease)in trade payables(3,391)21,238174,965112,972174,512132,780Increase(decrease)in insurance contract liabilities,net of insurance contract assets561,732341,752-561,732341,752Increase(decrease)in deposits from customers in the banking business144,11935,540-144,11935,540Increase(decrease)in borrowings in the life insurance business and the banking business(54,691)(41,126)-(54,691)(41,126)Increase(decrease)in taxes payable other than income taxes,net27,99573(7,981)(3,966)20,014(3,893)Other(37,230)(13,287)(334,115)(273,888)(371,228)(286,806)Net cash provided by(used in)operating activities118,065(273,207)(80,669)146,964(12,669)(126,285)Cash flows from investing activities:Payments for property,plant and equipment and other intangible assets(5,602)(7,613)(124,929)(204,212)(130,501)(211,780)Payments for investments and advances(other than Financial Services segment)-(21,319)(15,747)(21,319)(15,747)Proceeds from sales or return of investments and collections of advances(other than Financial Services segment)-4,41030,8964,41030,896Other1(182)(51,238)(162,309)(51,237)(162,491)Net cash provided by(used in)investing activities(5,601)(7,795)(193,076)(351,372)(198,647)(359,122)Cash flows from financing activities:Increase(decrease)in borrowings,net(2,671)(2,614)273,8953,783271,2241,168Dividends paid(50,037)-(48,955)(54,451)(48,955)(54,451)Other(1)118(8,399)54,699(8,402)54,815 Net cash provided by(used in)financing activities(52,709)(2,496)216,5414,031213,8671,532Effect of exchange rate changes on cash and cash equivalents-48,64853,86048,64853,860Net increase(decrease)in cash and cash equivalents59,755(283,498)(8,556)(146,517)51,199(430,015)Cash and cash equivalents at beginning of the fiscal year756,493913,815724,407993,2981,480,9001,907,113Cash and cash equivalents at end of the period816,248630,317715,851846,7811,532,0991,477,098Condensed Quarterly Statements of Cash Flows-14-Going Concern AssumptionNot ApplicableYen in millionsThree months ended June 3020232024Net income attributable to Sony Group Corporations stockholders for basic and diluted EPS computation217,545231,638Thousands of sharesThree months ended June 3020232024Weighted-average shares outstanding for basic EPS computation1,234,2421,219,770Effect of dilutive securities:Stock options3,9092,787Restricted stock units212249Weighted-average shares for diluted EPS computation1,238,3631,222,806Accounting Policy and Other Information(Changes in accounting policies)Sony newly adopted the following accounting standards from the fiscal year ending March 31,2025:Amendments to IAS 1“Presentation of Financial Statements”In January 2020,the International Accounting Standards Board(“IASB”)issued“Classification of Liabilities as Current or Non-current(Amendments to IAS 1).”The amendments clarify the right of a company to defer settlement of a liability,which is one of the existing requirements when classifying a liability to current or non-current.In addition,in October 2022,the IASB issued“A Non-current Liability with Covenants(Amendments to IAS 1).”The amendments require companies to disclose information about covenants in order for investors to understand the risk that such non-current debt with covenants could become repayable within twelve months.Both of these amendments were effective for Sony as of April 1,2024.The adoption of these amendments has no material impact on Sonys results of operations and financial position.Amendments to IAS 7“Statement of Cash Flows”and IFRS 7“Financial Instruments:Disclosures”In May 2023,the IASB issued“Supplier Finance Arrangements(Amendments to IAS 7 and IFRS 7).”These amendments require companies to disclose information about supplier finance arrangements and were effective for Sony as of April 1,2024.Since these amendments only affect disclosures,they have no impact on Sonys results of operations and financial position.(Net Income Attributable to Sony Group Corporations Stockholders and Weighted-average Number of Outstanding Shares Used for the Computation of EPS of Common Stock)(Segmentation)The G&NS segment includes the network services businesses,the manufacture and sales of home gaming products and the production and sales of digital software and add-on content.The Music segment includes the Recorded Music,Music Publishing and Visual Media and Platform businesses.The Pictures segment includes the Motion Pictures,Television Productions and Media Networks businesses.The ET&S segment includes the Televisions business,the Audio and Video business,the Still and Video Cameras business,the smartphone business and the internet-related service business.The I&SS segment includes the image sensors business.The Financial Services segment primarily represents individual life insurance and non-life insurance businesses and the banking business in Japan.All Other consists of various operating activities,including the disc manufacturing and recording media businesses.Sonys products and services are generally unique to a single operating segment.-15-(i)Total number of issued shares before stock split:1,248,619,589 shares(ii)Number of shares to be increased by stock split:4,994,478,356 shares(iii)Total number of issued shares following stock split:6,243,097,945 shares(iv)Total number of authorized shares following stock split:18,000,000,000 shares(i)Public notice of record date:September 13,2024(ii)Record date:September 30,2024(iii)Effective date:October 1,2024YenThree months ended June 3020232024Basic net income attributable to Sony Group Corporations stockholders per share35.2537.98Diluted net income attributable to Sony Group Corporations stockholders per share35.1337.89(Supplemental cash flow information)During the three months ended June 30,2024,Sony established a new joint venture in the Music segment with a third party partner,which acquired interests in companies that own certain music and other assets(the“target companies”),and Sony also acquired music assets directly from other rights holders.Sony consolidated the joint venture through Sonys majority interest and reflected the consideration of 133,064 million yen for the acquisition of the interests in the target companies in cash flows from investing activities as“Payments for purchases of businesses and other.”Sony primarily recognized 116,289 million yen of content assets(music catalogs)and 11,501 million yen of other intangible assets from the acquisition of the interests in the target companies.The acquisition of the interests in the target companies is accounted for as an acquisition of a group of assets that does not constitute a business.The content assets(music catalogs)directly acquired from other rights holders were recorded in cash flows from operating activities as“Increase in content assets.”(Stock Split)Sony Group Corporation approved the implementation of a stock split of its common stock as follows at the meeting of its Board of Directors held on May 14,2024.1.Method of Stock SplitEach share of Sony Group Corporations common stock owned by shareholders whose names appear on the register of shareholders as of the close of the record date of September 30,2024,will be split into five(5)shares per share.2.Number of shares to be increased by Stock Split*Total number of issued shares shown above is based on the total number of issued shares as of July 31,2024,and may increase by the record date of the stock split due to the exercise of stock acquisition rights.3.Schedule of Stock Split4.Partial Amendment to Articles of IncorporationSony Group Corporation plans to amend its Articles of Incorporation to increase the total number of shares authorized to be issued by Sony Group Corporation from 3.6 billion to 18.0 billion,in accordance with Article 184,Paragraph 2 of the Companies Act of Japan,effective on October 1,2024,which is the effective date of the stock split.5.Impact on per share informationPer share information assuming that the stock split was implemented at the beginning of the three months ended June 30,2023,would be as follows.-16-Overview of Operating ResultsFor the overview of operating results for the three months ended June 30,2024,including the forecast for the fiscal year ending March 31,2025,please refer to“Q1 FY2024 Consolidated Financial Results”(the presentation material for the earnings announcement)disclosed on the same date as this document on the TDnet of the TSE,the EDGAR system of the U.S.SEC and the website of Sony Group Corporation.(i)Sonys ability to maintain product quality and customer satisfaction with its products and services;(ii)Sonys ability to continue to design and develop and win acceptance of,as well as achieve sufficient cost reductions for,its products and services,including image sensors,game and network platforms,smartphones and televisions,which are offered in highly competitive markets characterized by severe price competition and continual new product and service introductions,rapid development in technology and subjective and changing customer preferences;(iii)Sonys ability to implement successful hardware,software,and content integration strategies,and to develop and implement successful sales and distribution strategies in light of new technologies and distribution platforms;(iv)the effectiveness of Sonys strategies and their execution,including but not limited to the success of Sonys acquisitions,joint ventures,investments,capital expenditures,restructurings and other strategic initiatives;(v)changes in laws,regulations and government policies in the markets in which Sony and its third-party suppliers,service providers and business partners operate,including those related to taxation,as well as growing consumer focus on corporate social responsibility;(vi)Sonys continued ability to identify the products,services and market trends with significant growth potential,to devote sufficient resources to research and development,to prioritize investments and capital expenditures correctly and to recoup its investments and capital expenditures,including those required for technology development and product capacity;(vii)Sonys reliance on external business partners,including for the procurement of parts,components,software and network services for its products or services,the manufacturing,marketing and distribution of its products,and its other business operations;(viii)the global economic and political environment in which Sony operates and the economic and political conditions in Sonys markets,particularly levels of consumer spending;(ix)Sonys ability to meet operational and liquidity needs as a result of significant volatility and disruption in the global financial markets or a ratings downgrade;(x)Sonys ability to forecast demands,manage timely procurement and control inventories;(xi)foreign exchange rates,particularly between the yen and the U.S.dollar,the euro and other currencies in which Sony makes significant sales and incurs production costs,or in which Sonys assets,liabilities and operating results are denominated;(xii)Sonys ability to recruit,retain and maintain productive relations with highly skilled personnel;(xiii)Sonys ability to prevent unauthorized use or theft of intellectual property rights,to obtain or renew licenses relating to intellectual property rights and to defend itself against claims that its products or services infringe the intellectual property rights owned by others;(xiv)the impact of changes in interest rates and unfavorable conditions or developments(including market fluctuations or volatility)in the equity and bond markets on the revenue and operating income of the Financial Services segment;(xv)shifts in customer demand for financial services such as life insurance and Sonys ability to conduct successful asset liability management in the Financial Services segment;(xvi)risks related to catastrophic disasters,geopolitical conflicts,pandemic disease or similar events;(xvii)the ability of Sony,its third-party service providers or business partners to anticipate and manage cybersecurity risk,including the risk of unauthorized access to Sonys business information and the personally identifiable information of its employees and customers,potential business disruptions or financial losses;and(xviii)the outcome of pending and/or future legal and/or regulatory proceedings.Cautionary StatementStatements made in this material with respect to Sonys current plans,estimates,strategies and beliefs and other statements that are not historical facts are forward-looking statements about the future performance of Sony.Forward-looking statements include,but are not limited to,those statements using words such as“believe,”“expect,”“plans,”“strategy,”“prospects,”“forecast,”“estimate,”“project,”“anticipate,”“aim,”“intend,”“seek,”“may,”“might,”“could”or“should,”and words of similar meaning in connection with a discussion of future operations,financial performance,events or conditions.From time to time,oral or written forward-looking statements may also be included in other materials released to the public.These statements are based on managements assumptions,judgments and beliefs in light of the information currently available to it.Sony cautions investors that a number of important risks and uncertainties could cause actual results to differ materially from those discussed in the forward-looking statements,and therefore investors should not place undue reliance on them.Investors also should not rely on any obligation of Sony to update or revise any forward-looking statements,whether as a result of new information,future events or otherwise.Sony disclaims any such obligation.Risks and uncertainties that might affect Sony include,but are not limited to:Risks and uncertainties also include the impact of any future events with material adverse impact.The continued impact of developments relating to the situations in Ukraine and Russia and in the Middle East could heighten many of the risks and uncertainties noted above.Important information regarding risks and uncertainties is also set forth in Sonys most recent Form 20-F,which is on file with the U.S.Securities and Exchange Commission.-17-
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INTERIM REPORT2024CONTENTS2Company Profile4Principal Financial Data and Indicators8Chairmans Address10Business Review and Prospects14Managements Discussion and Analysis25Corporate Governance28Environment and Social Responsibilities31Significant Events41Changes in Share Capital and Shareholdings of Shareholders44Bond General Information46Financial Statements152Documents for InspectionThis interim report contains forward-looking statements.All statements,other than statements of historical facts,that address business activities,events or developments that the Company expects or anticipates will or may occur in the future(including,but not limited to projections,targets,reserves and other estimates and business plans)are forward-looking statements.The actual results or developments of the Company may differ materially from those forward-looking statements as a result of various factors and uncertainties.These forward-looking statements do not constitute substantial commitments made by the Company to investors.The investors and relevant parties should be aware of the risks involved and should understand that plans and projections differ from commitments.The Company makes the forward-looking statements referred to herein as at 23 August 2024 and,unless otherwise required by the relevant regulatory authorities,undertakes no obligation to update these statements.Company Profile2CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 2024COMPANY PROFILEIMPORTANT NOTICE:THE BOARD OF DIRECTORS(BOARD)AND SUPERVISORY COMMITTEE OF SINOPEC CORP.AND ITS DIRECTORS,SUPERVISORS AND SENIOR MANAGEMENT WARRANT THAT THERE ARE NO FALSE REPRESENTATIONS,MISLEADING STATEMENTS OR MATERIAL OMISSIONS CONTAINED IN THIS INTERIM REPORT,AND SEVERALLY AND JOINTLY ACCEPT FULL RESPONSIBILITY FOR THE AUTHENTICITY,ACCURACY AND COMPLETENESS OF THE INFORMATION CONTAINED IN THIS INTERIM REPORT.THERE IS NO OCCUPANCY OF NON-OPERATING FUNDS BY THE CONTROLLING SHAREHOLDER OF SINOPEC CORP.OR OTHER RELATED PARTY.MR.MA YONGSHENG,CHAIRMAN OF THE BOARD,MR.ZHAO DONG,VICE CHAIRMAN OF THE BOARD AND PRESIDENT,AND MS.SHOU DONGHUA,CHIEF FINANCIAL OFFICER AND HEAD OF CORPORATE ACCOUNTING DEPARTMENT WARRANT THE AUTHENTICITY,ACCURACY AND COMPLETENESS OF THE INTERIM FINANCIAL STATEMENTS CONTAINED IN THIS INTERIM REPORT.THE AUDIT COMMITTEE OF SINOPEC CORP.HAS REVIEWED THE INTERIM REPORT OF SINOPEC CORP.FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2024.THE INTERIM FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2024 OF THE COMPANY,PREPARED IN ACCORDANCE WITH THE ACCOUNTING STANDARDS FOR BUSINESS ENTERPRISES(CASs)OF THE PEOPLES REPUBLIC OF CHINA(PRC),AND IFRS ACCOUNTING STANDARDS,HAVE NOT BEEN AUDITED.COMPANY PROFILESinopec Corp.s H shares were listed in Hong Kong Stock Exchange on 18 October 2000 and A shares were listed in the Shanghai Stock Exchange on 8 August 2001.Sinopec Corp.is one of the largest integrated energy and chemical companies in China.Its principal operations include the exploration and production,pipeline transportation and sale of petroleum and natural gas;the production,sale,storage and transportation of refinery products,petrochemical products,coal chemical products,synthetic fibre,and other chemical products;the import and export,including an import and export agency business,of petroleum,natural gas,petroleum products,petrochemical and chemical products,and other commodities and technologies;research,development and application of technologies and information;hydrogen energy business and related services such as hydrogen production,storage,transportation and sales;battery charging and swapping,solar energy,wind energy and other new energy business and related services.DEFINITIONSIn this interim report,unless the context otherwise requires,the following terms shall have the meanings set out below:Sinopec Corp.:China Petroleum&Chemical Corporation;Company:Sinopec Corp.and its subsidiaries;China Petrochemical Corporation:The controlling shareholder of Sinopec Corp.,China Petrochemical Corporation;Sinopec Group:China Petrochemical Corporation and its subsidiaries;Sinopec Finance Co.:Sinopec Finance Co.,Ltd.;Century Bright:Sinopec Century Bright Capital Investment Ltd.;Hong Kong Stock Exchange:The Stock Exchange of Hong Kong Limited;Hong Kong Listing Rules:Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.CONVERSIONSFor domestic production of crude oil:1 tonne=7.1 barrels;For overseas production of crude oil:1 tonne=7.25 barrels in first half of 2024;1 tonne=7.26 barrels in first half of 2023;For production of natural gas:1 cubic meter=35.31 cubic feet;Refinery throughput:1 tonne=7.35 barrels.Company Profile3CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 2024BASIC INFORMATIONLEGAL NAME中國石油化工股份有限公司CHINESE ABBREVIATION中國石化ENGLISH NAMEChina Petroleum&Chemical CorporationENGLISH ABBREVIATIONSinopec Corp.LEGAL REPRESENTATIVEMr.Ma YongshengAUTHORISED REPRESENTATIVES UNDER THE HONG KONG LISTING RULESMr.Zhao DongMr.Huang WenshengSECRETARY TO THE BOARDMr.Huang WenshengREPRESENTATIVE ON SECURITIES MATTERSMr.Zhang ZhengREGISTERED ADDRESS,PLACE OF BUSINESS AND CORRESPONDENCE ADDRESS22 Chaoyangmen North Street,Chaoyang District,Beijing,ChinaPostcode:100728Tel:86-10-59960028Fax:86-10-59960386Website:http:/E-mail:CHANGE OF INFORMATION DISCLOSURE MEDIA AND ACCESS PLACESDuring the reporting period,there was no change to Sinopec Corp.s information disclosure media and access place.PLACES OF LISTING OF SHARES,STOCK NAMES AND STOCK CODESA Shares:Shanghai Stock Exchange Stock name:中國石化 Stock code:600028H Shares:Hong Kong Stock Exchange Stock short name:SINOPEC CORP Stock code:00386CHANGE OF REGISTERED ADDRESS IN THE REPORTING PERIODDuring the reporting period,there was no change to Sinopec Corp.s registered address.Principal Financial Data and Indicators4CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 2024PRINCIPAL FINANCIAL DATA AND INDICATORS1.FINANCIAL DATA AND INDICATORS PREPARED IN ACCORDANCE WITH CASs(1)Principal financial dataChangeover the sameSix-month period ended 30 Juneperiod of thepreceding year(%)Items2024RMB million2023RMB millionOperating income1,576,1311,593,682(1.1)Net profit attributable to shareholders of the Company35,70335,1111.7Net profit attributable to shareholders of the Company excluding extraordinary gains and losses35,58233,6555.7Net cash flow from operating activities42,26927,56253.4As of30 June2024RMB millionAs of31 December2023RMB millionChangefrom the endof last year(%)Total equity attributable to shareholders of the Company828,140805,7942.8Total assets2,141,9362,026,6745.7(2)Principal financial indicatorsChangeover the sameSix-month period ended 30 Juneperiod of thepreceding year(%)Items2024RMB2023RMBBasic earnings per share0.2960.2931.0Diluted earnings per share0.2960.2931.0Basic earnings per share(excluding extraordinary gains and losses)0.2950.2815.0Weighted average return on net assets(%)4.37 4.43(0.06)percentage pointsWeighted average return(excluding extraordinary gains and losses)on net assets(%)4.36 4.25 0.11 percentage points(3)Non-recurring profit/loss items and corresponding amountsItemsSix-month periodended 30 June 2024(profit)/lossRMB millionNet profit on disposal of non-current assets(219)Donations40Government grants(683)Gains on holding and disposal of various investments(265)Other non-operating income and expenses,net837Subtotal(290)Tax effect82Total(208)Attributable to：Shareholders of the Company(121)Non-controlling interests(87)Principal Financial Data and Indicators5CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 2024(4)Significant changes of items in the financial statementsThe table below sets forth reasons for those changes where the fluctuation was more than 30%during the reporting period:As ofAs ofItems of ConsolidatedBalance Sheet30 June2024RMB million31 December2023RMB millionIncrease/(Decrease)Main reasons for changesAmountRMB millionPercentage(%)Financial assets held for trading4 3 1 33.3 Impact of changes in fair value of funds held by the Company.Accounts receivable 76,746 48,652 28,094 57.7 Increase in both the accounts receivable and payable due to the increase in international crude oil price and sales volume of the overseas refined oil products and fuel oil.Receivables financing4,9672,2212,746123.6Bills payable35,72129,1226,59922.7Accounts payable 251,741 229,878 21,863 9.5 Prepayments 9,090 5,067 4,023 79.4 Increase in prepayments for procurements including crude oil due to increase in international crude oil price.Employee benefits payable 21,284 13,941 7,343 52.7 Impact of changes in performance-based salary payable.Non-current liabilities due within one year 71,766 30,457 41,309 135.6 Certain long-term loans and debentures payable being reclassified to non-current liabilities due within one year.Other current liabilities 33,327 20,833 12,494 60.0 Impact of super short-term commercial paper issued during the reporting period.Other comprehensive income 2,008 3,060(1,052)(34.4)Impact of changes in fair value of hedging business.Specific reserve 3,384 2,597 787 30.3 Increase in accrued safety production expenses during the reporting period.Principal Financial Data and Indicators6CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 2024PRINCIPAL FINANCIAL DATA AND INDICATORS(CONTINUED)Forsix-monthperiod endedForsix-monthperiod endedItems of ConsolidatedIncome Statement30 June2024RMB Million30 June2023RMB MillionIncrease/(Decrease)Main reasons for changesAmountRMB MillionPercentage(%)Financial expenses 6,275 4,790 1,485 31.0 Increase in net exchange loss on foreign currency loan and loan interest expenses due to increase in scale of interest bearing debt.Investment income 7,565 3,291 4,274 129.9 Increase in the profit of associates and joint ventures.(Losses)/gains from changes in fair value(1,275)1,475(2,750)Impact of increase in floating loss of hedging business.Credit impairment reversals/(losses)23 (35)58 Increase in bad debt reversal of accounts receivables during the reporting period.Asset disposal gains 219 869 (650)(74.8)Disposal of some pipeline network assets in the first half of previous year,which did not happen during the reporting period.Items of Consolidated Cash Flow StatementForsix-monthperiod ended30 June2024RMB Million Forsix-monthperiod ended30 June2023RMB MillionMain reasons for changesIncrease/(Decrease)AmountRMB MillionPercentage(%)Refund of taxes and levies 3,399 5,978 (2,579)(43.1)Decrease in VAT refunds on imported LNG during the reporting period year on year due to decrease in imported LNG price.Cash received from disposal of investments 40 391 (351)(89.8)Cash received from sale of equity in the first half of previous year,which did not happen during the reporting period.Net cash received from disposal of fixed assets,intangible assets and other long-term assets1,436 3,584 (2,148)(59.9)Disposal of fixed assets decreased year-on-year.Cash paid for acquisition and construction of fixed assets,intangible assets and other long-term assets (58,134)(87,581)29,447 (33.6)Payment for exploration right in the first half of previous year,which did not happen during the reporting period and year-on-year decrease in cash paid due to the mechanical completion of Nangang ethylene project.Cash received from capital contributions12,883 279 12,604 4,517.6 Proceeds received from the issue of shares to the target subscriber.Cash paid for dividends,profits distribution or interest(4,789)(29,860)25,071(84.0)Impact of time difference in dividend distribution.Principal Financial Data and Indicators7CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 20242 FINANCIAL DATA AND INDICATORS PREPARED IN ACCORDANCE WITH IFRS ACCOUNTING STANDARDS(1)Principal financial dataItemsChangeover the sameperiod of thepreceding year(%)Six-month period ended 30 June2024RMB million2023RMB millionOperating profit51,02153,696(5.0)Profit attributable to shareholders of the Company37,07936,1222.6Net cash generated from operating activities42,26927,56253.4As of30 June2024RMB millionAs of31 December2023RMB millionChangefrom the endof last year(%)Total equity attributable to shareholders of the Company825,925802,9892.9Total assets2,140,5242,024,6965.7(2)Principal financial indicatorsItemsChangeover the sameperiod of thepreceding year(%)Six-month period ended 30 June2024RMB2023RMBBasic earnings per share0.3070.3012.0Diluted earnings per share0.3070.3012.0Return on capital employed(%)4.30 4.22 0.08 percentage pointsChairmans Address8CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 2024CHAIRMANS ADDRESSDear shareholders and friends:Sinopec Corp.elected the members for new session of the Board and the Supervisory Committee in June this year.Thanks to the trust from shareholders and the support from the Directors,I was elected to be the Chairman of the 9th session of the Board.It is a great honor for me to take up this position with great responsibilities,and I will continue to carry out my duties faithfully and diligently,leading Sinopec Corp.to achieve new progress in various areas.Over the years,under the leadership of successive sessions of the Board,Supervisory Committee and management,the Company has coordinated the entire staff to make joint efforts to overcome difficulties,deepen reforms,strengthen management,promote innovations and achieve development.We have excellently accomplished various goals and missions,hence laying a solid foundation for the Companys high-quality growth.It is noteworthy that in recent years,the Company focused on strengthening core competitiveness,deepened the implementation of high-quality development plan,improved enterprise value and brought good returns for shareholders.In the first half of this year,the Company adhered to the principle of seeking progress in a steady manner and securing stability through progress,optimized operations in all aspects,spared no efforts to improve development quality and profitability and stabilize growth,and achieved positive progresses in all aspects with good operating results.In accordance with the IFRS Accounting Standards,the Company realized operating revenue of RMB1.58 trillion.The profit attributable to the Companys shareholders amounted to RMB37.1 billion,representing a 2.6%increase year-on-year.Our financial position remained sound along with a significant growth in cash generated from operating activities.Taking into account the Companys profits,shareholders returns and sustainable development,the Board has resolved to distribute an interim cash dividend of RMB0.146 per share(tax inclusive)for the first half of 2024 in accordance with the highest pay-out ratio in the Articles of Association.Currently,Sinopec Corp.is facing unprecedented industrial transition along with invaluable opportunities for development and reform.We will promote high-quality development through comprehensive deepening reforms.We will emphasis on innovation-driven approach,enhance lean management,accelerate transition and upgrading,and put all efforts to overcome difficulties and improve profitability.The Board is fully confident about the future and has formulated the Action of“Corporate Value and Return Enhancement”and the“Dividend Distribution and Return Plan for the Next Three Years”in a practical manner.The Company will focus on improving operational quality and profitability.We will give full play to our integrated advantages,optimize the regional layout and the industrial chain,and tap the potential of system optimization.We will coordinate the entire value chain involving procurement,transportation,production,storage and marketing,further strengthen cost management with the best efforts to meet market demand,bolster our service quality and maximize the overall profits of the industrial chain.For upstream,the Company will insist on high-quality exploration and profit-oriented development.Multiple measures will be taken to reduce the break-even point and improve reserves,stabilize oil output,boost gas production and reduce costs.For refining,the Company will insist on the synergies between production and marketing,flexibly adjust the product mix and the utilization rates to ensure efficient operation of the industrial chain.For marketing,the Company will enhance efforts on targeted marketing,vigorously expand market and sales,and consolidate the market share.For chemical,the Company will adhere to the“basic high-end”strategy and make persistent efforts to expand the target market segments and product segments.We will make every effort to reduce costs,expand market,and enhance profitability and competitiveness.The Company will enhance efforts to promote the transition and upgrading,and cultivate and develop new quality productivity.We will commit ourselves to the innovation-driven strategy,deepen the integration of innovation chain,industrial chain,capital chain and talent chain.We will continue to drive breakthroughs in core technologies,develop original technologies,and support business transition and upgrading,and lay out of strategic emerging businesses.As for upstream,we will promote the high-quality development of key projects such as Shengli-Jiyang Shale Oil National Demonstration Zone and the Deep Earth Project,accelerate the development of natural gas production,supply,storage and marketing system,and improve oil and gas production bases.Besides,the development of a multi-energy complementary system comprising“oil and gas new energies”will be expedited by enhancing efforts to develop new energies such as hydrogen energy,wind power and solar power.As for refining,we will speed up the construction of“high-end,intelligent and green”bases,coordinate the development of low-cost“oil to chemicals”and differentiated“oil to specialties”projects,proactively promote the layout of emerging businesses such as new materials and bio-technology.Obsolete facilities will be replaced or revamped in an orderly manner,hence creating a refining and chemical industrial chain with better performance in safety,intensity,green,intelligence and synergy.As for marketing,we will further optimize the network layout,promote the development of EV battery charging service and gas fueling station network along with the expansion of demonstrating application scenarios for hydrogen mobility.Moreover,the Easy Joy service ecosystem will be optimised in order to sharpen the competitive edges of our integrated energy service network involving“petrol,gas,hydrogen,power and services”.The Company will strive to improve ESG management and promote sustainable development.We will continually improve our corporate governance system and optimize the modern enterprise system.We will enhance the performance of the Board,promote decision-making and lean management level,and implement comprehensive and stringent risk control.At the same time,the Company will proactively respond to the climate change,implement Carbon Peak Action Plan and the second phase of Green Enterprise Campaign Plan in a steady manner.We will also promote the large-scale application of negative emission technologies such as CCUS to realize carbon emission reduction,pollution reduction,green development and growth,and contribute to the green transition of economy and social development.We will actively fulfill our social responsibilities and improve stakeholders satisfaction.By strengthening the ESG system,we will boost the ESG performance and promote our sustainable development.The Company will vigorously enhance the communication with stakeholders and increase the market recognition.Based on investors needs,we will continuously improve the quality of our information disclosures and investor relations work,strengthen the communication with investors and other stakeholders so as to bolster the effectiveness of communication.While making persistent efforts to refine the mechanism for stakeholder consultation and feedback,we will reply to investors enquiries Chairmans Address9CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 2024on a timely basis,protect the legitimate rights and interests of shareholders,especially minority shareholders,enhance their recognition as our shareholders,and improve the enterprise value.The Company emphasis on shareholders return and have remained the continuity and stability of dividend distribution.Since 2022,the Board has reinforced the valuation management and launched the share repurchase both in domestic and overseas markets,which effectively boosted the enterprise value.Going forward,we will continue to repurchase our shares this year.In order to share our achievements with shareholders,the Board proposed a cash dividend payout ratio for the coming three years being not less than 65%.Destinations will be arrived when we aim for it.Objectives will be achieved when we strive for it.I believe that with the strong support of shareholders and the community,together with the joint efforts made by the Board,the Supervisory Committee,the management and our entire staff,Sinopec Corp.will forge ahead with high-quality development,and continuously reward our shareholders and the community.Ma YongshengChairmanBeijing,China23 August 2024Business Review and Prospects10CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 2024BUSINESS REVIEW AND PROSPECTSBUSINESS REVIEWIn the first half of 2024,Chinas economy sustained recovery momentum,registering a GDP growth of 5.0%year on year.Based on our statistics,domestic demand for natural gas increased rapidly with apparent consumption up by 10%year on year.Due to the impact of declining diesel demand,domestic consumption of refined oil products decreased by 0.5%year on year.Domestic demand for chemicals kept growing with ethylene equivalent consumption up by 4.3%year on year.In the first half of 2024,international oil prices fluctuated in a wide range.The average spot price of Platts Brent was USD84.1 per barrel,up by 5.3%year-on-year.60708090100WTI-NYMEXBRENT DTDDUBAIBRENT ICEJan-23Apr-23Jul-23Oct-23Jan-24Apr-24Jul-24Movement of International Crude Oil PricesUSD/Barrel1 PRODUCTION&OPERATIONS(1)Exploration and ProductionIn the first half of 2024,the Company intensified efforts in high quality exploration and profit-oriented development,yielding good results in adding reserves and production,cutting cost and increasing profit.Domestic production for oil and gas equivalents hit record high for the same period.In terms of exploration,we strengthened geophysical,risk and integrated evaluation exploration,and achieved major exploration breakthroughs in shale gas of Sichuan Basin and in the new area of Beibu Gulf Basin.The construction of Shengli Jiyang Shale Oil National Demonstration Zone was promoted efficiently.In terms of crude oil development,we carried forward the key capacity building of offshore Shengli,Tahe and Beibu Gulf,and strengthened fine-tuned development in mature fields.In terms of natural gas development,we progressed with the key capacity building projects in Shunbei Zone Two and West Sichuan marine facies gas.We further enhanced the integrated operation of natural gas production,supply,storage and sales and the profitability of the whole natural gas business chain went up remarkably year on year,recording a new high.The Companys production of oil and gas in the first half of 2024 was 257.66 million barrels of oil equivalent,up by 3.1%year-on-year,among which domestic crude oil production totaled 126.49 million barrels,up by 1.5%year-on-year and natural gas production reached 700.57 billion cubic feet,up by 6.0%year-on-year.Business Review and Prospects11CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 2024Exploration and Production:Summary of Operations Six-month period ended 30 JuneChange 20242023(%)Oil and gas production(mmboe)257.66249.883.1Crude oil production(mmbbls)140.53139.680.6China126.49124.681.5Overseas14.0415.00(6.4)Natural gas production(bcf)700.57660.886.0(2)RefiningIn the first half of the year,facing severe challenges brought by the weak market demand and narrowing margin of certain products,the Company adhered to the integration of production and marketing by closely following market demand,optimized and adjusted utilization rate and product mix and increased the volume of processing based on profitability.We strengthened the synergy among procurement,storage and transportation,and production to reduce procurement cost.We optimised the pace of carrying forward the“oil to chemicals”and“oil to specialties”projects,and produced more market-favored products such as gasoline and jet fuel.Efforts were also made to seize opportunities in overseas market and optimize export scheduling and structure.In the first half of 2024,the Company processed 126.69 million tonnes of crude and produced 77.30 million tonnes of refined oil products,up by 1.6%with gasoline and kerosene output up by 6.6%and 15.2%respectively year on year.Refining:Summary of Operations Unit:million tonnes Six-month period ended 30 JuneChange 20242023(%)Refinery throughput126.69126.540.1Gasoline,diesel and kerosene production77.3076.071.6Gasoline32.3430.336.6Diesel29.3132.15(8.8)Kerosene15.6513.5915.2Light chemical feedstock production19.7921.36(7.4)Note:Includes 100%of production of domestic joint ventures.(3)Marketing and DistributionIn the first half of 2024,the Company actively addressed the challenges of weak diesel demand and rapid growth of electric vehicles.By taking a client-focused approach,we brought our advantages in integrated business into full play and expanded the market through high quality service.We carried out special marketing campaign and differentiated marketing strategy,boosting sales of gasoline and jet fuel.Measures were taken to effectively cement existing marketing network and promote the growth of EV battery charging and gas fueling network with charging volume and vehicle LNG operating volume both going up significantly.We promoted steady development of hydrogen transportation and actively transformed into an integrated energy service provider of petro,gas,hydrogen,power and services.At the same time,we reinforced buildup of proprietary brands,enriched diversified non-fuel business models and upgraded the operating quality.Total sales volume of refined oil products for the first half of the year was 119.01 million tonnes,up by 2.1%year on year,of which total domestic sales volume accounting for 90.14 million tonnes.Business Review and Prospects12CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 2024BUSINESS REVIEW AND PROSPECTS(CONTINUED)Marketing and Distribution:Summary of OperationsSix-month period ended 30 JuneChange20242023(%)Total sales volume of refined oil products(million tonnes)119.01116.602.1Total domestic sales volume of refined oil products(million tonnes)90.1492.47(2.5)Retail(million tonnes)56.9659.76(4.7)Direct sales and Distribution(million tonnes)33.1832.711.4Note:The total sales volume of refined oil products includes the amount of refined oil marketing and trading sales volume.As of 30 June 2024As of 31 December 2023Change from the end of last year(%)Total number of Sinopec-branded service stations30,95930,9580.0Number of convenience stores28,63328,4310.7(4)ChemicalsIn the first half of 2024,the domestic chemical market was still in the cyclical trough.The Company kept up with the market demand and strengthened coordination of refining and chemical business,regional collaboration and integration of production,sales and R&D efforts.We beefed up cost cut and achieved notable results in tapping potential and raising profits.Feedstock was further diversified to lower cost.We also ran profitable units such as aromatics at high utilization,arranged utilization cut as well as operational shutdown for units with negative marginal profits and increased the proportion of high value-added products steadily.In the first half of the year,ethylene production was 6.496 million tonnes.Production for synthetic fibre monomer and polymer was up by 17.8%year on year.We enhanced cooperation with strategic customers,pushed forward tailor-made product services and explored both domestic and overseas markets with export volume up by 17.8%.The total chemical sales volume in the first half of 2024 reached 40.06 million tonnes with all products sold.Major Chemical Products:Production Unit:thousand tonnesSix-month period ended 30 JuneChange20242023(%)Ethylene6,4966,875(5.5)Synthetic resin9,7849,793(0.1)Synthetic fiber monomer and polymer4,5983,90317.8Synthetic fiber63351922.0Synthetic rubber6786701.2Note:Includes 100%of production of domestic joint ventures.2 SAFETY AND HEALTHIn the first half of 2024,the Company continuously improved the HSE management system and ensured professional HSE operation.We implemented the all-staff safety production responsibility system,launched the“Safety Management Enhancement Year”campaign.We strengthened the rectification and elimination of safety risks and potential dangers and maintained the stability of safety production.We promoted the occupational health management system and construction of“A Healthy Company”with health management level going up steadily.3 SCIENCE AND TECHNOLOGY INNOVATIONIn the first half of 2024,the Company further promoted the reform of the science and technology system and mechanism,sought breakthroughs in core technologies,and built national-level R&D institutions for the energy industry,all contributing to better innovation-driven effects.Breakthrough was made in deep and ultra-deep shale gas exploration theory and technology.The shale oil development technology was successfully employed in depression basins such as Jiyang and Northern Jiangsu for building profitable production capacity.We achieved industrial application of strip fluidized bed residue hydrogenation catalyst and put into operation the cyclohexene esterification hydrogenation to cyclohexanone unit.We upgraded the intelligent operation center and intelligent production facilities,and put into use digital applications such as digital twins and 5G technologies.Business Review and Prospects13CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 20244 CAPITAL EXPENDITURESThe Company focuses on the quality and return of investment and continues to optimize projects management.In the first half of the year,total capital expenditures were RMB55.893 billion.Capital expenditure for the exploration and production segment was RMB33.788 billion,mainly for crude oil capacity building in Jiyang and Tahe,natural gas capacity building in West Sichuan and the construction of oil and gas storage and transportation facilities.Capital expenditure for the refining segment was RMB9.201 billion,mainly for Zhenhai expansion,technical upgrading in Guangzhou and Maoming companies.Capital expenditure for the marketing and distribution segment was RMB2.952 billion,mainly for the development of integrated energy station network of petro,gas,hydrogen,power and services,revamping of the existing end-user network and non-fuel business.Capital expenditure for the chemical segment was RMB8.633 billion,mainly for ethylene projects in Zhenhai phase II and Maoming and high-end materials projects etc.Capital expenditure for the corporate and other segment were RMB1.319 billion,mainly for R&D facilities and information technology application projects.BUSINESS OUTLOOKIn the second half of 2024,Chinas economy is expected to further improve.Domestic demand for natural gas and chemical products is expected to improve,and that for refined oil products will remain stable.Given the impacts of geopolitics,and changes in the global supply,demand and inventory,the international crude oil prices are expected to fluctuate widely.The Company will leverage advantages of integration,and enhance coordinated operation to strive for a high-quality performance.We will stress on the following aspects:In E&P,the Company will continue to add oil and gas reserve,stabilize oil output,increase gas production,and cut costs,so as to strive for better profitability.We will enhance exploration and trap pre-exploration,increase the quality and scale of reserves.We will accelerate the capacity construction of oil and gas production in areas such as Shengli offshore,west Junggar,and Shunbei Zone Two,strengthen the application of technologies for EOR,and take measures to reduce the break-even point.We will expedite the construction of the production,supply,storage,and marketing system of natural gas,diversify the supply of natural gas,reduce resource costs,optimize marketing strategies,and expand high-quality customers.Our plan for the second half of 2024 is to produce 139 million barrels of crude oil and 679.5 billion cubic feet of natural gas.In refining,the Company will insist on the synergies between production and marketing,being profit-oriented to optimize and adjust the product mix and the utilization rates,and ensure efficient operation of the industrial chain.We will dynamically optimize the procurement scale and pace,reduce procurement costs,and improve the mix and pace of exported products.We will insist on low-cost“oil to chemicals”and differentiated“oil to specialty”products,effectively cut the diesel to gasoline ratio and diesel yield,and promote the development of special products such as needle coke.In the second half of 2024,we plan to process 126 million tonnes of crude oil.In marketing and distribution,the Company will fully leverage the advantages of integration,strengthen digital and intelligent empowerment,and press hard with market expansion of market and sales.We will keep optimizing the network layout,facilitate the construction of EV battery charging and gas fueling networks and demonstration application of hydrogen mobility,improve the comprehensive service of Easy Joy,enhance the quality and profitability of non-fuel businesses,and consolidate and improve the quality of the“petro,gas,hydrogen,power and services”network.In the second half of 2024,we plan to sell 91.09 million tonnes of refined oil products domestically.In chemicals,the Company will actively respond to the bottom of the chemical industry cycle,adhere to the principle of“basic high-end”,and make every effort to reduce costs,expand markets,and tap potentials for better profits.We will continue to diversify the feed-stock and cut the costs through multiple means.Market oriented,we will maintain high utilization of profitable units,and raise the profitability of high-quality assets.We will further strengthen the synergy among production,sales,research and application,promote the development of new materials and high value-added products,and increase profitability.We will actively expand domestic and international markets,and strengthen cooperation with strategic customers and tailored services for our products.In the second half of 2024,we plan to produce 6.85 million tonnes of ethylene.In CAPEX,the Company plans to spend RMB117.1 billion in the second half of 2024.RMB44.0 billion will be spent in the E&P segment,mainly for the crude oil production capacity building in Jiyang and Tahe,the natural gas production capacity building in west Sichuan,and the storage and transportation facilities building for oil and gas.RMB15.6 billion will be spent in the refining segment,mainly for the Zhenhai expansion and the technical upgrading projects of Guangzhou and Maoming companies.RMB15.4 billion will be spent in the marketing and distribution segment,mainly for developing the network for integrated energy stations,the revamping of the existing network for end-users,and non-fuel businesses.RMB37.2 billion will be spent in the chemical segment,mainly for the construction of ethylene projects in Zhenhai Phase II and Maoming,the aromatics project in Jiujiang and high-end materials projects.RMB4.9 billion will be spent for corporate and others,mainly for R&D,IT development and other project construction.Managements Discussion and Analysis14CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 2024MANAGEMENTS DISCUSSION AND ANALYSISTHE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE COMPANYS INTERIM FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES.PARTS OF THE FOLLOWING FINANCIAL DATA,UNLESS OTHERWISE STATED,WERE CONSISTENT WITH THE COMPANYS INTERIM FINANCIAL STATEMENTS THAT HAVE BEEN PREPARED ACCORDING TO THE IFRS ACCOUNTING STANDARDS.THE PRICES IN THE FOLLOWING DISCUSSION DO NOT INCLUDE VALUE-ADDED TAX.1 CONSOLIDATED RESULTS OF OPERATIONSIn the first half of 2024,international crude oil price fluctuated widely at high level and the imbalance between supply and demand in the market was still significant.The Company further deepened optimisation of production and operation with integration and coordination,strengthened adjustment in structure of feedstock,products and facilities,fully expanded market and sales,enhanced cost control and realised revenue and operating profit of RMB1,576.1 billion and RMB51.0 billion,decreased by 1.1%and 5.0%year-on-year respectively.The following table sets forth the principal revenue and expense items from the Companys consolidated financial statements for the first half of 2024 and the corresponding period in 2023:Six-month period ended 30 June20242023ChangeRMB millionRMB million(%)Revenue1,576,1311,593,682(1.1)Revenue from primary business1,545,9201,561,502(1.0)Other operating revenues30,21132,180(6.1)Operating expenses(1,525,110)(1,539,986)(1.0)Purchased crude oil,products and operating supplies and expenses(1,254,213)(1,282,882)(2.2)Selling,general and administrative expenses(26,486)(27,381)(3.3)Depreciation,depletion and amortisation(59,418)(55,239)7.6Exploration expenses,including dry holes(4,542)(4,882)(7.0)Personnel expenses(50,290)(49,949)0.7Taxes other than income tax(132,612)(127,261)4.2Impairment reversal/(losses)on trade and other receivables23(35)Other operating income,net2,4287,643(68.2)Operating profit51,02153,696(5.0)Net finance costs(6,275)(4,790)31.0Investment income and share of profits less losses from associates and joint ventures7,576 2,860 164.9 Profit before taxation52,32251,7661.1Income tax expense(9,931)(10,170)(2.4)Profit for the period42,39141,5961.9Attributable to:Shareholders of the Company37,07936,1222.6Non-controlling interests5,3125,474(3.0)Managements Discussion and Analysis15CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 2024(1)RevenueIn the first half of 2024,the Companys revenue from primary business was RMB1,545.9 billion,representing a decrease of 1.0%year-on-year.This was mainly due to the decreased sales volumes in certain petroleum and petrochemical products.The following table sets forth the external sales volume,average realised prices and respective change rates of the Companys major products in the first half of 2024 as compared with the first half of 2023.Sales Volume(thousand tonnes)Average realised price(VAT excluded)(RMB/tonne,RMB/thousand cubic meters)Six-month periodended 30 JuneChangeSix-month periodended 30 JuneChange20242023(%)20242023(%)Crude oil4,2543,67615.73,9813,7546.0Natural gas(million cubic meters)16,25115,8972.21,8951,949(2.8)Gasoline46,59746,4240.49,0438,7303.6Diesel38,64741,470(6.8)7,0097,074(0.9)Kerosene13,37612,2828.95,8055,7041.8Basic chemical feedstock17,94017,6751.56,1265,6338.8Synthetic fibre monomer and polymer3,377 2,944 14.7 5,926 5,574 6.3 Synthetic resin8,0748,503(5.0)7,4547,4200.5Synthetic fibre63153617.77,7237,900(2.2)Synthetic rubber669690(3.0)11,72110,43312.3Most of the crude oil and a small portion of natural gas produced by the Company were internally used for refining and chemical production with the remaining sold to external customers.In the first half of 2024,the revenue from crude oil,natural gas and other upstream products sold externally amounted to RMB92.7 billion,up by 3.4%year-on-year,accounting for 5.9%of the Companys revenue.This change was mainly due to the increase in sales volume and price of crude oil sold externally.Petroleum products(mainly consisting of refined oil products and other refined petroleum products)sold externally by the refining segment and the marketing and distribution segment achieved external sales revenues of RMB920.4 billion,representing a decrease of 0.6%year-on-year and accounting for 58.4%of the Companys revenue.This change was mainly due to the decreased volumes of refined oil products including diesel year-on-year.The sales revenue of gasoline,diesel and kerosene was RMB769.9 billion,representing an increase of 0.2%year-on-year,accounting for 83.6%of the total sales revenue of petroleum products.The sales revenue of other refined petroleum products was RMB150.5 billion,accounting for 16.4%of the sales revenue of petroleum products,down by 4.4%year-on-year.The Companys external sales revenue of chemical products was RMB204.0 billion,up by 3.7%year-on-year,accounting for 12.9%of its revenue.The change was mainly due to the increased sales volumes and prices of certain chemical products.Managements Discussion and Analysis16CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 2024MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)(2)Operating expensesIn the first half of 2024,the Companys operating expenses were RMB1,525.1 billion,down by 1.0%year-on-year.The operating expenses mainly consisted of the following:Purchased crude oil,products and operating supplies and expenses were RMB1,254.2 billion,representing a decrease of 2.2%year-on-year,accounting for 82.2%of total operating expenses,of which:Crude oil purchasing expense was RMB468.0 billion,representing an increase of 5.0%year-on-year.Throughput of crude oil purchased externally in the first half of 2024 was RMB116.62 million tonnes(excluding the volume processed for third parties),down by 1.4%year-on-year.The average processing cost of crude oil purchased externally was RMB4,445 per tonne,up by 6.3%year-on-year.Other purchasing expenses were RMB786.2 billion,down by 6.1%year-on-year,mainly due to the decreased volumes of outsourced and traded refined oil products.Selling,general and administrative expenses totalled RMB26.5 billion,representing a decrease of 3.3%year-on-year,mainly because the Company further strengthened the control of non-productive expenditures,and the marketing and management expenses were reduced.Depreciation,depletion and amortisation were RMB59.4 billion,representing an increase of 7.6%year-on-year.This was mainly due to the increased scale of assets.Exploration expense was RMB4.5 billion,representing a decrease of 7.0%year-on-year.This was mainly because the Company optimized the deployment of exploration wells,and continuously improved the success rate of exploration wells,which effectively reduced relevant expenses.Personnel expense was RMB50.3 billion,representing an increase of 0.7%year-on-year.Taxes other than income tax were RMB132.6 billion,representing an increase of 4.2%year-on-year.That was mainly because the consumption tax increased by RMB1.8 billion resulting from the increased production volume of refined oil products,the special oil gain levy and resource tax increased by RMB1.5 billion resulting from the increased crude oil price and provision for levy for mineral rights concessions increased by RMB0.8 billion.Other operating income net was RMB2.4 billion,representing a decrease by 68.2%year-on-year,mainly due to the decreased floating profit on hedging business of commodity derivative down by RMB2.8 billion year-on-year,and a year-on-year decrease of RMB1.4 billion in VAT refunds on imported LNG.(3)Operating profitIn the first half of 2024,the Companys operating profit was RMB51.0 billion,representing a decrease of 5.0%year-on-year.This was mainly due to the decreased sales volume and price of domestic diesel and significantly decreased margin of certain products including LPG and petroleum coke.(4)Investment income and share of profits less losses from associates and joint venturesIn the first half of 2024,investment income and share of profits less losses from associates and joint ventures were RMB7.6 billion,up by 164.9%year-on-year.It was mainly attributable to the increased operating profit of certain chemical associates and joint ventures.(5)Profit before taxationIn the first half of 2024,the Companys profit before taxation amounted to RMB52.3 billion,representing an increase of 1.1%year-on-year.(6)Income tax expenseIn the first half of 2024,the Companys income tax expense totalled RMB9.9 billion,representing a decrease of 2.4%year-on-year.(7)Profit attributable to non-controlling interests of the CompanyIn the first half of 2024,profit attributable to non-controlling interests was RMB5.3 billion,representing a decrease of 3.0%year-on-year.(8)Profit attributable to shareholders of the CompanyIn the first half of 2024,profit attributable to shareholders of the Company was RMB37.1 billion,representing an increase of 2.6%year-on-year.Managements Discussion and Analysis17CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 20242 RESULTS OF SEGMENT OPERATIONSThe Company manages its operations by four business segments,namely exploration and production segment,refining segment,marketing and distribution segment and chemicals segment,as well as corporate and others.Unless otherwise specified,the inter-segment transactions have not been eliminated from financial data discussed in this section.In addition,the operating revenue data of each segment includes other operating revenues.The following table shows the operating revenues by each segment,the contribution of external sales and inter-segment sales as a percentage of operating revenues before elimination of inter-segment sales,and the contribution of external sales as a percentage of consolidated operating revenues(i.e.after elimination of inter-segment sales)for the periods indicated.Operating revenuesAs a percentage ofconsolidated operatingrevenues before eliminationof inter-segment salesAs a percentage ofconsolidated operatingrevenues after eliminationof inter-segment salesSix-month periodended 30 JuneSix-month periodended 30 JuneSix-month periodended 30 June202420232024202320242023RMB million(%)(%)Exploration and Production SegmentExternal sales*94,55991,8643.43.36.05.8Inter-segment sales59,20352,9992.11.9 Operating revenues153,762144,8635.55.2 Refining SegmentExternal sales*83,19288,5582.93.25.35.6Inter-segment sales666,473640,99923.722.9 Operating revenues749,665729,55726.626.1 Marketing and Distribution SegmentExternal sales*859,389861,75730.530.854.554.1Inter-segment sales4,1089,5910.10.3 Operating revenues863,497871,34830.631.1 Chemicals SegmentExternal sales*208,756201,3907.47.213.212.5Inter-segment sales48,49542,9101.71.5 Operating revenues257,251244,3009.18.7 Corporate and OthersExternal sales*330,235350,11311.712.521.022.0Inter-segment sales466,333460,40516.516.4 Operating revenues796,568810,51828.228.9 Operating revenue before elimination of inter-segment sales2,820,7432,800,586100.0100.0 Elimination of inter-segment sales(1,244,612)(1,206,904)Consolidated operating revenues1,576,1311,593,682 100.0100.0*Other operating revenues are included.Managements Discussion and Analysis18CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 2024MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)The following table sets forth the operating revenues,operating expenses and operating profit/(loss)by each segment before elimination of the inter-segment transactions for the periods indicated,and the percentage change between the first half of 2024 and the first half of 2023.Six-month period ended 30 June20242023ChangeRMB million(%)Exploration and Production Segment Operating revenues153,762144,8636.1Operating expenses124,614119,4554.3Operating profit29,14825,40814.7Refining Segment Operating revenues749,665729,5572.8Operating expenses742,540718,1473.4Operating profit7,12511,410(37.6)Marketing and Distribution Segment Operating revenues863,497871,348(0.9)Operating expenses848,849854,379(0.6)Operating profit14,64816,969(13.7)Chemicals Segment Operating revenues257,251244,3005.3Operating expenses260,415247,6585.2Operating losses(3,164)(3,358)(5.8)Corporate and Others Operating revenues796,568810,518(1.7)Operating expenses792,264806,961(1.8)Operating profit4,3043,55721.0Elimination(1,040)(290)(1)Exploration and Production SegmentMost of the crude oil and a small portion of the natural gas produced by the exploration and production segment were used for the Companys refining and chemical operations.Most of the natural gas and a small portion of the crude oil produced by the Company were sold to external customers.In the first half of 2024,operating revenue of the segment was RMB153.8 billion,representing an increase of 6.1%year-on-year.This was mainly due to the increase in crude oil price and sales volume of crude oil and natural gas products.In the first half of 2024,the segment sold 17.46 million tonnes of crude oil,representing an increase of 1.7%year-on-year.Natural gas sales volume was 16.9 bcm,representing an increase of 2.4%year-on-year.Regasified LNG sales volume was 8.55 bcm,representing a decrease of 0.1%year-on-year.LNG sales volume was 1.195 million tonnes,representing an increase of 125.0%year-on-year.Average realised prices of crude oil,natural gas,regasified LNG,and LNG were RMB3,923 per tonne,RMB1,894 per thousand cubic meters,RMB3,378 per thousand cubic meters,and RMB3,747 per tonne respectively,representing an increase of 8.2%,a decrease of 3.1%,a decrease of 12.6%and a decrease of 13.8%year-on-year respectively.In the first half of 2024,the operating expenses of the segment were RMB124.6 billion,representing an increase of 4.3%year on year.That was mainly due to the following:Taxes including special oil gain levy and resource tax increased by RMB3.0 billion year-on-year.Depreciation,depletion and amortization increased by RMB2.4 billion year-on-year.Personnel expense increased by RMB1.1 billion year-on-year.LNG procurement cost decreased by RMB2.8 billion year-on-year.In the first half of 2024,the oil and gas lifting cost was RMB753.4 per tonne,representing a decrease of 0.4%year-on-year.In the first half of 2024,this segment seized the opportunity of relative high crude oil prices,spared no efforts to increase reserves,boost production,cut cost,achieved good performance,strengthened the optimization of the whole natural gas industry chain,and realised an operating profit of RMB29.1 billion,representing an increase of RMB3.7 billion or 14.7%year-on-year.(2)Refining SegmentBusiness activities of the refining segment include purchasing crude oil from third parties and the exploration and production segment as well as processing crude oil into refined petroleum products.Gasoline,diesel and kerosene are sold internally to the marketing and distribution segment;part of the chemical feedstock is sold to the chemicals segment;and other refined petroleum products are sold to both domestic and overseas customers through the refining segment.In the first half of 2024,operating revenues of the segment were RMB749.7 billion,representing an increase of 2.8%year-on-year.This was mainly due to the increased price of refined oil products and others year-on-year resulting from increased price of international crude oil.Managements Discussion and Analysis19CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 2024The following table sets forth the sales volumes,average realised prices and the respective changes of the Companys major refined oil products of the segment in the first half of 2024 and that of the same period of 2023.Sales Volume(thousand tonnes)Average realised price(VAT excluded)(RMB/tonne)Six-month period ended 30 JuneChangeSix-month period ended 30 JuneChange20242023(%)20242023(%)Gasoline31,35629,4446.58,5728,2563.8Diesel28,23030,833(8.4)6,8546,6393.2Kerosene11,74111,2084.85,7655,6232.5Chemical feedstock19,29220,743(7.0)4,7414,4017.7Other refined petroleum products32,15832,583(1.3)3,9333,8562.0In the first half of 2024,the sales revenue of gasoline was RMB268.8 billion,representing an increase of 10.6%year-on-year,accounting for 35.9%of the segments operating revenues.In the first half of 2024,the sales revenue of diesel was RMB193.5 billion,representing a decrease of 5.5%year-on-year,accounting for 25.8%of the segments operating revenues.In the first half of 2024,the sales revenue of kerosene was RMB67.7 billion,representing an increase of 7.4%year-on-year,accounting for 9.0%of the segments operating revenues.In the first half of 2024,the sales revenue of chemical feedstock was RMB91.5 billion,representing an increase of 0.2%year-on-year,accounting for 12.2%of the segments operating revenues.In the first half of 2024,the sales revenue of refined petroleum products other than gasoline,diesel,kerosene and chemical feedstock was RMB126.5 billion,representing an increase of 0.7%year-on-year,accounting for 16.9%of the segments operating revenues.In the first half of 2024,the segments operating expenses were RMB742.5 billion,representing an increase of 3.4%year-on-year,which was mainly attributable to the increase in the crude oil and refining feedstock procurement cost year on year.In the first half of 2024,the average processing cost of refining feedstock was RMB4,534 per tonne,representing an increase of 5.6%year-on-year.Total refining feedstock throughput was 127.96 million tonnes(excluding volume processed for third parties),representing a decrease of 0.9%year-on-year.In the first half of 2024,the total processing cost for refining feedstock was RMB580.2 billion,representing an increase of 4.7%year-on-year,accounting for 78.1%of the segments operating expenses.In the first half of 2024,the refining margin was RMB316 per tonne,decreased by RMB38 per tonne year-on-year,representing a decrease of 10.7%year-on-year.This was mainly due to the decrease in purchase discount of imported crude oil year-on-year due to geopolitical factors,the decrease in processing margins of domestic gasoline and diesel under high crude oil prices condition,and the decreased margins of refinery by-products such as petroleum coke and LPG due to weak demand.In the first half of 2024,the unit refining cash operating cost(defined as operating expenses less cost of crude oil and refining feedstock,depreciation and amortisation,taxes other than income tax and other operating expenses,divided by the throughput of crude oil and refining feedstock)was RMB195.4 per tonne,representing a decrease of 4.5%year-on-year,which was mainly due to the decrease in costs of power and fuels resulting from enhancing cost control.In the first half of 2024,the segment focused on optimisation and integration of production and marketing,flexibly and timely adjusted the utilisation rate and product structure following the market demand,made every effort to reduce the impact of rising crude oil procurement costs and weak market demand,and realised an operating profit of RMB7.1 billion,decreased by RMB4.3 billion or 37.6%year-on-year.(3)Marketing and Distribution SegmentThe business activities of the marketing and distribution segment include purchasing refined oil products from the refining segment and the third parties,conducting wholesale and direct sales to domestic customers and retailing,distributing oil products through the segments retail and distribution network,as well as providing related services.Managements Discussion and Analysis20CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 2024MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)In the first half of 2024,the operating revenues of this segment were RMB863.5 billion,decreased by 0.9%year-on-year.This was mainly attributable to decreased demand and sales volume for diesel year-on-year.Among them,the sales revenues of gasoline were RMB421.6 billion,increased by 3.9%year-on-year,the sales revenues of diesel were RMB271.7 billion,decreased by 7.6%year-on-year and the sales revenues of kerosene were RMB77.6 billion,increased by 9.6%year-on-year.The following table sets forth the sales volume,average realised prices and respective changes of the segments four major refined oil products in the first half of 2024 and 2023,including the detailed information about the retail,direct sales and distribution of gasoline and diesel.Sales volume(thousand tonnes)Average realised price(VAT excluded)(RMB/tonne)Six-month periodended 30 JuneChangeSix-month periodended 30 JuneChange20242023(%)20242023(%)Gasoline46,61946,5060.29,0438,7273.6Retail32,83432,915(0.2)9,5429,1843.9Direct sales and distribution13,78513,5911.47,8547,6203.1Diesel38,77441,588(6.8)7,0087,073(0.9)Retail15,52118,014(13.8)7,5827,5280.7Direct sales and distribution23,25323,574(1.4)6,6256,726(1.5)Kerosene13,36912,4337.55,8055,6961.9Fuel oil14,17216,143(12.2)4,0063,7806.0In the first half of 2024,the operating expense of this segment was RMB848.8 billion,representing a decrease of RMB5.5 billion or 0.6%year-on-year.This was mainly due to a year-on-year decreased procurement cost of refined oil products.In the first half of 2024,the segments marketing cash operating cost(defined as the operating expenses less the purchase costs,taxes other than income tax,depreciation and amortization,divided by sales volume)was RMB185.0 per tonne,up by 1.1%year-on-year.This was mainly due to the increase in unit costs resulting from the decrease in sales volume of refined oil products.In the first half of 2024,the operating revenues of non-fuel business of this segment were RMB19.2 billion,representing a decrease of RMB2.4 billion year-on-year,among which,the operating revenue of EV battery charging business was RMB0.43 billion,representing a significant increase year on year.The profit of non-fuel business was RMB2.6 billion,representing a decrease of RMB0.09 billion year-on-year.In the first half of 2024,the segment persisted in integrating and collaborating to achieve profits,spared no effort to expand market and increasing sales volume,but impacted by factors including new energy and LNG substitution,the segment realised an operating profit of RMB14.6 billion,representing a decrease of RMB2.3 billion year-on-year,down by 13.7%year-on-year.(4)Chemicals segmentThe business activities of the chemicals segment include purchasing chemical feedstock from the refining segment and third parties and producing,marketing and distributing petrochemical and inorganic chemical products.In the first half of 2024,the operating revenues of this segment were RMB257.3 billion,increased by 5.3%year-on-year.This was mainly due to increase in sales volume and prices of chemical products year-on-year.In the first half of 2024,the operating revenue generated by the segments six major categories of chemical products(namely basic organic chemicals,synthetic resin,synthetic fiber monomer and polymer,synthetics fibre,synthetic rubber and chemical fertiliser)was RMB238.8 billion,increased by 5.7%year-on-year,accounting for 92.8%of the operating revenues of the segment.Managements Discussion and Analysis21CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 2024The following table sets forth the sales volume,average realised prices and respective changes of each of the segments six categories of chemical products in the first half of 2024 and 2023.Sales volume(thousand tonnes)Average realised price(VAT excluded)(RMB/tonne)Six-month periodended 30 JuneChangeSix-month periodended 30 JuneChange20242023(%)20242023(%)Basic organic chemicals24,17223,5892.56,0065,6695.9Synthetic fibre monomer and polymer3,3952,96714.45,9245,5816.1Synthetic resin8,0788,504(5.0)7,4537,4200.4Synthetics fibre63153617.77,7247,901(2.2)Synthetic rubber670691(3.0)11,72610,44312.3Chemical fertiliser255401(36.4)2,2172,608(15.0)In the first half of 2024,the operating expense of this segment was RMB260.4 billion,increased by 5.2%year-on-year,mainly due to increased procurement cost of chemical feedstock including naphtha,etc.In the first half of 2024,the segment closely followed the market demand,enhanced integration of production,marketing,research in all aspects,dynamically measured product marginal profit,vigorously optimised the structure of feedstock,facilities and products,made efforts to increase production of high value-added products,enhanced cost control and realised an operating loss of RMB3.2 billion,which narrowed by RMB0.2 billion year-on-year.(5)Corporate and othersThe business activities of corporate and others mainly consist of import and export business activities of Sinopec Corp.s subsidiaries,research and development activities of the Company,and managerial activities of the headquarters.In the first half of 2024,the operating revenue generated from the corporate and others was RMB796.6 billion,decreased by 1.7%year-on-year,mainly due to a decrease in the trading volume of crude oil.In the first half of 2024,the operating expense for corporate and others were RMB792.3 billion,decreased by 1.8%year-on-year.In the first half of 2024,the operating profit for corporate and others was RMB4.3 billion.3 ASSETS,LIABILITIES,EQUITY AND CASH FLOWSThe major funding resources of the Company are its operating activities,short-term and long-term loans.The major use of funds includes operating expenses,capital expenditures,and repayment of short-term and long-term debts.(1)Assets,Liabilities and Equity Unit：RMB millionAs of30 June2024As of31 December2023ChangeTotal assets2,140,5242,024,696115,828Current assets637,683534,435103,248Non-current assets1,502,8411,490,26112,580Total liabilities1,156,4331,068,88787,546Current liabilities753,350647,076106,274Non-current liabilities403,083421,811(18,728)Total equity attributable to the shareholders of the Company825,925802,98922,936Share capital121,740119,3492,391Reserves704,185683,64020,545Non-controlling interests158,166152,8205,346Total equity984,091955,80928,282Managements Discussion and Analysis22CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 2024MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)As of 30 June 2024,the Companys total assets were RMB2,140.5 billion,representing an increase of RMB115.8 billion compared with the 2023 year-end balance,of which:Current assets were RMB637.7 billion,representing an increase of RMB103.2 billion compared with the 2023 year-end balance,mainly because inventory cost of crude oil and refined products increased along with the rise of crude oil prices,and inventory volume increased by RMB46.2 billion resulting from weak market demand,accounts receivable increased by RMB28.1 billion resulting from the increase in international crude oil price and the Companys overseas refined oil products and fuel oil products business scale,cash and cash equivalents including time deposits increased by RMB15.1 billion.Non-current assets were RMB1,502.8 billion,representing an increase of RMB12.6 billion compared with the 2023 year-end balance,mainly because of the increased investments in refining and chemical bases construction,structural adjustment and new chemical materials business resulting from the Companys continuous efforts in promoting transition and upgrading,as a result,construction in progress increased by RMB11.5 billion.As of 30 June 2024,the Companys total liabilities were RMB1,156.4 billion,representing an increase of RMB87.5 billion compared with the end of last year,of which:Current liabilities were RMB753.3 billion,representing an increase of RMB106.3 billion compared with the 2023 year-end balance,mainly due to issuing super short-term commercial paper to meet the capital needs of operation activities,certain long-term loans being reclassified to loans maturing within one year and increase in short-term loans by RMB59.8 billion,accounts payable and bills payable increased by RMB28.5 billion resulting from the increase in international crude oil price and the Companys overseas refined oil products and fuel oil products business scale.Non-current liabilities were RMB403.1 billion,representing a decrease of RMB18.7 billion compared with the 2023 year-end balance,mainly because long-term debt decreased by RMB17.7 billion.As of 30 June 2024,total equity attributable to shareholders of Sinopec Corp.was RMB825.9 billion,representing an increase of RMB22.9 billion compared with the 2023 year-end balance.(2)Cash FlowsThe following table sets forth the major items in the consolidated cash flow statements for the first half of 2024 and of 2023:Unit:RMB millionMajor items of cash flowsSix-month period ended 30 June20242023ChangeNet cash generated from operating activities42,26927,56214,707Net cash used in investing activities(79,004)(93,430)14,426Net cash generated from financing activities36,86266,861(29,999)Net increase in cash and cash equivalents127993(866)In the first half of 2024,net cash generated from operating activities was RMB42.3 billion,representing an increase of cash inflow of RMB14.7 billion year-on-year,mainly due to the decrease of occupation in working capital.In the first half of 2024,the Companys net cash used in investing activities was RMB79.0 billion,representing a decrease of cash outflow of RMB14.4 billion year-on-year,mainly due to a year-on-year decrease of cash outflow of RMB29.9 billion in capital expenditures for the acquisition and construction of long-term assets,and an increase of cash outflow of RMB9.9 billion in time deposits with maturities over three months.In the first half of 2024,the Companys net cash generated from financing activities was RMB36.9 billion,representing a decrease of cash inflow of RMB30.0 billion year-on-year,mainly due to a year-on-year decrease of cash inflow of RMB67.1 billion in net debts and loans,an increase of cash inflow of RMB12.0 billion from issuance of shares to the target subscriber and a decrease of cash outflow of RMB23.3 billion resulting from the decrease in cash dividends payment.As of 30 June 2024,the Companys cash and cash equivalents were RMB122.1 billion.(3)Contingent LiabilitiesPlease refer to“Material Guarantee Contracts and Their Performance”in the“Significant Events”section of this report.(4)Capital ExpenditurePlease refer to“Capital Expenditures”in the“Business Review and Prospects”section of this report.(5)Research&Development and Environmental ExpendituresR&D expenditures include expenses and investment cost occurred in the period.In the first half of 2024,the expenditures for R&D were RMB9.8 billion,of which expense was RMB6.0 billion,and investment cost was RMB3.8 billion.Environmental expenditures refer to the normal routine pollutant discharge fees paid by the Company,excluding capitalised cost of pollutant treatment properties.In the first half of 2024,the Company paid environmental expenditures of RMB6.5 billion.Managements Discussion and Analysis23CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 2024(6)Measurement of Fair Values of Derivatives and Relevant SystemThe Company has established sound decision-making mechanism,business process and internal control systems relevant to financial instrument accounting and information disclosure.The following table sets forth items relevant to measurement of fair values.Items relevant to measurement of main fair values Unit:RMB millionItemsBeginningof the periodEnd ofthe periodProfits andlosses fromvariation offair valuesin thecurrent periodAccumulated variation offair valuesrecordedas equityImpairmentlossprovisionof thecurrent periodFundingsourcePurchaseamount in thecurrent periodSell andredemptionamountin thecurrent periodOtherchangesFinancial assets held for trading341Fund341Derivative financial instruments5,8544,117(1,539)(198)Cash flow hedges1,115640817(2,032)740Receivables financing2,2214,96743,115(40,369)Other equity instrument investments450450(1)1Total9,64310,178(721)(2,033)43,115(39,827)1Derivatives investment:In the first half of 2024,the Company traded in commodity and currency derivatives according to the Annual Business Plan for Financial Derivatives approved by the Board.Such business met the regulatory requirements of financial derivatives,operated in a standardized manner,and achieved the goals of suppressing price fluctuation,stabilising operating profit,and preventing market risks.4 ANALYSIS OF FINANCIAL STATEMENTS PREPARED UNDER CASsThe major differences between the Companys financial statements prepared under CASs and IFRS Accounting Standards are set out in Section C of the financial statements of the Company on page 151 of this report.(1)Under CASs,the operating income and operating profit or loss by reportable segments were as follows:Six-month period ended 30 June20242023RMB millionRMB millionOperating income Exploration and Production Segment153,762144,863Refining Segment749,665729,557Marketing and Distribution Segment863,497871,348Chemicals Segment257,251244,300Corporate and Others796,568810,518Elimination of inter-segment sales(1,244,612)(1,206,904)Consolidated operating income1,576,1311,593,682Operating profit/(loss)Exploration and Production Segment26,83421,828Refining Segment6,3989,885Marketing and Distribution Segment14,52916,751Chemicals Segment(3,649)(4,181)Corporate and Others4,694932Elimination(1,040)(290)Financial expenses,(Losses)/gains from changes in fair value,disposal income and investment income234845Other income3,5054,896Consolidated operating profit51,50550,666Net profit attributable to equity shareholders of the Company35,70335,111Operating profit:In the first half of 2024,the operating profit of the Company was RMB51.5 billion,representing an increase of 1.7%year-on-year.Net profit attributable to equity shareholders of the Company:In the first half of 2024,net profit attributable to the equity shareholders of the Company was RMB35.7 billion,representing an increase of 1.7%year-on-year.Managements Discussion and Analysis24CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 2024MANAGEMENTS DISCUSSION AND ANALYSIS(CONTINUED)(2)Financial data prepared under CASs:At 30 JuneAt 31 December 20242023ChangeRMB millionRMB millionRMB millionTotal assets2,141,9362,026,674115,262Non-current liabilities402,241420,943(18,702)Shareholders equity986,345958,65527,690Changes analysis:Total assets:As of 30 June 2024,the Companys total assets were RMB2,141.9 billion,representing an increase of RMB115.3 billion compared with the 2023 year-end balance.This was mainly because inventories increased by RMB46.2 billion due to increase in crude oil price,accounts receivables increased by RMB28.1 billion and cash at bank and on hand increased by RMB14.8 billion.Non-current liabilities:As of 30 June 2024,the Companys non-current liabilities were RMB402.2 billion,representing a decrease of RMB18.7 billion compared with the 2023 year-end balance.This was mainly due to long-term loans decreased by RMB18.7 billion.Shareholders equity:As of 30 June 2024,total shareholders equity of the Company was RMB986.3 billion,representing an increase of RMB27.7 billion compared with the 2023 year-end balance.(3)The results of the principal operations by segmentsSegmentsOperatingincome(RMB million)Operating cost(RMB million)Gross profitmargin*(%)Increase/decrease ofoperatingincome ona year-on-yearbasis(%)Increase/decrease ofoperatingcost ona year-on-yearbasis(%)Increase/decrease ofgross profitmargin ona year-on-yearbasis(percentagepoints)Exploration and Production153,762103,49725.56.11.21.7Refining749,665617,5651.72.83.6(0.7)Marketing and Distribution863,497814,9995.4(0.9)(0.7)(0.3)Chemicals257,251252,1741.65.35.60.0Corporate and Others796,568782,9111.7(1.7)(2.1)0.4Elimination of inter-segment sales(1,244,612)(1,243,572)Total1,576,1311,327,5747.4(1.1)(1.8)0.2*Gross profit margin=(Operating income operating cost taxes and surcharges)/Operating income5 THE CAUSE AND IMPACT OF THE CHANGE IN THE COMPANYS ACCOUNTING POLICY,ACCOUNTING ESTIMATES AND ACCOUNTING METHODSFor details,please refer to Note 3(27)to the financial statements prepared in accordance with CASs and Note 2 to the financial statement prepared in accordance with IFRS Accounting Standards.25CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 2024Corporate GovernanceCORPORATE GOVERNANCE1 IMPROVEMENTS IN CORPORATE GOVERNANCEDuring the reporting period,Sinopec Cplied with the Articles of Association as well as domestic and overseas laws and regulations on securities,adhered to the standard operation,improved corporate governance,and constantly improved the quality of listed company.Sinopec Corp.elected the ninth session of the board of directors and the ninth session of the Supervisory Committee.The Board have achieved diversity on professional background,gender,working experience etc.The Board adjusted the composition of all special committees,appointed senior management.All of the above further improved the corporate governance structure.The Board and special committees of the Board performed their duties diligently,reviewed all resolutions with diligence.The Independent Non-executive Directors played a positive role through meeting and communicating with the Chairman without the presence of other directors on a regular basis,offering advice and suggestions on how to strengthen the development quality and to enhance profitability and transition of the company.The company strengthened internal management and risk control to continuously improve the compliance management.The company attached importance to shareholders returns by continuously implementing the share repurchase,strengthening communication with stakeholders,and conducting information disclosure and management of investor relations with high quality.The company conducted all-round improvement in ESG management,carried out the annual Safety Management Strengthening Campaign,strengthened the prevention and treatment of environmental pollution,released the Second Phase Plan of the Green Enterprise Campaign,and steadily advanced the Action Plan for Carbon Dioxide Peaking,actively fulfilled corporate social responsibility.2 GENERAL MEETINGSDuring the reporting period,Sinopec Corp.convened annual general meeting for 2023(AGM),the first A shareholders class meeting for 2024 and the first H shareholders class meeting for 2024 on 28 June 2024 in Beijing,China,in strict compliance with the relevant laws,regulations,and the notice requirement,convening and holding procedures under the Articles of Association,whereby the proposals in relation to the following matters were approved:(i)Report of the eighth session of the board of directors(including the Report of the board of directors for 2023);(ii)Report of the eighth session of the Supervisory Committee(including the Report of the Supervisory Committee for 2023);(iii)The financial reports of Sinopec Corp.for the year ended 31 December 2023 audited by KPMG Huazhen LLP and KPMG(KPMG);(iv)The profit distribution plan for 2023;(v)To authorise the Board to determine the interim profit distribution plan for 2024;(vi)To re-appoint KPMG as the external auditors of Sinopec Corp.for the year 2024,and to authorise the Board to determine their remunerations;(vii)To change of the Registered Capital and Amendments to the Articles of Association,the Rules and Procedures for the Board Meetings and the Rules and Procedures for the Supervisory Committee Meeting;(viii)To authorise the Board to determine the proposed plan for issuance of debt financing instrument(s);(ix)To grant to the Board a general mandate to issue new domestic shares and/or overseas-listed foreign shares of Sinopec Corp.;(x)To grant to the Board a mandate to buy back domestic shares and/or overseas-listed foreign shares of Sinopec Corp.;(xi)The service contracts(including the remuneration terms)for the directors of the ninth session of the Board and the supervisors of the ninth session of the Supervisory Committee of Sinopec Corp.;(xii)The election of directors(excluding independent non-executive directors);(xiii)The election of independent non-executive directors;and(xiv)The election of supervisors(excluding employee representative supervisors).For details of the meetings,please refer to the poll results announcements published on China Securities Journal,Shanghai Securities News,and Securities Times and on the websites of Shanghai Stock Exchange and Hong Kong Stock Exchange after the meetings.3 DIRECTORS,SUPERVISORS AND OTHER SENIOR MANAGEMENT(1)Information on Appointment or ResignationOn 22 January 2024,Mr.Guo Xusheng was appointed as Chief Geologist of Sinopec Corp.On 28 April 2024,Mr.Yu Baocai resigned as President of Sinopec Corp.due to work arrangement.Mr.Zhao Dong was appointed as President and re-designated as the Executive Director of Sinopec Corp.Mr.Wan Tao and Mr.Yu Baocai were appointed as Senior Vice Presidents of Sinopec Corp.On 13 May 2024,Mr.Wu Bo resigned as supervisor of Sinopec Corp.due to change of working arrangement.On 28 June,2024,the members of the ninth session of the Board and the ninth session of the Supervisory Committee were elected at the 2023 AGM.On the same day,the first meeting of the ninth session of the Board was convened and the Chairman of the Board was elected and senior management were appointed;the first meeting of the ninth session of the Supervisory Committee was convened and the Chairman of the Supervisory Committee was elected.Changes in directors,supervisors and senior management were as follows:The ninth session of the Board:Mr.Ma Yongsheng as Non-executive Director and Chairman of the Board;Mr.Zhao Dong as Executive Director,Vice Chairman and President;Mr.Zhong Ren as Non-executive Director;Mr.Li Yonglin,Mr.Lv Lianggong,Mr.Niu Shuanwen,Mr.Wan Tao,and Mr.Yu Baocai as Executive Directors and Senior Vice Presidents;Mr.Xu Lin,Ms.Zhang Liying,Mr.Liu Tsz Bun Bennett,and Mr.Zhang Xiliang as the Independent Non-executive Directors.Mr.Cai Hongbin,Mr.Ng,Kar Ling Johnny,Ms.Shi Dan and Mr.Bi Mingjian ceased to be the Independent Non-executive Directors.The ninth session of the Supervisory Committee:Mr.Zhang Shaofeng as the Chairman of the Supervisory Committee;Mr.Wang An,Mr.Dai Liqi,Mr.Tan Wenfang,Mr.Yang Yanfei and Mr.Zhou Meiyun as the supervisors;Mr.Zhang Zheng,Mr.Bian Fengming and Mr.Zhang Chunsheng as employees representative supervisors.Mr.Qiu Fasen,Mr.Zhai Yalin,Mr.Guo Hongjin,Mr.Yin Zhaolin and Mr.Chen Yaohuan ceased to be the supervisors.26CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 2024Corporate GovernanceCORPORATE GOVERNANCE(CONTINUED)Other senior management:Ms.Shou Donghua as the Chief Financial Officer;Mr.Huang Wensheng as Vice Presidents and the Secretary to the Board;Mr.Guo Hongjin,Mr.Xu Yi and Mr.Li Yuxing as Vice President;Mr.Guo Xusheng as Chief Geologist;and Mr.Liu Jiahai as Chief Safety Officer.(2)Equity Interests of Directors,Supervisors,and Other Senior ManagementAs of 30 June,2024,none of the Directors,Supervisors and senior management of Sinopec Corp.and their respective associates had any interests or short positions(including any interests or short positions that are regarded or treated as being held in accordance with the SFO)in any shares,underlying shares or debentures of Sinopec Corp.or any associated corporations(as defined in Part XV of the SFO),as recorded in the registry pursuant to Section 352 of the SFO or as otherwise notified to Sinopec Corp.and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies(Model Code)contained in the Hong Kong Listing Rules.As required under the Hong Kong Listing Rules,Sinopec Corp.has formulated the Rules Governing Shares and Changes in Shares Held by Company Directors,Supervisors and Senior Management and Rules on Insider Registration and Management to regulate securities transactions by relevant personnel.The standards of these two rules above-mentioned are no less strict than those set out in the Model Code.Upon the specific inquiries made by Sinopec Corp.,all the directors confirmed that they had complied with the required standards in the Model Code as well as those set out in the above-mentioned rules during the reporting period.4 DIVIDEND(1)Dividend distribution for the year ended 31 December 2023As approved at its annual general meeting for 2023,Sinopec Corp.distributed the final cash dividend of RMB0.2 per share(tax inclusive)for 2023.The final dividend for 2023 has been distributed on or before 26 July 2024 to shareholders whose names appeared on the register of members of Sinopec Corp.on 15 July 2024.Combined with the interim cash dividend of RMB0.145 per share(tax inclusive)for 2023,the total cash dividend for the whole year of 2023 amounted to RMB0.345 per share(tax inclusive).(2)Interim dividend distribution plan for the six months ended 30 June 2024As approved at the 2nd meeting of the ninth session of the Board,the interim dividend of RMB0.146 per share(tax inclusive)for the six months ended 30 June 2024 will be distributed based on the total number of shares as of 12 September 2024(record date)in cash.The 2024 interim dividend distribution plan of Sinopec Corp.,having considered the interests of shareholders and development of the Company,is in compliance with the Articles of Association and consideration and approval procedures.The interim dividend will be distributed on or before 26 September 2024 to all shareholders whose names appear on the register of members of Sinopec Corp.on the record date of 12 September 2024.In order to be qualified for the interim dividend,holders of H shares shall lodge their share certificates and transfer documents with Hong Kong Registrars Limited at 1712-1716,17th floor,Hopewell Centre,No.183 Queens Road East,Wanchai,Hong Kong,for registration,no later than 4:30 p.m.on 6 September 2024.The register of members of H shares of Sinopec Corp.will be closed from 7 September 2024 to 12 September 2024(both days inclusive).The dividend will be denominated and declared in RMB and distributed to domestic shareholders and shareholders under Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect Program in RMB and to the overseas shareholders in Hong Kong Dollars.The exchange rate for dividend to be paid in Hong Kong Dollars is based on the average benchmark exchange rate of Hong Kong Dollar against RMB as published by the Peoples Bank of China one week ahead of the date of declaration of the interim dividend(1 Hong Kong Dollar=RMB0.916674).In accordance with the Enterprise Income Tax Law of the Peoples Republic of China and its implementation regulations which came into effect on 1 January 2008,Sinopec Corp.is required to withhold and pay enterprise income tax at the rate of 10%on behalf of the non-resident enterprise shareholders whose names appear on the register of members for H shares of Sinopec Corp.when distributing the cash dividends or issuing bonus shares by way of capitalisation from retained earnings.Any H shares which are not registered under the name of an individual shareholder,including those registered under HKSCC Nominees Limited,other agents or trustees,or other organisations or groups,shall be deemed as shares held by non-resident enterprise shareholders.On such basis,enterprise income tax shall be withheld from dividends payable 27CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 2024Corporate Governanceto such shareholders.If holders of H shares intend to change their shareholder status,please enquire about the relevant procedures with your agents or trustees.Sinopec Corp.will strictly comply with the law or the requirements of the relevant government authorities to withhold and pay enterprise income tax on behalf of the relevant shareholders based on the register of members for H shares of Sinopec Corp.as at the record date.If the individual holders of H shares are residents of Hong Kong,Macau or other countries which had an agreed tax rate of 10%for cash dividends or bonus shares by way of capitalisation from retained earnings with China under the relevant tax agreement,Sinopec Corp.should withhold and pay individual income tax on behalf of the relevant shareholders at a rate of 10%.If the individual holders of H shares are residents of countries which had an agreed tax rate of less than 10%with China under relevant tax agreement,Sinopec Corp.shall withhold and pay individual income tax on behalf of the relevant shareholders at a rate of 10%.In that case,if the relevant individual holders of H shares wish to reclaim the extra amount withheld,Sinopec Corp.would apply for the relevant agreed tax treatment pursuant to the relevant tax agreement provided that the shareholders submit the evidence required by the notice of the tax agreement to the share register of H shares of Sinopec Corp.Sinopec Corp.will assist with the tax refund after the approval of the competent tax authority.If the individual holders of H shares are residents of countries which had an agreed tax rate of over 10%but less than 20%with China under the tax agreement,Sinopec Corp.shall withhold and pay the individual income tax on behalf of the relevant shareholders at the agreed actual tax rate in accordance with the relevant tax agreements.If the individual holders of H shares are residents of countries which had an agreed tax rate of 20%with China under the tax agreement,or which had not entered into any tax agreement with China,or otherwise,Sinopec Corp.shall withhold and pay the individual income tax on behalf of the relevant shareholders at a rate of 20%.Pursuant to the Notice on the Tax Policies related to the Pilot Program of the Shanghai-Hong Kong Stock Connect(關於滬港股票市場交易互聯互通機制試點有關稅收政策的通知)(Caishui 2014 No.81)and the Notice on the Tax Policies related to the Pilot Program of the Shenzhen-Hong Kong Stock Connect(關於深港股票市場交易互聯互通機制試點有關稅收政策的通知)(Caishui 2016 No.127):For dividend of domestic investors investing in the H shares of Sinopec Corp.through Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect Program,Sinopec Corp.shall withhold and pay income tax at the rate of 20%on behalf of individual investors and securities investment funds.The Company will not withhold or pay the income tax of dividends for domestic enterprise investors and those domestic enterprise investors shall report and pay the relevant tax by themselves.For dividends of investors of the Hong Kong market(including enterprises and individuals)investing in the A shares of Sinopec Corp.through Shanghai-Hong Kong Stock Connect Program,Sinopec Corp.will withhold and pay income taxes at the rate of 10%on behalf of those investors and will report to the competent tax authorities for the withholding.For investors who are tax residents of other countries which have entered into tax treaties with China stipulating a dividend tax rate of lower than 10%,the enterprises and individuals may apply to the competent tax authorities for the entitlement of the rate under such tax treaties either by themselves or by entrusting a withholding agent.Upon approval by the tax authorities,the amount paid in excess of the tax payable based on the tax rate according to such tax treaties will be refunded.5 THE COMPANYS EMPLOYEESAs of 30 June 2024,the Company has a total of 357,495 employees.Each of Sinopec Marketing Company Limited and China International United Petroleum and Chemical Company Limited,the principal subsidiaries of Sinopec Corp.,has 117,277 and 617 employees respectively.6 REMUNERATION POLICYBased on a relatively unified basic remuneration system,Sinopec Corp.has established its remuneration distribution system based on the value of positions,performance&contribution,with an aim at improving employee capabilities,and has constantly improved employee performance evaluation and incentive&discipline mechanisms.7 TRAINING PROGRAMSDuring the reporting period,the Company strengthened coordination and the top-level design for training programs,improved the high-quality training system,and conducted training programs for all types of talents.The headquarter trained 1,153 key talents of various types in the first half of 2024.Focusing on serving corporate strategy,the training for managers,experts,technical personnel,and international talents improved the comprehensive quality and performance ability of all kinds of talents with emphasis on the combination of theory and practice.The Company enhanced the intelligent and accurate level of training by promoting the application of Sinopec Network College.The Sinopec Network College trained a total of more than 30 million hours in the first half of 2024.8 DETAILED IMPLEMENTATION OF THE SHARE INCENTIVE SCHEMESinopec Corp.and its subsidiaries did not implement any share incentive scheme during the reporting period.9 COMPLIANCE WITH THE CORPORATE GOVERNANCE CODEDuring the reporting period,Sinopec Cplied with all the code provisions of the Corporate Governance Code set out in Appendix C1 of the Hong Kong Listing Rules.10 REVIEW OF THE INTERIM REPORTThe Audit Committee of the Board of Sinopec Corp.has reviewed and confirmed the Interim Report.28CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 2024Environmental and Social ResponsibilitiesENVIRONMENTAL AND SOCIAL RESPONSIBILITIES1 WORK CONDUCTED IN ECOLOGICAL PROTECTION,POLLUTION PREVENTION AND ENVIRONMENTAL RESPONSIBILITIES PERFORMANCEIn the reporting period,the Company deepened the campaign of pollution prevention,strictly implemented the requirements of the national action plan for the continuous improvement of air quality,persistently strengthened ecological and environmental protection in the Yangtze and Yellow River basins,vigorously implemented the energy efficiency improvement plan.The sewage COD and sulphur dioxide emissions decreased by 4%and 3%respectively,and the solid waste was 100%properly disposed.2 MEASURES TAKEN TO MITIGATE CARBON EMISSION AND ITS EFFECTIn the reporting period,the Company orderly promoted the adjustment and optimization of industrial structure and energy consumption structure,strengthened the development and application of key green and low-carbon technologies,accelerated the promoting of carbon footprint management for key products,launched and implemented the“Ten Thousand Power Stations in the Sunshine”initiative,strengthened the control of CO2 and methane emissions and achieved good results in carbon emission reduction.The Company decreased GHG emissions by 2.149 million tonnes of CO2 equivalent through energy conservation and consumption reduction,1.062 million tonnes of CO2 were recycled,used 0.363 million tonnes of carbon dioxide for EOR,and 470 million cubic meters of methane were recovered which was equivalent to reducing around 7.05 million tonnes of CO2 emissions.3 THE FIRST PHASE ACHIEVEMENTS AND THE SECOND PHASE PLAN OF THE GREEN ENTERPRISE CAMPAIGNIn 2018,the Company released the Green Enterprise Campaign,and had successfully achieved the targets of the first phase plan of Green Enterprise Campaign by the end of 2023.In 2023,Sinopec Corp.decreased carbon emission intensity by 23.8%compared with 2017,captured 1.75 million tonnes of CO2,recovered 870 million cubic meters of methane,and the compliance rate of carbon emission trading reached 100%.To build a green production system and enhance the green competitiveness,the Company formulated the Second Phase Plan of the Green Enterprise Campaign of Sinopec Corp.Focusing on efforts to cut carbon emissions,reduce pollution,increase efficiency and promote green development,the Company set the following main targets through 2028:Emission intensities of carbon dioxide and methane decrease by 5%and 20%respectively compared with 2023,capture and utilise 2.5 million tonnes carbon dioxide per year,100%compliance rate of carbon emission trading;over 92%comprehensive utilisation rate of industrial solid waste,100%compliance disposal rate of hazardous waste;comprehensive energy consumption per RMB10,000 of production output decreases by 5%compared with 2023,over 60%reuse rate of wastewater.4 EXPLANATIONS ON ENVIRONMENTAL PROTECTION COMPANIES AND THEIR SUBSIDIARIES AS MAJOR POLLUTANT DISCHARGING COMPANIES IDENTIFIED BY ENVIRONMENTAL PROTECTION DEPARTMENTS(1)Pollutant discharge informationIn the reporting period,certain subsidiaries of Sinopec Corp.listed as major pollutant discharge units announced by national or local ecological and environmental authorities have acquired their pollutant discharge license in accordance with the requirements of the national list of fixed pollution source emission permit classification management and disclosed environmental information as required by the relevant authorities and local government.The details of such information were published on national pollutant discharge license management information platform(https:/ the local government website.Discharge information summarized by category is as follows:(a)Discharge of air pollutants1No.Pollutant typeNumber of vents involved2Ways of discharge3Discharge standards implemented4Permitted concentration limit5Actual average concentration in the first half of the year6Approved actual discharge amountDischarge compliance1 SO2 1,251 Continuous Discharge Standards for Air Pollutants from Thermal Power Plants(GB 13223-2011)Discharge Standards for Air Pollutants from Boilers(GB13271-2014)Discharge Standards for Pollutants in the Petroleum Refining Industry(GB31570-2015)Discharge Standards for Pollutants in the Petrochemical Industry(GB31571-2015)Discharge Standards for Pollutants in the Synthetic Resin Industry(GB31572-2015)35-200 mg/m3 5-50 mg/m3 2,327 tonnes The compliance rate of average data per hour is 99.99%,the details of which are subject to the announcement by the ecological authorities.2 NOX 1,243 Continuous Discharge Standards for Air Pollutants from Thermal Power Plants(GB 13223-2011)Discharge Standards for Air Pollutants from Boilers(GB13271-2014)Discharge Standards for Pollutants in the Petroleum Refining Industry(GB31570-2015)Discharge Standards for Pollutants in the Petrochemical Industry(GB31571-2015)Discharge Standards for Pollutants in the Synthetic Resin Industry(GB31572-2015)50-240 mg/m3 20-100 mg/m3 9,177 tonnes The compliance rate of average data per hour is 99.99%,the details of which are subject to the announcement by the ecological authorities.29CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 2024Environmental and Social ResponsibilitiesNote 1:This report discloses the discharge of the Companys oilfield,refining and chemical companies and specialized companies that are included in the key management of emission permits.The data is calculated by self-monitoring data and is ultimately subject to the data published by the local ecological authorities.Note 2:Count the number of organized vents involved for this pollutant.Note 3:Intermittent discharge from some vents.Note 4:The discharge standards implemented are the major industrial discharge standards.Other standards such as local emission standards implemented by each company can be found in the public information of the ecological authorities.Note 5:The permitted concentration limit is major industrial discharge standard limit.The limit of other standards implemented by each company can be found in the public information of the ecological authorities.Note 6:The actual average concentration of the main discharge outlets in the first half of the year is within the corresponding disclosure range,and the public information of the ecological and environmental department can be consulted for details.(b)Discharge of water pollutants1No.Pollutant typeNumber of vents involvedWays of discharge2Discharge standards implemented3Permitted concentration limit4Actual average concentration in the first half of the year5Approved actual discharge amountDischarge compliance1 COD 76 Continuous Discharge Standards for Pollutants in the Petroleum Refining Industry(GB31570-2015)Discharge Standards for Pollutants in the Petrochemical Industry(GB31571-2015)Discharge Standards for Pollutants in the Synthetic Resin Industry(GB31572-2015)40-60mg/L 10-50 mg/L 1,829 tonnes Daily average data has 100%compliance rate.2 Ammonia and nitrogen 75 Continuous Discharge Standards for Pollutants in the Petroleum Refining Industry(GB31570-2015)Discharge Standards for Pollutants in the Petrochemical Industry(GB31571-2015)Discharge Standards for Pollutants in the Synthetic Resin Industry(GB31572-2015)5-8mg/L 0.5-4 mg/L 24 tonnes Daily average data has 100%compliance rate.Note 1:This report discloses the discharge of the Companys oilfield,refining and chemical companies and specialized companies that are included in the key management of discharge permits.The data is calculated by self-monitoring data and is ultimately subject to the data published by the local ecological authorities.Note 2:Intermittent discharge from some vents.Note 3:The discharge standards implemented are the major industrial discharge standard.Other standards such as local emission standards implemented by each company can be found in the public information of the ecological authorities.Note 4:The permitted concentration limit is major industrial discharge standard limit.The limit of other standards implemented by each company can be found in the public information of the ecological authorities.Note 5:The actual average concentration of the main discharge outlets in the first half of the year is within the corresponding disclosure range,and the public information of the ecological and environmental department can be consulted for details.30CHINA PETROLEUM&CHEMICAL CORPORATIONInterim Report 2024Environmental and Social ResponsibilitiesENVIRONMENT AND SOCIAL RESPONSIBILITIES(CONTINUED)(2)Construction and operation of pollution prevention facilitiesIn the reporting period,the Company built prevention and control facilities for sewage,flue gas,solid waste and noise in accordance with the requirements of the national and local pollution prevention and environmental protection standards,maintained effective and stable operation of pollution prevention and control facilities.(3)Environmental influence evaluation for construction projects and other administrative permit for environmental protectionIn the reporting period,the Company strictly standardized environmental protection management for construction projects,enforced whole process environmental protection management on construction and operation.With measures of the“simultaneous three”of the environmental protection implemented,all new projects have acquired approval for environmental evaluation from government.(4)Contingent scheme for sudden environmental incidentIn the reporting period,the Company complied with the requirements for environmental incident contingent scheme by the State and persistently improved its contingent scheme against sudden environmental incidents of enterprises and weather with severe pollution.(5)Scheme for environmental self-monitoringIn the reporting period,the Company improved its self-monitoring scheme in accordance with the industry guidelines on self-monitoring,enforced the requirements for sewage,flue gas and noise monitoring,and disclosed the monitor information as required.(6)Administrative penalties due to environmental problems in the reporting periodIn the reporting period,to the knowledge of the Company,Sinopec Corp.and its subsidiaries were subject to the environmental administrative penalty of RMB0.3585 million.The details of administrative penalties were published on the websites of local ecological and environmental authorities.(7)Other environmental information to be disclosedIn the reporting period,for subsidiaries not listed as major pollution units,the Company has acquired related permissions from national and local government,and enforced environmental protection measures.Those subsidiaries are not obliged to make disclosure in accordance with the requirements of national and local ecological environment authorities.5 CONSOLIDATING AND EXPANDING THE ACHIEVEMENTS IN POVERTY-ALLEVIATION AND RURAL REVITALIZATIONDuring the reporting period,the Company actively promoted rural revitalization for new achievements,deepened education assistance,further improved th
2024-09-10
154页
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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-QQUARTERLY REPORT PURSUAN.
2024-08-30
80页
5星级
1 DiDi Announces Results for Second Quarter 2024 Beijing,August 21,2024-DiDi Global Inc.(“we”,“us”,“.
2024-08-29
12页
5星级
BILIBILI INC.HKEX:9626 NASDAQ:BILI(A company controlled through weighted voting rights and incorporated in the Cayman Islands with limited liability)2024 INTERIM REPORT2024 中期報告 2024BILIBILI INC.INTERIM REPORT 嗶哩嗶哩股份有限公司 中期報告嗶哩嗶哩股份有限公司 港交所代號：9626 納斯達克代號：BILI（於開曼群島註冊成立以不同投票權控制的有限責任公司）ContentsBilibili Inc.2024 Interim ReportCompany Information 2Financial Highlights 3Business Review and Outlook 5Management Discussion and Analysis 9Corporate Governance 14Other Information 20Report on Review of Interim Financial Information 31Unaudited Interim Condensed Consolidated Balance Sheet 32Unaudited Interim Condensed Consolidated Statement of Operations and Comprehensive Loss 35Unaudited Interim Condensed Consolidated Statement of Changes in Shareholders Equity 37Unaudited Interim Condensed Consolidated Statement of Cash Flows 39Notes to Unaudited Interim Condensed Consolidated Financial Information 42Definitions 732Bilibili Inc.2024 Interim ReportCompany InformationBOARD OF DIRECTORS DirectorsMr.Rui Chen(Chairman and Chief Executive Officer)Ms.Ni Li Mr.Yi XuIndependent DirectorsMr.JP GanMr.Eric HeMr.Feng LiMr.Guoqi DingAUDIT COMMITTEEMr.Eric He(Chairman)Mr.JP GanMr.Feng LiCOMPENSATION COMMITTEEMr.JP Gan(Chairman)Mr.Eric He Mr.Feng LiNOMINATING AND CORPORATEGOVERNANCE COMMITTEEMr.JP Gan(Chairman)Mr.Eric HeMr.Feng LiJOINT COMPANY SECRETARIESMr.Xin FanMs.Chau Hing Ling Anita(FCG,HKFCG)AUTHORIZED REPRESENTATIVESMr.Yi XuMr.Xin Fan Ms.Chau Hing Ling AnitaPRINCIPAL EXECUTIVE OFFICES OFMAIN OPERATIONSBuilding 3,Guozheng CenterNo.485 Zhengli RoadYangpu DistrictShanghaiPeoples Republic of ChinaADDRESS IN HONG KONG Suite 603,6/F,Laws Commercial Plaza788 Cheung Sha Wan RoadKowloonHong KongREGISTERED OFFICEWalkers Corporate Limited190 Elgin AvenueGeorge TownGrand Cayman KY1-9008Cayman IslandsCAYMAN ISLANDS PRINCIPAL SHARE REGISTRARWalkers Corporate Limited190 Elgin AvenueGeorge TownGrand Cayman KY1-9008Cayman IslandsHONG KONG SHARE REGISTRARComputershare Hong Kong Investor Services LimitedShops 17121716,17th FloorHopewell Centre 183 Queens Road EastWanchai Hong KongCOMPLIANCE ADVISOR Somerley Capital Limited 20th Floor,China Building29 Queens Road CentralHong KongPRINCIPAL BANKChina Merchants Bank Shanghai BranchSTOCK CODEHKEX:9626NASDAQ:BILIAUDITORPricewaterhouseCoopersCertified Public Accountants and Registered Public Interest Entity Auditor22/F,Princes Building Central Hong KongCOMPANY WEBSITEhttps:/ Highlights3Bilibili Inc.2024 Interim ReportFor the Six Months Ended June 30,20232024Change(%)RMBRMB(in thousands,except for percentages)Net revenues10,373,81011,791,74413.7%Gross profit2,331,4663,438,56147.5%Loss before income tax(2,122,187)(1,377,372)(35.1%)Net loss(2,177,777)(1,372,780)(37.0%)Net loss attributable to the Bilibili Inc.s shareholders(2,174,393)(1,357,245)(37.6%)Non-GAAP Financial Measures:Adjusted net loss(1,994,852)(726,872)(63.6%)Adjusted net loss attributable to the Bilibili Inc.s shareholders(1,991,468)(711,337)(64.3%)As of 2023December 31,As of2024 June 30,Change(%)RMBRMB(in thousands,except for percentages)Total current assets18,727,03917,497,754(6.6%)Total non-current assets14,432,02813,820,739(4.2%)Total assets33,159,06731,318,493(5.6%)Total liabilities18,754,80017,736,790(5.4%)Total shareholders equity14,404,26713,581,703(5.7%)Total liabilities and shareholders equity33,159,06731,318,493(5.6%)Non-GAAP Financial Measures The Company uses non-GAAP measures,such as adjusted loss from operations,adjusted net loss,adjusted net loss per share and per ADS,basic and diluted and adjusted net loss attributable to the Bilibili Inc.s shareholders in evaluating its operating results and for financial and operational decision-making purposes.The Company believes that the non-GAAP financial measures help identify underlying trends in its business by excluding the impact of share-based compensation expenses,amortization expense related to intangible assets acquired through business acquisitions,income tax related to intangible assets acquired through business acquisitions,gain/loss on fair value change in investments in publicly traded companies,and gain/loss on repurchase of convertible senior notes.The Company believes that the non-GAAP financial measures provide useful information about the Companys results of operations,enhance the overall understanding of the Companys past performance and future prospects and allow for greater visibility with respect to key metrics used by the Companys management in its financial and operational decision-making.4Bilibili Inc.2024 Interim ReportFinancial Highlights The non-GAAP financial measures are not defined under U.S.GAAP and are not presented in accordance with U.S.GAAP and therefore may not be comparable to similar measures presented by other companies.The non-GAAP financial measures have limitations as analytical tools,and when assessing the Companys operating performance,cash flows or liquidity,investors should not consider them in isolation,or as a substitute for net loss,cash flows provided by operating activities or other consolidated statement of operations and cash flows data prepared in accordance with U.S.GAAP.The Company mitigates these limitations by reconciling the non-GAAP financial measures to the most comparable U.S.GAAP performance measures,all of which should be considered when evaluating the Companys performance.The following table sets forth unaudited reconciliation of GAAP and non-GAAP results for the periods indicated.For the Six Months Ended June 30,20232024RMBRMB(in thousands)Loss from operations(2,652,344)(1,403,731)Add:Share-based compensation expenses 561,548524,065 Amortization expense related to intangible assets acquired through business acquisitions96,30283,552Adjusted loss from operations(1,994,494)(796,114)Net loss(2,177,777)(1,372,780)Add:Share-based compensation expenses 561,548524,065 Amortization expense related to intangible assets acquired through business acquisitions96,30283,552 Income tax related to intangible assets acquired through business acquisitions(11,250)(10,814)(Gain)/loss on fair value change in investments in publicly traded companies(181,233)28,125(Gain)/loss on repurchase of convertible senior notes(282,442)20,980Adjusted net loss(1,994,852)(726,872)Net loss attributable to noncontrolling interests3,38415,535Adjusted net loss attributable to the Bilibili Inc.s shareholders(1,991,468)(711,337)Business Review and Outlook5Bilibili Inc.2024 Interim ReportIn the first half of the year,we made solid progress in financial performance and community development.We successfully accelerated revenue growth,improved margins and considerably narrowed losses,all while cultivating a vibrant community with continued user growth and strong engagement metrics.In the first half of this year,we further enhanced our commercialization efficiency and effectively unlocked the value of our community.Our total net revenues were RMB11.79 billion,representing an increase of 14%year over year.Notably,our advertising and VAS revenues increased by 30%and 14%year over year,respectively,showing our effective execution in converting our high-quality user traffic to topline growth.Moreover,our mobile game revenues resumed year-over-year growth in the second quarter,led by the excellent performance of our recently launched new games,including our first strategy game,San Guo:Mou Ding Tian Xia(“San Mou”),which attracted millions of players and showcased our operational capabilities beyond ACG.With accelerated revenue growth and our continued efficient operations,we achieved a notable 47%year-over-year increase in our gross profit in the first half of the year,and our gross profit margin rose to 29.2%,compared with 22.5%of the same period last year.As a result,we meaningfully narrowed our adjusted loss from operations and adjusted net loss by 60%and 64%year over year,respectively.Furthermore,in the first half of the year,we generated a record RMB2.39 billion in operating cash flow,compared with negative RMB651.2 million in the same period last year.These solid achievements have brought us on the right track towards profitability and paved the way for sustainable growth thereafter.While focusing on improving our commercialization capabilities,we continued to attract more users and develop our community with great vitality.In the first half of the year,our DAUs reached over 102.3 million,and our MAUs averaged 338.6 million,representing an 8%and 6%year-over-year increase from the same period last year,respectively.Our users continued to appreciate our diverse and ever-evolving content,with the average daily time spent per active user reaching 102 minutes in the first half of the year,compared to 95 minutes in the same period last year.ContentOur self-sustained content ecosystem remains the key foundation for both community traffic growth and commercialization potential.In the first half of the year,we continued to cultivate a thriving community that enables more high-quality content creators to showcase their talent and gain recognition from like-minded users.This strategy has proven to be beneficial.Our average daily video views increased by 20%year over year to over 4.90 billion in the first half of the year.The video views in our leading content categories,including games,entertainment,tech and knowledge,continued to show solid growth.Notably,we have emerged as the go-to platform for AI-related content and discussion in China,as we host the most curious minds in our community.Meanwhile,as our users interests expand with each life stage and their purchasing power increases,our diverse content continues to evolve with our users to meet them at every pass.In the first half of the year,video views across consumption-related categories,such as baby and maternity,automotive,travel,fashion and home decoration&appliance,all grew rapidly.6Bilibili Inc.2024 Interim ReportBusiness Review and OutlookWe remained dedicated to providing diverse and effective monetization channels to incentivize our content creators.In the first half of this year,approximately 2.1 million content creators earned income on our platform.Our advanced ad products and innovative VAS products both enabled content creators to better monetize their unique talents.In the first half of 2024,content creators total income earned through our advertising and VAS products increased by 30%year over year.Community Our inspiring community atmosphere and interactive features have continuously deepened the connection between our users and our platform.Our community remained highly engaged,with an average daily time spent on our platform of 102 minutes in the first half of the year,compared with 95 minutes in the same period last year.Users average monthly interactions reached approximately 16.46 billion in the first half of the year,representing a 13%year-on-year increase.Our official member base grew to 243.1 million,rising 13%year on year as of the end of June 2024,with a strong 12-month retention rate remaining at around 80%.Moreover,this July,our signature offline events,Bilibili World and Bilibili Macro Link,once again brought our community together in Shanghai.More than 250,000 people traveled across the country to participate in the events,showing our unparalleled influence among the young generation,as well as users strong willingness to pay for our unique community experiences.CommercializationOur initiatives in enhancing the commercial and operational efficiency have yielded encouraging results in the first half of this year.We accelerated topline growth while also improving revenue quality.Based largely on our revenue growth and platform efficiency,we successfully expanded our gross profit margin and significantly narrowed our losses.Value-Added ServicesRevenues from our VAS business increased by 14%year over year to RMB5.09 billion in the first half of 2024.We continued to add more live broadcasting content offerings,reinforcing the synergies between our live broadcasting and video ecosystem to better cater to users diverse interests.Moreover,through refined operational methods,we improved our live broadcasting gross profit margin while increasing the supply of high-quality live broadcasting content.In addition to live broadcasting,we further explored opportunities in our VAS businesses as our generation Z users have demonstrated an increasing willingness to pay directly for the content they love.As of the end of June 2024,our premium members exceeded 22.3 million,increasing by 9%year over year.Over 80%of them were annual subscribers or under auto-renewal packages,showing their continued loyalty and trust in Bilibili.Users are also showing a growing tendency to spend on our other VAS products,including our premium online courses,fan charging programs and avatar decorations.We expect these products to open more monetization potential in the future across our massive PUGV content universe.7Bilibili Inc.2024 Interim ReportBusiness Review and OutlookAdvertisingAs our users disposable income rises,their commercial value becomes more apparent as they engage with more consumption-related content on Bilibili.Our advertising strategy of aligning advertisers with the appropriate audience to capitalize on these growing trends has proven to be effective.In the first half of the year,revenues from our advertising business were RMB3.71 billion,representing 30%year-over-year growth.Our performance-based ads were a standout contributor to our robust revenue growth.Revenues from our brand advertising and Sparkle advertising offerings also achieved decent growth in the first half of 2024.We are allocating more resources to integrate ad products seamlessly within our content ecosystem.In the first half of 2024,we further improved our ad products and infrastructure to increase our ad efficiency by optimizing our ad-matching algorithms,upgrading our ad placement system,enabling more creative ad formats,and providing visualized data analysis tools for advertisers.In addition,our video and live commerce ad products with direct sales conversion tools continued to yield results.These transaction-based ads enable advertisers to effectively convert users from product viewing to making purchases.Industry-wise,our top five advertising verticals in the first half of the year were games,e-commerce,digital products&home appliances,automotive,and food and beverages.We continued to gain more market shares in our anchor verticals,such as games and e-commerce.In addition,revenues from emerging verticals,such as internet services,AI and education,also saw meaningful increases in the first half of the year,showing our potential to replicate the success in our leading verticals to more advertisers from various industries.In the first half of 2024,the number of advertisers on our platform increased by over 50%year over year.Mobile Games ServicesRevenues from our mobile games business totaled RMB1.99 billion in the first half of the year,reflecting a decrease of 2%year over year.Our two evergreen titles,Fate Grand Order and Azur Lane,made relatively stable contributions to our game revenues in the first half of the year and entered into their eighth and seventh year of operation,demonstrating these games remarkable longevity.In the first half of this year,we successfully launched two new games,including an ACG title Articrafter and our first strategy game,San Mou,both of which are well received by game lovers.Particularly for San Mou,it ranked No.3 on the iOS game grossing chart on the first day of its launch,attracting millions of gamers to the three kingdoms battlefields.Given the sizable strategy game market,this games promising start and the inherent longevity of strategy games,we are confident San Mou will become one of our flagship games with lasting appeal.More importantly,as our community and gamer base have both expanded exponentially since our founding,San Mous success represents a significant milestone in our game genre diversification strategy and underscores the vast potential of our game portfolio.We will continue to leverage our position as a leading game community and seize opportunities to reinvent games for the new generation of gamers.8Bilibili Inc.2024 Interim ReportBusiness Review and OutlookRepurchase of Convertible Senior NotesIn March 2024,the Company completed the repurchase right offer for its 1.375%Convertible Senior Notes due 2026(“April 2026 Notes”).An aggregate principal amount of US$429.3 million(RMB3.05 billion)April 2026 Notes was validly surrendered and repurchased with an aggregate cash consideration of US$429.3 million(RMB3.05 billion).As of June 30,2024,the aggregate outstanding principal amount of April 2026 Notes,2027 Notes and December 2026 Notes was US$432.5 million(RMB3.08 billion).RECENT DEVELOPMENTS AFTER THE REPORTING PERIODSave as disclosed in this interim report,there were no other significant events that might affect us since the end of the Reporting Period and up to the Latest Practicable Date.BUSINESS OUTLOOKIn the first half of the year,our accelerated monetization efforts yielded promising results,including accelerated revenue growth,meaningful margin improvement and considerable loss reduction,all while cultivating a vibrant community.Moving into the second half of the year,we will further invest in enhancing our commercialization capabilities to unlock the value of our users and community.We believe that,by strengthening our ad infrastructure,we will better meet users evolving consumption needs;by integrating various VAS products with our ecosystem,we will unlock more monetization potential of our vast content library;and by reinventing strategy games to appeal to younger audiences,we can capture additional game revenue.With the improvement in our financial performances,we remain committed to our core mission:building a stage for content creators to shine,fostering a healthy,vibrant community for users to enjoy,and bringing value to our shareholders and partners over the long term.Management Discussion and Analysis 9Bilibili Inc.2024 Interim ReportFor the Six Months EndedJune 30,20232024(Unaudited)(Unaudited)(RMB in thousands)Net Revenues:Value-added services(VAS)4,457,9655,094,797 Advertising2,844,6443,706,075 Mobile games2,022,5031,990,177 IP derivatives and others 1,048,6981,000,695Total net revenues10,373,81011,791,744Cost of revenues(8,042,344)(8,353,183)Gross profit2,331,4663,438,561Operating expenses:Sales and marketing expenses(1,798,383)(1,962,655)General and administrative expenses(1,111,394)(1,019,816)Research and development expenses(2,074,033)(1,859,821)Total operating expenses(4,983,810)(4,842,292)Loss from operations(2,652,344)(1,403,731)Other income:Investment income/(loss),net(including impairments)8,321(115,933)Interest income298,300233,551 Interest expense(105,682)(51,383)Exchange losses(16,552)(73,335)Debt extinguishment gain/(loss)282,442(20,980)Others,net63,32854,439Total other income,net530,15726,359Loss before income tax(2,122,187)(1,377,372)Income tax(expense)/benefit(55,590)4,592Net loss(2,177,777)(1,372,780)Net loss attributable to noncontrolling interests3,38415,535Net loss attributable to the Bilibili Inc.s shareholders(2,174,393)(1,357,245)10Bilibili Inc.2024 Interim ReportManagement Discussion and Analysis NET REVENUESTotal net revenues were RMB11.79 billion for the six months ended June 30,2024,representing an increase of 14%from RMB10.37 billion for the six months ended June 30,2023.Value-added services(VAS)Revenues from VAS were RMB5.09 billion for the six months ended June 30,2024,representing an increase of 14%from RMB4.46 billion for the six months ended June 30,2023.The increase was led by increases in revenues from live broadcasting,premium membership,and other value-added services.Advertising Revenues from advertising were RMB3.71 billion for the six months ended June 30,2024,representing an increase of 30%from RMB2.84 billion for the six months ended June 30,2023.This increase was mainly attributable to the Companys improved advertising product offerings and enhanced advertising efficiency.Mobile games Revenues from mobile games were RMB1.99 billion for the six months ended June 30,2024,representing a decrease of 2%from RMB2.02 billion for the six months ended June 30,2023.The decrease was mainly due to lower revenues from certain existing games and was mostly offset by the increased revenues from the launch of the Companys exclusively licensed games in the second quarter of 2024.IP derivatives and others Revenues from IP derivatives and others were RMB1.00 billion for the six months ended June 30,2024,representing a decrease of 5%from RMB1.05 billion for the six months ended June 30,2023.COST OF REVENUESCost of revenues was RMB8.35 billion for the six months ended June 30,2024,representing an increase of 4%from RMB8.04 billion for the six months ended June 30,2023.The increase was mainly due to higher revenue-sharing costs and was partially offset by lower content costs,staff costs and other costs.Revenue-sharing costs,a key component of cost of revenues,was RMB4.72 billion,representing an increase of 12%from RMB4.22 billion for the six months ended June 30,2023.GROSS PROFITGross profit was RMB3.44 billion for the six months ended June 30,2024,representing an increase of 47%from RMB2.33 billion for the six months ended June 30,2023,primarily due to growth in total net revenues and relatively stable costs related to platform operations.11Bilibili Inc.2024 Interim ReportManagement Discussion and Analysis OPERATING EXPENSES Total operating expenses were RMB4.84 billion for the six months ended June 30,2024,representing a decrease of 3%from RMB4.98 billion for the six months ended June 30,2023.Sales and marketing expensesSales and marketing expenses were RMB1.96 billion for the six months ended June 30,2024,representing a 9%increase from RMB1.80 billion for the six months ended June 30,2023.The increase was primarily attributable to increased marketing expenses for new game launches.General and administrative expensesGeneral and administrative expenses were RMB1.02 billion for the six months ended June 30,2024,representing an 8crease from RMB1.11 billion for the six months ended June 30,2023.The decrease was primary attributable to a decrease in the headcount of general and administrative personnel and lower rental-related expenses.Research and development expensesResearch and development expenses were RMB1.86 billion for the six months ended June 30,2024,representing a 10crease from RMB2.07 billion for the six months ended June 30,2023.The decrease was mainly attributable to a decrease in the headcount of research and development personnel.LOSS FROM OPERATIONSLoss from operations was RMB1.40 billion for the six months ended June 30,2024,narrowing by 47%from RMB2.65 billion for the six months ended June 30,2023.ADJUSTED LOSS FROM OPERATIONSAdjusted loss from operations was RMB796.1 million for the six months ended June 30,2024,narrowing by 60%from RMB1.99 billion for the six months ended June 30,2023.TOTAL OTHER INCOME,NETTotal other income was RMB26.4 million for the six months ended June 30,2024,compared with total other income of RMB530.2 million in the same period of 2023.The change was primarily attributable to a loss of RMB28.1 million on fair value change in investments in publicly traded companies and a loss of RMB21.0 million from the repurchase of convertible senior notes for the six months ended June 30,2024,compared to a gain of RMB181.2 million on fair value change in investments in publicly traded companies and a gain of RMB282.4 million from the repurchase of convertible senior notes for the six months ended June 30,2023.12Bilibili Inc.2024 Interim ReportManagement Discussion and Analysis INCOME TAX(EXPENSE)/BENEFIT Income tax benefit was RMB4.6 million for the six months ended June 30,2024,compared with income tax expense of RMB55.6 million for the six months ended June 30,2023.NET LOSSNet loss was RMB1.37 billion for the six months ended June 30,2024,narrowing by 37%from RMB2.18 billion for the six months ended June 30,2023.ADJUSTED NET LOSS Adjusted net loss was RMB726.9 million for the six months ended June 30,2024,narrowing by 64%from RMB1.99 billion for the six months ended June 30,2023.LIQUIDITY The Company had cash and cash equivalents,time deposits and short-term investments of RMB13.91 billion as of June 30,2024,compared with RMB15.04 billion as of December 31,2023.The decrease was mainly due to the repurchase of April 2026 Notes for a total cash consideration of US$429.3 million(RMB3.05 billion)for the six months ended June 30,2024,partially offset by operating cash flow generated for the six months ended June 30,2024.The Company generated RMB2.39 billion operating cash flow for the six months ended June 30,2024,compared with negative RMB651.2 million operating cash flow for the six months ended June 30,2023.SIGNIFICANT INVESTMENTS The Group did not make or hold any significant investments during the six months ended June 30,2024.MATERIAL ACQUISITIONS AND DISPOSALS The Group did not have any material acquisitions or disposals of subsidiaries,consolidated affiliated entities or associated companies during the six months ended June 30,2024.PLEDGE OF ASSETS As at June 30,2024,none of our assets were pledged to secure loans and banking facilities.13Bilibili Inc.2024 Interim ReportManagement Discussion and Analysis GEARING RATIO As at June 30,2024,the Companys gearing ratio(i.e.total liabilities divided by total assets,in percentage)was 56.6%,compared with 56.6%as at December 31,2023.FUTURE PLANS FOR MATERIAL INVESTMENTS OR CAPITAL ASSETS As at June 30,2024,the Group did not have detailed future plans for material investments or capital assets.FOREIGN EXCHANGE EXPOSURE A substantial majority of our revenues and costs is denominated in Renminbi.Any significant depreciation of the Renminbi may materially adversely affect the value of,and any dividends payable on,the ADSs in U.S.dollars.For example,when we convert our U.S.dollars denominated funds into Renminbi for our operations,appreciation of the Renminbi against the U.S.dollar would have an adverse effect on the Renminbi amount we would receive from the conversion.Conversely,if we decide to convert our Renminbi into U.S.dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes,appreciation of the U.S.dollar against the Renminbi would have a negative effect on the U.S.dollar amount available to us.In addition,appreciation or depreciation in the value of the Renminbi relative to U.S.dollars would affect our financial results reported in U.S.dollar terms regardless of any underlying change in our business or results of operations.Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations.To date,we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk.While we may decide to enter into hedging transactions in the future,the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all.In addition,our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency.CONTINGENT LIABILITIESThe Company had no material contingent liabilities as at June 30,2024.EMPLOYEES AND REMUNERATIONAs of June 30,2024,the Company had a total of 8,137 employees,compared to 8,801 as of December 31,2023.As required under PRC regulations,the Company participates in housing funds and various employee social security plans that are organized by applicable local municipal and provincial governments,including housing funds,pension,maternity,medical,work-related injury and unemployment benefit plans,under which we make contributions at specified percentages of the salaries of its employees.We also purchase commercial health and accidental insurance for our employees.Bonuses are generally discretionary and based in part on employee performance and in part on the overall performance of the Groups business.The Company has granted and plans to continue to grant share-based incentive awards to its employees in the future to incentivize their contributions to its growth and development.Corporate Governance14Bilibili Inc.2024 Interim ReportWEIGHTED VOTING RIGHTS The Company is controlled through weighted voting rights.Under the Companys weighted voting rights structure,each Class Y Ordinary Share entitles the holder to exercise ten votes and each Class Z Ordinary Share entitles the holder to exercise one vote on all matters that require a Shareholders vote,subject to Rule 8A.24 of the Listing Rules,that requires Reserved Matters to be voted on a one vote per share basis.The Companys weighted voting rights structure enables Mr.Rui Chen,Ms.Ni Li and Mr.Yi Xu,holders of the Class Y Ordinary Shares(the“WVR Beneficiaries”),to exercise voting control over the Company notwithstanding that the WVR Beneficiaries do not hold a majority economic interest in the share capital of the Company.This allows the Company to benefit from the continued vision and leadership of the WVR Beneficiaries.Shareholders and prospective investors are advised to be aware of the potential risks of investing in companies with a weighted voting rights structure,in particular that the interests of the WVR Beneficiaries may not necessarily always be aligned with those of our Shareholders as a whole,and that the WVR Beneficiaries will be in a position to exert significant influence over the affairs of the Company and the outcome of Shareholders resolutions,irrespective of how other Shareholders vote.Prospective investors should make the decision to invest in the Company only after due and careful consideration.As of June 30,2024,the WVR Beneficiaries were interested in a total of 83,715,114 Class Y Ordinary Shares,representing a total of 71.7%voting rights in the Company with respect to Shareholders resolutions relating to matters other than the Reserved Matters(excluding 7,126,386 Class Z Ordinary Shares issued and reserved for future issuance upon the exercise or vesting of awards granted under the Companys share incentive plans).Class Y Ordinary Shares may be converted into Class Z Ordinary Shares on a one-to-one ratio.Upon the conversion of the Class Y Ordinary Shares,the Company would redesignate 83,715,114 Class Y Ordinary Shares and reissue the same number of Class Z Ordinary Shares,representing 20.2%of the issued share capital of the Company as of June 30,2024(excluding 7,126,386 Class Z Ordinary Shares issued and reserved for future issuance upon the exercise or vesting of awards granted under the Companys share incentive plans).As of June 30,2024,Mr.Rui Chen was interested in,and controlled through Vanship Limited,49,299,006 Class Y Ordinary Shares and 525,525 Class Z Ordinary Shares in the form of ADSs,representing 42.3%of the voting rights in the Company.Vanship Limited is controlled by a trust of which Mr.Chen and his family members are the beneficiaries.As of June 30,2024,Ms.Ni Li was interested in,and controlled through Saber Lily Limited,7,200,000 Class Y Ordinary Shares and 908,300 Class Z Ordinary Shares,representing a total of 6.2%of the voting rights in the Company.Saber Lily Limited is controlled by a trust,and Ms.Li and her family members are the trusts beneficiaries.As of June 30,2024,Mr.Yi Xu was interested in,and controlled through Kami Sama Limited,27,216,108 Class Y Ordinary Shares and 151,100 Class Z Ordinary Shares,and he held 45,000 Class Z Ordinary Shares in the form of ADSs,representing a total of 23.3%of the voting rights in the Company.Kami Sama Limited is controlled by a trust,and Mr.Xu and his family members are the trusts beneficiaries.15Bilibili Inc.2024 Interim ReportCorporate GovernanceThe weighted voting rights attached to the Class Y Ordinary Shares will cease when none of the WVR Beneficiaries have beneficial ownership of any of the Class Y Ordinary Shares,in accordance with Rule 8A.22 of the Listing Rules.This may occur:(i)upon the occurrence of any of the circumstances set out in Rule 8A.17 of the Listing Rules,in particular where a WVR Beneficiary is:(1)deceased;(2)no longer a member of our Board;(3)deemed by the Stock Exchange to be incapacitated for the purpose of performing his duties as a director;or(4)deemed by the Stock Exchange to no longer meet the requirements of a director set out in the Listing Rules;(ii)when a WVR Beneficiary has transferred to another person the beneficial ownership of,or economic interest in,all of the Class Y Ordinary Shares or the voting rights attached to them,other than in the circumstances permitted by Rule 8A.18 of the Listing Rules;(iii)where a vehicle holding Class Y Ordinary Shares on behalf of a WVR Beneficiary no longer complies with Rule 8A.18(2)of the Listing Rules;or(iv)when all of the Class Y Ordinary Shares have been converted to Class Z Ordinary Shares.The Company confirms that it has,during the Reporting Period,complied with the Corporate Governance Code set out in Appendix C1 to the Listing Rules to the extent required by Chapter 8A of the Listing Rules.COMPLIANCE WITH THE CORPORATE GOVERNANCE CODEThe Board is committed to achieving high corporate governance standards.The Board believes that high corporate governance standards are essential in providing a framework for the Company to safeguard the interests of shareholders and to enhance corporate value and accountability.The Companys voluntary conversion of its secondary listing status to primary listing on the Main Board of the Stock Exchange became effective on October 3,2022,since which the Corporate Governance Code has been applicable to the Company.16Bilibili Inc.2024 Interim ReportCorporate GovernanceDuring the Reporting Period,we have complied with all of the applicable code provisions of the Corporate Governance Code,save for the following:Code provision C.2.1 of the Corporate Governance Code,recommends,but does not require,that the roles of chairman and chief executive officer should be separate and should not be performed by the same person.The Company deviates from this code provision because Mr.Rui Chen performs both the roles of the chairman of the Board and the chief executive officer of the Company.Mr.Chen has extensive experience in our business operations and management.The Board believes that vesting the roles of both chairman and chief executive officer to Mr.Chen has the benefit of ensuring consistent leadership within the Company and enables more effective and efficient overall strategic planning.This structure will enable the Company to make and implement decisions promptly and effectively.The Board considers that the balance of power and authority will not be impaired due to this arrangement.In addition,all major decisions are made in consultation with members of the Board,including the relevant Board committees,and four independent Directors.The Board will reassess the division of the roles of chairman and the chief executive officer from time to time,and may recommend dividing the two roles between different people in the future,taking into account our circumstances as a whole.Code provision F.1.1 of the Corporate Governance Code provides that an issuer should have a policy on payment of dividends and should disclose it in the annual report.The Company deviates from this code provision because the Company does not have a dividend policy.The Board has complete discretion on whether to distribute dividends,subject to certain requirements of Cayman Islands law.Even if the Board decides to pay dividends,the form,frequency and amount will depend upon our future operations and earnings,capital requirements and surplus,general financial condition,contractual restrictions and other factors that the board of directors may deem relevant.We do not have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future.We currently intend to retain most,if not all,of our available funds and any future earnings to operate and expand our business.COMPLIANCE WITH THE MODEL CODEThe Company has adopted the Code with terms no less exacting than that of the Model Code,as its own securities dealing code to regulate all dealings by Directors and relevant employees of securities in the Company and other matters covered by the Code.Specific enquiry has been made of all the Directors and the relevant employees and they have confirmed that they have complied with the Code during the Reporting Period and up to the date of the Latest Practicable Date.17Bilibili Inc.2024 Interim ReportCorporate GovernanceAUDIT COMMITTEEThe Company has established an Audit Committee in compliance with Rule 3.21 of the Listing Rules and the Corporate Governance Code.The Audit Committee oversees the Companys accounting and financial reporting processes and the audits of the financial statement of the Company.The Audit Committee is responsible for,among other things:appointing the independent registered public accounting firms and pre-approving all auditing and non-auditing services permitted to be performed by the independent registered public accounting firms;reviewing with the independent registered public accounting firms any audit problems or difficulties and managements response;discussing the annual audited financial statement with management and the independent registered public accounting firms;reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposures;reviewing and approving all proposed related party transactions;meeting separately and periodically with management and the independent registered public accounting firms;and monitoring compliance with our code of business conduct and ethics,including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.The Audit Committee comprises three independent Directors,being Mr.Eric He,Mr.JP Gan and Mr.Feng Li,with Mr.Eric He(being our independent Director with the appropriate professional qualifications)as the chairman of the Audit Committee.The Company has determined that Mr.Eric He,Mr.JP Gan and Mr.Feng Li each satisfies the“independence”requirements of Rule 5605(c)(2)of the Nasdaq Stock Market Rules and meets the independence standards under Rule 10A-3 under the Exchange Act,as amended.We have determined that Mr.Eric He qualifies as an“Audit Committee financial expert.”The Audit Committee has reviewed the unaudited interim results of the Company for the six months ended June 30,2024 and has met with the independent auditor,PricewaterhouseCoopers.The Audit Committee has also discussed matters with respect to the accounting policies and practices adopted by the Company and internal control and financial reporting matters with senior management members of the Company.18Bilibili Inc.2024 Interim ReportCorporate GovernanceIn addition,the independent auditor of the Company,PricewaterhouseCoopers,has reviewed our interim financial information for the six months ended June 30,2024 in accordance with International Standard on Review Engagements 2410“Review of Interim Financial Information Performed by the Independent Auditor of the Entity.”NOMINATING AND CORPORATE GOVERNANCE COMMITTEEThe Company has established a Nominating and Corporate Governance Committee in compliance with the Corporate Governance Code and Rules 3.27A,8A.27,8A.28 and 8A.30 of the Listing Rules.The members of the Nominating and Corporate Governance Committee are independent non-executive Directors,namely,Mr.JP Gan,Mr.Eric He and Mr.Feng Li.Mr.JP Gan is the chairman of the Nominating and Corporate Governance Committee.The following is a summary of the work performed by the Nominating and Corporate Governance Committee during the Reporting Period in respect of its corporate governance functions:Reviewed and monitored whether the Company is operated and managed for the benefits of all its Shareholders;Reviewed the policies and practices of the Company on corporate governance and on compliance with legal and regulatory requirements;Reviewed the Companys compliance with the Corporate Governance Code to the extent required by Chapter 8A of the Listing Rules and the Companys disclosure for compliance with Chapter 8A of the Listing Rules;Reviewed and monitored the management of conflicts of interests between the Company and its subsidiaries and consolidated affiliated entities/the shareholders on one hand and the WVR Beneficiaries on the other;Reviewed and monitored all risks related to the weighted voting rights structure,including any connected transactions between the Company and its subsidiaries and consolidated affiliated entities on one hand and any WVR Beneficiary on the other,and made recommendations to the Board on any such transactions;Reviewed the arrangements for the training and continuous professional development of directors and senior management(in particular,Chapter 8A of the Listing Rules and knowledge in relation to the risks relating to the weighted voting rights structure);Reviewed and confirmed that the WVR Beneficiaries have been members of the Board throughout the Reporting Period and that no matters under Rule 8A.17 of the Listing Rules have occurred during the Reporting Period,and they have complied with Rules 8A.14,8A.15,8A.18 and 8A.24 of the Listing Rules throughout the Reporting Period;19Bilibili Inc.2024 Interim ReportCorporate Governance Sought to ensure effective and on-going communication between the Company and its Shareholders,particularly with regards to the requirements of Rule 8A.35 of the Listing Rules;and Reported on the work of the Nominating and Corporate Governance Committee covering areas of its terms of reference.The Nominating and Corporate Governance Committee recommended the Board to continue the implementation of the corporate governance measures described above and to periodically review their efficacy.OTHER BOARD COMMITTEESIn addition to the Audit Committee and the Nominating and Corporate Governance Committee,the Board has also established the Compensation Committee.Each of these committees is established with a defined written charter.The charters of the Board committees are available on the website of the Stock Exchange and the investor relations website of the Company.Other Information20Bilibili Inc.2024 Interim ReportDisclosure of InterestsDirectors and Chief ExecutivesAs at June 30,2024,the interests and short positions of the Directors and chief executives of the Company in the Shares,underlying Shares and debentures of the Company or its associated corporations within the meaning of Part XV of the SFO,which were required(a)to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO(including interests and short positions which they were taken or deemed to have under such provisions of the SFO);or(b)to be recorded in the register required to be kept by the Company pursuant to Section 352 of the SFO;or(c)as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code were as follows:Name of Director or chief executive Nature of interestNumber and class of Share(5)Approximate%of interest in each class of Shares(1)Mr.Rui Chen(2)Founder of a discretionary trust who can influence how the trustee exercises his discretion49,299,006 Class Y Ordinary Shares58.89neficial owner5,000,000 Class Z Ordinary Shares1.51%Founder of a discretionary trust who can influence how the trustee exercises his discretion525,525 Class Z Ordinary Shares 0.16%Ms.Ni Li(3)Founder of a discretionary trust who can influence how the trustee exercises his discretion7,200,000 Class Y Ordinary Shares8.60neficial owner3,000,000 Class Z Ordinary Shares0.91%Founder of a discretionary trust who can influence how the trustee exercises his discretion908,300 Class Z Ordinary Shares0.27%Mr.Yi Xu(4)Founder of a discretionary trust who can influence how the trustee exercises his discretion27,216,108 Class Y Ordinary Shares32.51%Founder of a discretionary trust who can influence how the trustee exercises his discretion151,100 Class Z Ordinary Shares0.05neficial owner45,000 Class Z Ordinary Shares0.01%Mr.JP GanBeneficial owner170,963 Class Z Ordinary Shares0.05%Founder of a discretionary trust who can influence how the trustee exercises his discretion37,500 Class Z Ordinary Shares0.01%Interest in controlled corporation149,700 Class Z Ordinary Shares0.05%Mr.Eric HeBeneficial owner163,463 Class Z Ordinary Shares0.05!Bilibili Inc.2024 Interim ReportOther InformationNotes:(1)The calculations are based on a total number of 83,715,114 Class Y Ordinary Shares and 330,419,917 Class Z Ordinary Shares in issue(excluding 7,126,386 Class Z Ordinary Shares issued and reserved for future issuance upon the exercising or vesting of awards granted under the Companys share incentive plans)as at June 30,2024.(2)Mr.Rui Chen was interested in(i)49,299,006 Class Y Ordinary Shares through Vanship Limited,which is controlled by The Le Petit Prince Trust,a trust of which Mr.Chen is the settlor,and Mr.Chen and his family members are the beneficiaries;(ii)5,000,000 Class Z Ordinary Shares underlying options granted as beneficial owner;and(iii)525,525 Class Z Ordinary Shares in the form of ADSs through Vanship Limited.(3)Ms.Ni Li was interested in(i)7,200,000 Class Y Ordinary Shares through Saber Lily Limited,which is controlled by The Fortuna Trust,a trust of which Ms.Li is the settlor,and Ms.Li and her family members are the beneficiaries;(ii)3,000,000 Class Z Ordinary Shares underlying options and restricted share units granted as beneficial owner;and(iii)908,300 Class Z Ordinary Shares through Saber Lily Limited.(4)Mr.Yi Xu was interested in(i)27,216,108 Class Y Ordinary Shares through Kami Sama Limited,which is in turn controlled by The Homur Trust,a trust of which Mr.Xu is the settlor,and Mr.Xu and his family members are the beneficiaries;and(ii)151,100 Class Z Ordinary Shares through Kami Sama Limited.The 45,000 Class Z Ordinary Shares are in the form of ADSs.(5)All interests stated are long positions.Interest in associated corporations上海信樂彼成文化諮詢有限公司Name of Director or chief executive Nature of interestApproximate%of equity interest in associated corporationMr.Rui ChenInterest in controlled corporation12.50%Ms.Ni LiInterest in controlled corporation12.50%上海嗶哩嗶哩電競信息科技有限公司Name of Director or chief executive Nature of interestApproximate%of equity interest in associated corporationMr.Rui ChenBeneficial owner25.04%Ms.Ni LiBeneficial owner6.87%Mr.Yi XuBeneficial owner3.44%Save as disclosed above,as at June 30,2024,none of the Directors and chief executives of the Company had any interest or short position in the Shares,underlying Shares or debentures of the Company or any of its associated corporations(within the meaning of Part XV of the SFO)which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO(including interests and short positions which were taken or deemed to have taken under such provisions of the SFO),or which were recorded in the register required to be kept pursuant to section 352 of the SFO,to be entered in the register referred to therein,or which were required,pursuant to the Model Code,to be notified to the Company and the Stock Exchange.22Bilibili Inc.2024 Interim ReportOther InformationSubstantial ShareholdersAs at June 30,2024,the following persons(other than the Directors and chief executives whose interests have been separately disclosed in this interim report),had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company pursuant to Divisions 2 and 3 of Part XV of the SFO or as recorded in the register required to be kept by the Company pursuant to Section 336 of the SFO.Name of substantial ShareholderCapacity/Nature of interestNumber of Shares(8)Approximate%of interest in each class of Shares Class Y Ordinary SharesVanship Limited(3)Beneficial owner49,299,006(L)58.89%(1)Kami Sama Limited(4)Beneficial owner27,216,108(L)32.51%(1)Saber Lily Limited(5)Beneficial owner7,200,000(L)8.60%(1)Class Z Ordinary SharesDeutsche Bank Aktiengesellschaft(6)Depositary/Investment manager 107,869,360(L)107,323,113(S)31.96%(2)31.80%(2)Tencent(7)Interest of controlled corporation43,749,518(L)12.96%(2)Tencent Mobility Limited(7)Beneficial owner32,795,161(L)9.72%(2)JPMorgan Chase&Co.(9)Interest of controlled corporation/Investment manager/Person having a security interest in shares/Trustee/Approved lending agent27,300,919(L)16,993,486(S)8,041,544(P)8.09%(2)5.03%(2)2.38%(2)Brown Brothers Harriman&Co.(10)Approved lending agent20,078,456(L)20,078,456(P)6.08%(1)6.08%(1)The Goldman Sachs Group,Inc.(11)Interest of controlled corporation20,010,707(L)8,442,249(S)6.06%(1)2.56%(1)Notes:(1)The calculations are based on a total number of 83,715,114 Class Y Ordinary Shares and 330,419,917 Class Z Ordinary Shares in issue(excluding 7,126,386 Class Z Ordinary Shares issued and reserved for future issuance upon the exercising or vesting of awards granted under the Companys share incentive plans)as at June 30,2024.(2)The calculations are based on a total number of 83,715,114 Class Y Ordinary Shares and 337,546,303 Class Z Ordinary Shares in issue(including 7,126,386 Class Z Ordinary Shares issued and reserved for future issuance upon the exercising or vesting of awards granted under the Companys share incentive plans)as at June 30,2024.(3)Mr.Rui Chen was interested in 49,299,006 Class Y Ordinary Shares through Vanship Limited,which is controlled by The Le Petit Prince Trust,a trust of which Mr.Chen is the settlor,and Mr.Chen and his family members are the beneficiaries.(4)Mr.Yi Xu was interested in 27,216,108 Class Y Ordinary Shares through Kami Sama Limited,which is in turn controlled by The Homur Trust,a trust of which Mr.Xu is the settlor,and Mr.Xu and his family members are the beneficiaries.23Bilibili Inc.2024 Interim ReportOther Information(5)Ms.Ni Li was interested in 7,200,000 Class Y Ordinary Shares through Saber Lily Limited,which is controlled by The Fortuna Trust,a trust of which Ms.Li is the settlor,and Ms.Li and her family members are the beneficiaries.(6)Deutsche Bank Aktiengesellschaft(Incorporated in the Federal Republic of Germany&members liability is limited)was interested in an aggregated 107,869,360 Class Z Ordinary Shares(long position)and 107,323,113 Class Z Ordinary Shares(short position)in the Company.According to the disclosure of interest notice filed by Deutsche Bank Aktiengesellschaft regarding the relevant event dated June 12,2024,such Class Z Ordinary Shares were held by Deutsche Bank Aktiengesellschaft via its subsidiary acting in its capacity as a depositary of the ADR program of the Company.(7)Tencent Mobility Limited was interested in 32,795,161 Class Z Ordinary Shares as beneficial owner,which includes a derivative interest in 6,500,000 Class Z Ordinary Shares representing 6,500,000 ADSs.Tencent Mobility Limited is wholly owned by Tencent.10,954,357 Class Z Ordinary Shares were held by Huang River Investment Limited,which is wholly owned by Tencent.(8)The letter“L”stands for long position,“S”stands for short position and“P”stands for lending pool.(9)JPMorgan Chase&Co.was interested in an aggregated 27,300,919 Class Z Ordinary Shares(long position),16,993,486 Class Z Ordinary Shares(short position)and 8,041,544 Class Z Ordinary Shares(lending pool)in the Company.According to the disclosure of interest notice filed by JPMorgan Chase&Co.regarding the relevant event dated June 28,2024,such Class Z Ordinary Shares were held by JPMorgan Chase&Co.indirectly through certain of its subsidiaries.Among them,741,480 Class Z Ordinary Shares(long position)and 1,846,680 Class Z Ordinary Shares(short position)were held through physically settled listed derivatives,2,820 Class Z Ordinary Shares(long position)and 44,090 Class Z Ordinary Shares(short position)were held through cash settled listed derivatives,2,994,213 Class Z Ordinary Shares(long position)and 3,539,538 Class Z Ordinary Shares(short position)were held through physically settled unlisted derivatives,2,891,703 Class Z Ordinary Shares(long position)and 3,521,504 Class Z Ordinary Shares(short position)were held through cash settled unlisted derivatives,and 112,621 Class Z Ordinary Shares(long position)and 16,174 Class Z Ordinary Shares(short position)were held through listed derivatives which are convertible instruments.(10)Brown Brothers Harriman&Co.was deemed to be interested in an aggregated 20,078,456 Class Z Ordinary Shares(long position)and 20,078,456 Class Z Ordinary Shares(lending pool)in the Company.(11)The Goldman Sachs Group,Inc.was interested in an aggregated 20,010,707 Class Z Ordinary Shares(long position)and 8,442,249 Class Z Ordinary Shares(short position)in the Company.According to the disclosure of interest notice filed by The Goldman Sachs Group,Inc.regarding the relevant event dated June 21,2024,such Class Z Ordinary Shares were held by The Goldman Sachs Group,Inc.indirectly through certain of its subsidiaries.Among them,7,880,509 Class Z Ordinary Shares(long position)and 3,431,540 Class Z Ordinary Shares(short position)were held through physically settled listed derivatives,2,533,756 Class Z Ordinary Shares(long position)and 3,125 Class Z Ordinary Shares(short position)were held through physically settled unlisted derivatives,1,571,743 Class Z Ordinary Shares(long position)and 2,344,657 Class Z Ordinary Shares(short position)were held through cash settled unlisted derivatives,480,294 Class Z Ordinary Shares(long position)were held through unlisted derivatives which are convertible instruments.Save as disclosed above,as at June 30,2024,to the best knowledge of the Directors,no person(other than the Directors and chief executives of the Company)had an interest or short position in the Shares or underlying Shares which fall to be disclosed to the Company pursuant to Divisions 2 and 3 of Part XV of the SFO as recorded in the register required to be kept by the Company pursuant to section 336 of the SFO.Share SchemesThe Company has the following share schemes:the Global Share Plan(terminated on the Primary Conversion Effective Date),the 2018 Share Incentive Plan(amended and restated as the Second Amended and Restated 2018 Share Incentive Plan on June 28,2024)and the 2024 Share Incentive Plan(a share scheme funded by existing Class Z Ordinary Shares only).Since the new Chapter 17 of the Listing Rules took effect on January 1,2023,the Company relied on the transitional arrangements provided for the existing share schemes and amended and restated the 2018 Share Incentive Plan as the Second Amended and Restated 2018 Share Incentive Plan to comply with the requirements of Chapter 17 of the Listing Rules.24Bilibili Inc.2024 Interim ReportOther InformationPlease refer to(i)the annual report of the Company for the year ended December 31,2023 for a summary of the key terms of the Global Share Plan and the 2018 Share Incentive Plan(before its amendment and restatement)and(ii)the circular of the Company dated April 9,2024 for a summary of the key terms of the Second Amended and Restated 2018 Share Incentive Plan.A summary of the key terms of the 2024 Share Incentive Plan will be set out in the annual report of the Company for the year ending December 31,2024.The tables below set out the details of the outstanding options and awards under each share scheme during the Reporting Period.6,521,541 Class Z Ordinary Shares,representing approximately 2.0%of the weighted average number of Class Z Ordinary Shares in issue(excluding treasury shares as defined under the Listing Rules)of the Company,may be issued in respect of all options and awards granted during the Reporting Period to eligible participants pursuant to all share schemes of the Company.Global Share PlanAs the Global Share Plan was terminated on the Primary Conversion Effective Date,no Class Z Ordinary Shares were available for grant under the Global Share Plan as at January 1,2024 and June 30,2024,respectively.The awards previously granted and outstanding and the evidencing original award agreements shall survive the termination of the Global Share Plan and remain effective until the expiration of their original terms,as may be amended from time to time.Details of the outstanding options of the Global Share Plan during the Reporting Period are as follows:Name Date of GrantVesting PeriodExercise PeriodExercise Price(USD)Number of Class Z Ordinary Shares underlying options outstanding as at January 1,2024Exercised during the Reporting PeriodLapsed during the Reporting PeriodCancelled during the Reporting PeriodNumber of Class Z Ordinary Shares underlying options outstanding as at June 30,2024Weighted average closing price of Class Z Ordinary Shares immediately before date(s)of exercise(HKD)DirectorsMr.JP GanMarch 20,20203 years6 years$0.000112,50012,500Other grantees by categoryEmployee ParticipantsMarch 20,20204 years6 years$0.0001443,675346,4257,25090,00089.39Notes:(1)No further options would be granted under the Global Share Plan after the Primary Conversion Effective Date.(2)No options were granted under the Global Share Plan during the Reporting Period.25Bilibili Inc.2024 Interim ReportOther Information2018 Share Incentive Plan(amended and restated as the Second Amended and Restated 2018 Share Incentive Plan on June 28,2024)The maximum aggregate number of Class Z Ordinary Shares which may be issued pursuant to all awards under the 2018 Share Incentive Plan(before its amendment and restatement)is 30,673,710,which is 10%of the total number of issued Class Z Ordinary Shares as at the Primary Conversion Effective Date(excluding Class Z Ordinary Shares underlying awards which have terminated,expired,lapsed or have been forfeited in accordance with the rules of the 2018 Share Incentive Plan).As at January 1,2024,19,909,908 Class Z Ordinary Shares were available for grant under the 2018 Share Incentive Plan.During the Reporting Period,6,521,541 Class Z Ordinary Shares underlying awards were granted to eligible participants pursuant to the 2018 Share Incentive Plan and 1,792,930 Class Z Ordinary Shares underlying awards were terminated,expired,lapsed or have been forfeited,respectively.As the 2018 Share Incentive Plan was amended and restated as the Second Amended and Restated Share Incentive Plan at the annual general meeting of the Company on June 28,2024(the“Adoption Date”),no further grants may be made under the 2018 Share Incentive Plan thereafter.As disclosed in the circular of the Company dated April 9,2024,any granted and unexercised options,and any granted and unvested awards under the 2018 Share Incentive Plan prior to the Adoption Date shall continue to be valid and exercisable and/or vested in accordance with the terms of the grant and the 2018 Share Incentive Plan.The maximum aggregate number of Class Z Ordinary Shares which may be issued pursuant to all awards(including options,restricted share and restricted share units)under the Second Amended and Restated 2018 Share Incentive Plan together with the number of Class Z Ordinary Shares which may be issued pursuant to any awards to be granted any other share schemes of the Company(the“Scheme Limit”)is 41,413,503,representing 10%of the total number of issued and outstanding Shares(including both Class Y Ordinary Shares and Class Z Ordinary Shares)as at the Adoption Date.No awards have been granted under the Second Amended and Restated 2018 Share Incentive Plan since its adoption.It follows that as at June 30,2024,41,413,503 Class Z Ordinary Shares were available for grant under the Scheme Limit.Within the Scheme Limit,the maximum number of Class Z Ordinary Shares which may be issued pursuant to all awards to be granted to service provider participants under the Second Amended and Restated 2018 Share Incentive Plan(the“Service Provider Sublimit”)is 2,070,675,representing 0.5%of the total number of issued and outstanding Shares(including both Class Y Ordinary Shares and Class Z Ordinary Shares)as at the Adoption Date.No service provider sublimit was set under the 2018 Share Incentive Plan(before its amendment and restatement)and no awards have been granted under the Second Amended and Restated 2018 Share Incentive Plan since its adoption.It follows that as at June 30,2024,2,070,675 Class Z Ordinary Shares were available for grant under the Service Provider Sublimit.26Bilibili Inc.2024 Interim ReportOther InformationDetails of the outstanding options under the 2018 Share Incentive Plan during the Reporting Period are as follows:Name Date of GrantVesting PeriodExercise PeriodExercise Price(USD)Number of Class Z Ordinary Shares underlying options outstanding as at January 1,2024Exercised during the Reporting PeriodLapsed during the Reporting PeriodCancelled during the Reporting PeriodNumber of Class Z Ordinary Shares underlying options outstanding as at June 30,2024Weighted average closing price of Class Z Ordinary Shares immediately before date(s)of exercise(HKD)DirectorsMr.Rui ChenFrom March 23,2020 to November 23,20206 years7 years$0.0001$10.47 5,000,0005,000,000Ms.Ni LiNovember 23,20206 years7 years$0.00012,000,0002,000,000Mr.JP GanJuly 1,20223 years6 years$0.000113,46313,463Mr.Eric HeJuly 1,20223 years6 years$0.000113,463 13,463Other grantees by categoryConsultants(2)From April 20,2021 to May 10,20224 years6 years$0.000191,9586,86385,095117.60Employee ParticipantsFrom April 2,2018 to September 15,202206 years 67 years$0.0001$10.47 10,363,5811,612,417717,4728,033,692112.09Notes:(1)No further options would be granted under the 2018 Share Incentive Plan after the Primary Conversion Effective Date and no further awards would be granted under the 2018 Share Incentive Plan after its amendment and restatement as the Second Amended and Restated Share Incentive Plan on June 28,2024.(2)Consultants mean service providers,other than employees.27Bilibili Inc.2024 Interim ReportOther InformationDetails of the unvested restricted share units under the 2018 Share Incentive Plan during the Reporting Period(to be satisfied by Class Z Ordinary Shares)are as follows:NameDate of GrantVesting PeriodPurchase Price Unvested restricted share units as at January 1,2024Granted during the Reporting PeriodVested during the Reporting PeriodLapsed during the Reporting PeriodCancelled during the Reporting PeriodUnvested restricted share units as at June 30,2024Weighted average closing price of Class Z Ordinary Shares immediately before date(s)of vesting(HKD)DirectorsMs.Ni LiMarch 31,20236 years$0 1,000,0001,000,000Other grantees by categoryConsultants(1)December 14,2022June 27,202402 years1 year$0$012,5001,00012,5001,00093.10Employee ParticipantsDecember 14,2022March 31,2023 4 years46 years$0$01,466,2443,115,91395,74285,5171,370,5023,030,396June 30,2023 4 years$01,521,592235,8571,285,735September 29,2023 4 years$01,136,539449,724686,815December 29,2023 4 years$01,429,13497,1471,331,987March 28,202446 years$02,425,124111,4712,313,653June 27,202446 years$04,095,4174,095,417Notes:(1)Consultants mean service providers,other than employees.Further details of the unvested restricted share units under the 2018 Share Incentive Plan granted during the Reporting Period(to be satisfied by Class Z Ordinary Shares)are as follows:Number of restricted share units granted during the Reporting PeriodDate of GrantVesting PeriodPurchase PricePerformance TargetsClosing price of Class Z Ordinary Shares immediately before the date of grant(HKD)Fair value of restricted share units at the date of grant(RMB in thousands)(1)Name Other grantees by categoryConsultants1,000June 27,20241 year$0None133.10114Employee Participants2,425,124March 28,2024 46 years$0None81.75194,2944,095,417June 27,202446 years$0None133.10464,147Notes:(1)The fair values of the restricted share units are calculated in accordance with the accounting standards and policies adopted for preparing the Companys financial statement.The Group recognizes the compensation cost,net of estimated forfeitures,over a vesting term for service-based RSUs.(2)None of the restricted share units granted during the Reporting Period were granted to Directors.For further details of the restricted share units granted under the 2018 Share Incentive Plan during the Reporting Period,please refer to the announcements of the Company dated March 28,2024 and June 27,2024.28Bilibili Inc.2024 Interim ReportOther Information2024 Share Incentive PlanDuring the Reporting Period,the Company adopted the 2024 Share Incentive Plan,which is a share scheme funded by existing Class Z Ordinary Shares only.No awards have been granted under the 2024 Share Incentive Plan since its adoption.USE OF PROCEEDSUse of proceeds from the Global OfferingThe net proceeds received by the Company from the Global Offering were approximately HK$22.9 billion(RMB19.3 billion)after deducting underwriting expenses and other offering expenses.As of June 30,2024,the Group had utilized the net proceeds as set out in the table below:Purpose%of use of proceedsNet proceeds Unutilized amount as at January 1,2024Utilized amount for the six months endedJune 30,2024Unutilized amount as at June 30,2024(HK$million)(HK$million)(HK$million)(HK$million)Our content to support our healthy and high-quality user growth,ever-growing content ecosystem and development of our community50,451.8863.1863.1Research and development to improve our user experience and strengthen our user-centric commercialization capabilities20%4,580.7646.0646.0Sales and marketing,primarily to fuel our user growth and to raise our brand awareness20%4,580.7131.7131.7General corporate purposes and working capital needs10%2,290.3556.6556.6Total100,903.52,197.42,197.429Bilibili Inc.2024 Interim ReportOther InformationUse of proceeds from the issuance of Class Z Ordinary Shares under general mandateOn January 9,2023(U.S.Eastern Time),the Company and Goldman Sachs(Asia)L.L.C.(the“Underwriter”)entered into an equity underwriting and notes exchange agreement,pursuant to which the Company agreed to issue 15,344,000 ADSs partially in exchange for an aggregate principal amount of US$384.8 million(RMB2.6 billion)of its outstanding December 2026 Notes to be purchased by the Underwriter and its applicable affiliate(s)from certain holders of the December 2026 Notes through private negotiations(the“Exchange Notes”).Concurrently with the ADS Offering,the Underwriter and its applicable affiliate(s),as duly engaged and authorized by the Company,entered into separate agreements with certain holders of the December 2026 Notes to purchase the Exchange Notes from such holders for a purchase price of approximately US$331.2 million(RMB2.2 billion).The closing price per ADS on the Nasdaq on January 6,2023,being the previous trading day prior to the date of the equity underwriting and notes exchange agreement,was US$28.65 and the closing price per Class Z Ordinary Share on the Stock Exchange on January 9,2023 was HK$224.00.An aggregate of 15,344,000 ADSs(representing 15,344,000 Class Z Ordinary Shares with an aggregate nominal value of approximately US$1,534.4)was successfully placed by the Underwriter to not fewer than six placees at the offer price of US$26.65 per ADS.Such placees professional,institutional or other investors whom the Underwriter has selected and procured to subscribe for any of the ADSs pursuant to the equity underwriting and notes exchange agreement.The net price per Class Z Ordinary Share underlying the ADSs subject to the ADS Offering was approximately US$25.87 and such Class Z Ordinary Shares were issued under the general mandate granted to the Directors pursuant to resolutions of the Shareholders passed on June 30,2022 to allot,issue or deal with unissued Class Z Ordinary Shares and/or ADSs not exceeding 20%of the total number of issued Shares of the Company as of the date of passing of such ordinary resolution.The amount of net proceeds from the ADS Offering(after deducting the selling commission)is approximately US$399.9 million and the amount of net proceeds from the ADS Offering(after deducting all applicable costs and expenses including but not limited to selling commission)is approximately US$396.9 million.The net proceeds of the ADS Offering(after deducting the selling commission)would be used,as a part of the Companys comprehensive liability management exercise(i)by the Underwriter to fund the purchase price of the Exchange Notes of approximately US$331.2 million payable by the Underwriter to the holders of such Exchange Notes,and(ii)in respect of the remaining proceeds in the amount of US$68.8 million to be paid by the Underwriter to the Company,by the Company,to replenish its cash reserve after its repurchases of certain convertible senior notes in the fourth quarter of 2022 and for its other working capital purpose.As at June 30,2024,the net proceeds from the ADS Offering had not been utilized.There has been no change in the intended use of net proceeds as previously disclosed in the announcement of the Company dated January 9,2023,and the Company intends to use the net proceeds within this year.Further details of the ADS Offering and purchase of the Exchange Notes are set out in the announcements of the Company dated January 9,2023 and January 12,2023.30Bilibili Inc.2024 Interim ReportOther InformationDisclosure of Changes in Directors Information pursuant to Listing Rule 13.51B(1)There is no change to the information of the Directors which is required to be disclosed pursuant to Rule 13.51B(1)of the Listing Rules.Purchase,Sale or Redemption of the Companys Listed SecuritiesAs disclosed in this interim report,the Company repurchased April 2026 Notes during the Reporting Period.Further details of the repurchase of April 2026 Notes are set out in the Companys overseas regulatory announcements dated February 20,2024 and April 1,2024,as well as the next day disclosure return dated April 2 2024 and the monthly return dated May 8 2024 of the Company.Save as disclosed in this interim report neither the Company nor any of its subsidiaries and consolidated affiliated entities had purchased,sold or redeemed any of the Companys listed securities(including sale of treasury shares)during the Reporting Period.As at June 30,2024,the Company did not hold any treasury shares(as defined under the Listing Rules).DividendThe Board did not recommend the distribution of an interim dividend for the six months ended June 30,2024.Continuing Disclosure Obligations pursuant to the Listing RulesThe Company does not have any disclosure obligations under Rules 13.20,13.21 and 13.22 of the Listing Rules.Report on Review ofInterim Financial Information31Bilibili Inc.2024 Interim ReportTo the Board of Directors of Bilibili Inc.(incorporated in the Cayman Islands with limited liability)INTRODUCTIONWe have reviewed the interim financial information set out on pages 32 to 72,which comprises the interim condensed consolidated balance sheet of Bilibili Inc.(the“Company”)and its subsidiaries(together,the“Group”)as at 30 June 2024 and the interim condensed consolidated statement of operations and comprehensive loss,the interim condensed consolidated statement of changes in shareholders equity and the interim condensed consolidated statement of cash flows for the six-month period then ended,and notes,comprising significant accounting policies and other explanatory information.The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of a report on interim financial information to be in compliance with the relevant provisions thereof and accounting principles generally accepted in the United States of America(“U.S.GAAP”).The directors of the Company are responsible for the preparation and presentation of this interim financial information in accordance with U.S.GAAP.Our responsibility is to express a conclusion on this interim financial information based on our review and to report our conclusion solely to you,as a body,in accordance with our agreed terms of engagement,and for no other purpose.We do not assume responsibility towards or accept liability to any other person for the contents of this report.SCOPE OF REVIEWWe conducted our review in accordance with International Standard on Review Engagements 2410,“Review of Interim Financial Information Performed by the Independent Auditor of the Entity”.A review of interim financial information consists of making inquiries,primarily of persons responsible for financial and accounting matters,and applying analytical and other review procedures.A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.Accordingly,we do not express an audit opinion.CONCLUSIONBased on our review,nothing has come to our attention that causes us to believe that the interim financial information of the Group is not prepared,in all material respects,in accordance with U.S.GAAP.PricewaterhouseCoopersCertified Public Accountants Hong Kong,22 August 2024Unaudited Interim Condensed Consolidated Balance Sheet(All amounts in thousands,except for share data)32Bilibili Inc.2024 Interim ReportDecember 31,June 30,June 30,202320242024RMBRMBUS$NotesNote 2(e)AssetsCurrent assets:Cash and cash equivalents7,191,8213,732,504513,610 Time deposits5,194,8915,151,832708,916 Restricted cash50,00050,0006,880 Accounts receivable,net41,573,9001,605,884220,977 Amount due from related parties19790,574769,537105,892 Prepayments and other current assets51,272,7881,160,404159,676 Short-term investments62,653,0655,027,593691,820 Total current assets18,727,03917,497,7542,407,771Non-current assets:Property and equipment,net7714,734703,57896,816 Production cost,net2,066,0661,945,917267,767 Intangible assets,net83,627,5333,425,849471,413 Deferred tax assets46,59181,73911,248 Goodwill2,725,1302,725,130374,990 Long-term investments,net94,366,6324,303,083592,124 Other long-term assets885,342635,44387,439 Total non-current assets14,432,02813,820,7391,901,797Total assets33,159,06731,318,4934,309,56833Bilibili Inc.2024 Interim ReportUnaudited Interim Condensed Consolidated Balance Sheet(All amounts in thousands,except for share data)December 31,June 30,June 30,202320242024RMBRMBUS$NotesNote 2(e)LiabilitiesCurrent liabilities:Accounts payable114,333,7304,566,128628,320 Salary and welfare payable1,219,3551,165,433160,369 Taxes payable12345,250311,82142,908 Short-term loan and current portion of long-term debt137,455,7534,846,173666,856 Deferred revenue2,954,0883,725,443512,638 Accrued liabilities and other payables141,780,6232,537,734349,204 Amount due to related parties1914,8963,419470 Total current liabilities18,103,69517,156,1512,360,765Non-current liabilities:Long-term debt15646731101 Other long-term liabilities650,459579,90879,798 Total non-current liabilities651,105580,63979,899Total liabilities18,754,80017,736,7902,440,66434Bilibili Inc.2024 Interim ReportUnaudited Interim Condensed Consolidated Balance Sheet(All amounts in thousands,except for share data)December 31,June 30,June 30,202320242024RMBRMBUS$NotesNote 2(e)Shareholders equity Ordinary shares:Class Y Ordinary Shares(US$0.0001 par value;100,000,000 shares authorized,83,715,114 shares issued and outstanding as of December 31,2023;US$0.0001 par value;100,000,000 shares authorized,83,715,114 shares issued and outstanding as of June 30,2024)52527 Class Z Ordinary Shares(US$0.0001 par value;9,800,000,000 shares authorized,337,546,303 shares issued,328,441,712 shares outstanding as of December 31,2023;US$0.0001 par value;9,800,000,000 shares authorized,337,546,303 shares issued,330,419,917 shares outstanding as of June 30,2024)21321530 Additional paid-in capital40,445,17540,977,2145,638,652 Statutory reserves44,74944,7496,158 Accumulated other comprehensive income212,477230,65231,739 Accumulated deficit(26,310,766)(27,668,011)(3,807,246)Total Bilibili Inc.s shareholders equity14,391,90013,584,8711,869,340 Noncontrolling interests12,367(3,168)(436)Total shareholders equity14,404,26713,581,7031,868,904Total liabilities and shareholders equity33,159,06731,318,4934,309,568The accompanying notes are an integral part of these unaudited interim condensed consolidated financial information.Unaudited Interim Condensed Consolidated Statement of Operations and Comprehensive Loss(All amounts in thousands,except for share and per share data)35Bilibili Inc.2024 Interim ReportFor the Six Months Ended June 30,202320242024RMBRMBUS$NotesNote 2(e)Net revenues Value-added services4,457,9655,094,797701,068 Advertising2,844,6443,706,075509,973 Mobile games2,022,5031,990,177273,857 IP derivatives and others1,048,6981,000,695137,700Total net revenues1610,373,81011,791,7441,622,598Cost of revenues(8,042,344)(8,353,183)(1,149,436)Gross profit2,331,4663,438,561473,162Operating expenses:Sales and marketing expenses(1,798,383)(1,962,655)(270,070)General and administrative expenses(1,111,394)(1,019,816)(140,332)Research and development expenses(2,074,033)(1,859,821)(255,920)Total operating expenses(4,983,810)(4,842,292)(666,322)Loss from operations(2,652,344)(1,403,731)(193,160)Other income:Investment income/(loss),net(including impairments)8,321(115,933)(15,953)Interest income298,300233,55132,138Interest expense(105,682)(51,383)(7,071)Exchange losses(16,552)(73,335)(10,091)Debt extinguishment gain/(loss)282,442(20,980)(2,887)Others,net63,32854,4397,491Total other income,net530,15726,3593,627Loss before income tax(2,122,187)(1,377,372)(189,533)Income tax(expense)/benefit10(55,590)4,59263236Bilibili Inc.2024 Interim ReportUnaudited Interim Condensed Consolidated Statement of Operations and Comprehensive Loss(All amounts in thousands,except for share and per share data)For the Six Months Ended June 30,202320242024RMBRMBUS$NotesNote 2(e)Net loss(2,177,777)(1,372,780)(188,901)Net loss attributable to noncontrolling interests3,38415,5352,138Net loss attributable to the Bilibili Incs shareholders(2,174,393)(1,357,245)(186,763)Net loss(2,177,777)(1,372,780)(188,901)Other comprehensive income:Foreign currency translation adjustments219,94218,1752,501Total other comprehensive income219,94218,1752,501Total comprehensive loss(1,957,835)(1,354,605)(186,400)Comprehensive loss attributable to noncontrolling interests3,38415,5352,138Comprehensive loss attributable to the Bilibili Inc.s shareholders(1,954,451)(1,339,070)(184,262)Net loss per share,basic18(5.28)(3.26)(0.45)Net loss per share,diluted(5.28)(3.26)(0.45)Net loss per ADS,basic(5.28)(3.26)(0.45)Net loss per ADS,diluted(5.28)(3.26)(0.45)Weighted average number of ordinary shares,basic18412,013,005415,780,807415,780,807Weighted average number of ordinary shares,diluted412,013,005415,780,807415,780,807Weighted average number of ADS,basic412,013,005415,780,807415,780,807Weighted average number of ADS,diluted412,013,005415,780,807415,780,807Share-based compensation expenses included in:Cost of revenues29,90232,0474,410 Sales and marketing expenses29,16625,9213,567 General and administrative expenses291,213296,85640,849 Research and development expenses211,267169,24123,288The accompanying notes are an integral part of these unaudited interim condensed consolidated financial information.Unaudited Interim Condensed Consolidated Statement of Changes in Shareholders Equity(All amounts in thousands,except for share data)37Bilibili Inc.2024 Interim ReportOrdinary sharesClass Y Ordinary SharesClass Z Ordinary SharesAdditional paid-in capitalStatutory reservesAccumulated other comprehensive incomeAccumulateddeficitNoncontrolling interestsTotal shareholdersequitySharesAmountSharesAmountRMBRMBRMBRMBRMBRMBRMBRMBBalance at December 31,202283,715,11452308,223,63920136,623,16136,17358,110(21,479,869)1,75915,239,587Net loss(2,174,393)(3,384)(2,177,777)Share-based compensation561,548561,548Share issuance from exercise of share options1,168,46022Issuance of Class Z ordinary shares upon new ADS offering(“ADS offering”)15,344,000102,689,3702,689,380Foreign currency translation adjustment219,942219,942Balance at June 30,202383,715,11452324,736,09921339,874,07936,173278,052(23,654,262)(1,625)16,532,682The accompanying notes are an integral part of these unaudited interim condensed consolidated financial information.38Bilibili Inc.2024 Interim ReportUnaudited Interim Condensed Consolidated Statement of Changes in Shareholders Equity(All amounts in thousands,except for share data)Ordinary sharesClass Y Ordinary SharesClass Z Ordinary SharesAdditional paid-in capitalStatutory reservesAccumulated other comprehensive incomeAccumulated deficitNoncontrolling interestsTotal shareholders equitySharesAmountSharesAmountRMBRMBRMBRMBRMBRMBRMBRMBBalance at December 31,202383,715,11452325,800,88021340,445,17544,749212,477(26,310,766)12,36714,404,267Net loss(1,357,245)(15,535)(1,372,780)Share-based compensation524,065524,065Share issuance from exercise of share options1,965,70527,9747,976Share issuance from vest of restricted share units12,500*Foreign currency translation adjustment18,17518,175Balance at June 30,202483,715,11452327,779,08521540,977,21444,749230,652(27,668,011)(3,168)13,581,703*Less than 1The accompanying notes are an integral part of these unaudited interim condensed consolidated financial information.Unaudited Interim Condensed Consolidated Statement of Cash Flows(All amounts in thousands)39Bilibili Inc.2024 Interim ReportFor the Six Months Ended June 30,202320242024RMBRMBUS$Note 2(e)Cash flows from operating activities:Net loss(2,177,777)(1,372,780)(188,901)Adjustments to reconcile net loss to net cash(used in)/provided by operating activities:Depreciation of property and equipment402,827314,05143,215 Amortization of intangible assets993,357886,768122,023 Amortization of right-of-use assets89,02384,85411,676 Amortization of debt issuance costs12,3617,118979 Share-based compensation expenses561,548524,06572,114 Allowance for expected credit loss68,2499,391 Inventory provision30,3282,781383 Deferred income taxes(11,250)(45,961)(6,324)Unrealized exchange losses/(gains)1,484(2,211)(304)Unrealized fair value changes of investments(154,724)17,8442,455 Loss on disposal of property and equipment6461,974272 Loss from equity method investments80,39117,4972,408 Revaluation of previously held equity interests75,000 Impairments of long-term investments69,949100,57113,839(Gain)/loss of convertible senior notes repurchase(282,442)20,9412,882 Changes in operating assets and liabilities:Accounts receivable(55,833)(86,200)(11,862)Amount due from related parties27,693(38,275)(5,267)Prepayments and other assets168,806201,66427,750 Other long-term assets162,87227,5953,797 Accounts payable(113,788)273,00737,567 Salary and welfare payable(407,452)(53,922)(7,420)Taxes payable(15,914)(33,429)(4,600)Deferred revenue(128,359)771,355106,142 Accrued liabilities and other payables143,128761,896104,840 Amount due to related parties(5,446)(1,478)(203)Other long-term liabilities(117,586)(59,737)(8,220)Net cash(used in)/provided by operating activities(651,158)2,388,237328,63240Bilibili Inc.2024 Interim ReportUnaudited Interim Condensed Consolidated Statement of Cash Flows(All amounts in thousands)For the Six Months Ended June 30,202320242024RMBRMBUS$Note 2(e)Cash flows from investing activities:Purchase of property and equipment(51,521)(245,505)(33,782)Purchase of intangible assets(698,543)(624,531)(85,939)Purchase of short-term investments(6,682,864)(16,754,501)(2,305,496)Maturities of short-term investments8,893,43414,456,6371,989,299 Cash consideration paid for purchase of subsidiaries,net of cash acquired(70,000)Cash paid for long-term investments including loans(45,994)(146,876)(20,211)Repayment of loans from investees275,07860,2508,291 Cash received from disposal/return of investments82,856 Placements of time deposits(5,503,040)(3,357,410)(461,995)Maturities of time deposits4,810,7373,432,320472,303Net cash provided by/(used in)investing activities1,010,143(3,179,616)(437,530)Cash flows from financing activities:Proceeds of short-term loan548,5211,049,000144,347 Repayment of short-term loan(493,624)(659,696)(90,777)Proceeds from exercise of employees share options27,9741,097 Proceeds from issuance of ordinary shares net of issuance costs 2,689,380 Repurchase of convertible senior notes(7,581,959)(3,046,017)(419,146)Net cash used in financing activities(4,837,680)(2,648,739)(364,479)Effect of exchange rate changes on cash and cash equivalents and restricted cash held in foreign currencies145,970(19,199)(2,641)Net decrease in cash and cash equivalents and restricted cash(4,332,725)(3,459,317)(476,018)Cash and cash equivalents and restricted cash at beginning of the period10,187,3877,241,821996,508Cash and cash equivalents and restricted cash at end of the period5,854,6623,782,504520,49041Bilibili Inc.2024 Interim ReportUnaudited Interim Condensed Consolidated Statement of Cash Flows(All amounts in thousands)For the Six Months Ended June 30,202320242024RMBRMBUS$Note 2(e)Supplemental disclosures of cash flows information:Cash paid for income taxes,net of tax refund84,21058,4818,047Cash paid for interest expense95,92463,2638,705Supplemental schedule of non-cash investing and financing activities:Property and equipment purchases financed by accounts payable87,364120,11416,528Acquisitions and investments financed by payables10,0002,404331Intangible assets purchases financed by payables461,623516,64971,093The accompanying notes are an integral part of these unaudited interim condensed consolidated financial information.Notes to Unaudited Interim Condensed Consolidated Financial Information42Bilibili Inc.2024 Interim Report1.OPERATIONSBilibili Inc.(the“Company”or“Bilibili”)is an iconic brand and a leading video community for young generations in China.Incorporated as a limited liability company in the Cayman Islands in December 2013,the Company,through its consolidated subsidiaries,variable interest entities(“VIEs”)and subsidiaries of the VIEs(collectively referred to as the“Group”),is primarily engaged in the operation of providing online entertainment services to users in the Peoples Republic of China(the“PRC”or“China”).In April 2018,the Company completed its IPO on the Nasdaq Global Select Market.In March 2021,the Company successfully listed its Class Z ordinary shares on the main board of the Hong Kong Stock Exchange.The Company issued a total 28,750,000 Class Z ordinary shares in the global offering,including the fully exercised over-allotment option of 3,750,000 Class Z ordinary shares.Net proceeds from the global offering,including the over-allotment option,after deducting underwriting fees and other offering expenses,were approximately HKD22.9 billion(RMB19.3 billion).On October 3,2022,the Companys voluntary conversion of its secondary listing status to primary listing on the main board of the Hong Kong Stock Exchange became effective.The Company became a dual-primary listed company on the main board of the Hong Kong Stock Exchange in Hong Kong and the Nasdaq in the United States.In January 2023,the Company completed an offering of 15,344,000 ADSs at US$26.65 per ADS.The amount of net proceeds from such offering(after deducting all applicable costs and expenses including but not limited to selling commission)is approximately US$396.9 million(RMB2,689.4 million).Shortly thereafter,the Company completed repurchase of an aggregate principal amount of US$384.8 million of its outstanding 0.50%convertible senior notes due December 2026 with an aggregate purchase price of US$331.2 million(RMB2,243.8 million),which was funded by the net proceeds from the ADS Offering.As of June 30,2024,the Companys major subsidiaries,VIEs and subsidiaries of the VIEs are as follows:Major SubsidiariesPlace and Yearof IncorporationAcquisition/Principal Place of OperationIssuedShare CapitalPercentage ofDirect orIndirectEconomicOwnership Principal ActivitiesBilibili HK LimitedHong Kong,2014HKD1USD200 million100 Investment holdingHode HK LimitedHong Kong,2014USD1100 Investment holdingChaodian HK LimitedHong Kong,2019USD1100 Investment holdingBilibili Co.,Ltd.Japan,2014JPY80 million100 Business developmentHode Shanghai Limited(“Hode Shanghai”)PRC,2014USD1.2 billion100 Technology development1Shanghai Bilibili Technology Co.,Ltd.PRC,2016USD2.5 billion100 Technology development1Chaodian(Shanghai)Technology Co.,Ltd.PRC,2019USD50 million100 E-commerce and advertising143Bilibili Inc.2024 Interim ReportNotes to Unaudited Interim Condensed Consolidated Financial Information1.OPERATIONS(Continued)Major VIEs and VIEssubsidiariesPlace and Yearof IncorporationAcquisition/Principal Place of OperationIssuedShare CapitalPercentage ofDirector orIndirectEconomicOwnershipPrincipal ActivitiesShanghai Hode Information Technology Co.,Ltd.(“Hode Information Technology”)PRC,2013RMB11 million100*Mobile game operation2Shanghai Kuanyu Digital Technology Co.,Ltd.(“Shanghai Kuanyu”)PRC,2014RMB500 million100*Video distribution and game distribution2Sharejoy Network Technology Co.,Ltd.(“Sharejoy Network”)PRC,2014RMB10 million100*Game distribution2Shanghai Hehehe Culture Communication Co.,Ltd.(“Shanghai Hehehe”)PRC,2014RMB120 million100*Comics distribution2Shanghai Anime Tamashi Cultural Media Co.,Ltd.(“Shanghai Anime Tamashi”)PRC,2015RMB1 million100*E-commerce platform2*Hode Shanghai is the primary beneficiary of the major VIEs and VIEs subsidiaries.1 These companies were established in the PRC in the form of wholly foreign-owned enterprises.2 These companies were established in the PRC in the form of investment solely by legal corporations or controlled by natural person(s).44Bilibili Inc.2024 Interim ReportNotes to Unaudited Interim Condensed Consolidated Financial Information1.OPERATIONS(Continued)The following combined financial information of the Groups VIEs and VIEs subsidiaries as of December 31,2023 and June 30,2024 and for the six months ended June 30,2023 and 2024 included in the accompanying unaudited interim condensed consolidated financial information of the Group was as follows:December 31,2023June 30,2024RMB in thousandsCash and cash equivalents1,893,282873,444Time deposits4,25913,031Restricted cash50,00050,000Accounts receivable,net800,158896,505Amounts due from Group companies484,413514,737Amount due from related parties3,4129,031Prepayments and other current assets477,430464,725Short-term investments206,811816,876Long-term investments,net1,633,9321,571,149Other non-current assets5,216,7744,964,800Total assets 10,770,47110,174,298Accounts payable3,320,1213,421,281Salary and welfare payables310,062330,372Taxes payable123,728104,554Short-term loan600,000696,624Deferred revenue2,116,4632,728,670Accrued liabilities and other payables619,5561,031,441Amounts due to the Group companies12,631,67510,940,547Amounts due to related parties14,8452,884Other long-term payable302,203326,810Total liabilities20,038,65319,583,183Total Bilibili Incs shareholders deficit(9,279,384)(9,418,207)Noncontrolling interests11,2029,322Total shareholders deficit(9,268,182)(9,408,885)Total liabilities and shareholders deficit10,770,47110,174,29845Bilibili Inc.2024 Interim ReportNotes to Unaudited Interim Condensed Consolidated Financial Information1.OPERATIONS(Continued)For the Six Months Ended June 30,20232024RMB in thousandsThird-party revenues6,717,2377,434,876Inter-company revenues477,102444,413Total revenues7,194,3397,879,289Net loss(573,451)(143,719)For the Six Months Ended June 30,20232024RMB in thousandsNet cash provided by operating activities208,961 2,172,024Net cash used in investing activities(119,992)(1,235,232)Net cash provided by/(used in)financing activities9,498(1,959,599)46Bilibili Inc.2024 Interim ReportNotes to Unaudited Interim Condensed Consolidated Financial Information1.OPERATIONS(Continued)LiquidityThe Group incurred net losses of RMB2,177.8 million and RMB1,372.8 million for the six months ended June 30,2023 and 2024,respectively.Net cash used in operating activities was RMB651.2 million for the six months ended June 30,2023,and net cash provided by operating activities was RMB2,388.2 million for the six months ended June 30,2024,respectively.Accumulated deficit was RMB26.31 billion and RMB27.67 billion as of December 31,2023 and June 30,2024,respectively.The Group assesses its liquidity by its ability to generate cash from operating activities and attract investors investments.Historically,the Group has relied principally on both operational sources of cash and non-operational sources of financing from investors to fund its operations and business development.The Groups ability to continue as a going concern is dependent on managements ability to successfully execute its business plan,which includes increasing revenues while controlling operating expenses,as well as,generating operational cash flows and continuing to gain support from outside sources of financing.In the past,the Group has been continuously receiving financing support from outside investors.In January 2023,the Company completed an offering of 15,344,000 American depositary shares(the“ADS Offering”).The amount of net proceeds from the Offering(after deducting all applicable costs and expenses including but not limited to selling commission)is approximately US$396.9 million(RMB2,689.4 million).Shortly thereafter,the Company completed repurchase of an aggregate principal amount of US$384.8 million of its outstanding 0.50%convertible senior notes due December 2026 with the aggregate purchase price of US$331.2 million(RMB2,243.8 million),which was funded by the net proceeds from the ADS Offering.And the remaining net proceeds,after deducting selling commissions of the ADS Offering is US$68.8 million.Moreover,the Group can adjust the pace of its operation expansion and control the operating expenses.Based on the above considerations,the Group believes the cash and cash equivalents and the operating cash flows are sufficient to meet the cash requirements to fund planned operations and other commitments for at least the next twelve months from the date of the issuance of the unaudited interim condensed consolidated financial information.The Groups unaudited interim condensed consolidated financial information have been prepared on a going concern basis,which contemplates the realization of assets and liquidation of liabilities in the normal course of business.47Bilibili Inc.2024 Interim ReportNotes to Unaudited Interim Condensed Consolidated Financial Information2.SIGNIFICANT ACCOUNTING POLICIESa)Basis of presentationThe accompanying unaudited interim condensed consolidated financial information and related disclosures have been prepared in accordance with accounting principles generally accepted in the United States of America(“U.S.GAAP”)applicable to interim financial information and the disclosure requirements of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong,as amended,supplemented or otherwise modified from time to time(the“HK Listing Rules”).The December 31,2023 balance sheet data was derived from audited consolidated financial information;however,the accompanying interim notes to the unaudited interim condensed consolidated financial information do not include all of the annual disclosures required by U.S.GAAP.Results for interim periods are not necessarily indicative of those that may be expected for a full year.The financial information included herein should be read in conjunction with the Companys audited consolidated financial information for the preceding fiscal year.The accounting policies applied are consistent with those of the audited consolidated financial information for the preceding fiscal year.b)Principles of consolidationThe unaudited interim condensed consolidated financial information include the financial statement of the Company,its subsidiaries and VIEs(inclusive of the VIEs subsidiaries)for which the Company is the primary beneficiary.Subsidiaries are those entities in which the Company,directly or indirectly,controls more than one half of the voting power,has the power to appoint or remove the majority of the members of the board of directors,or to cast a majority of votes at the meeting of the board of directors,or has the power to govern the financial and operating policies of the investee under a statute or agreement among the shareholders or equity holders.A consolidated VIE is an entity in which the Companys subsidiary,through contractual arrangements,has the power to direct the activities that most significantly impact the entitys economic performance,bears the risks of and enjoys the rewards normally associated with ownership of the entity,and therefore the Companys subsidiary is the primary beneficiary of the entity.48Bilibili Inc.2024 Interim ReportNotes to Unaudited Interim Condensed Consolidated Financial Information2.SIGNIFICANT ACCOUNTING POLICIES(Continued)b)Principles of consolidation(Continued)All transactions and balances among the Company,its subsidiaries and VIEs(inclusive of the VIEs subsidiaries)have been eliminated upon consolidation.There is no VIE in the Group where the Company or any subsidiary has a variable interest but is not the primary beneficiary.c)Use of estimatesThe preparation of the Groups unaudited interim condensed consolidated financial information in conformity with the U.S.GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,disclosure of contingent liabilities at the balance sheet date and reported revenues and expenses during the reported periods in the unaudited interim condensed consolidated financial information and accompanying notes.Significant accounting estimates include,but are not limited to,determination of the average playing period for paying players,and assessment for the impairment of long-term investments accounted for using the measurement alternative.d)Functional currency and foreign currency translation The Group uses Renminbi(“RMB”)as its reporting currency.The Company and several of its overseas subsidiaries use US$or their respective local currencies as their functional currency.The functional currency of the Groups PRC entities is RMB.In the unaudited interim condensed consolidated financial information,the financial information of the Company and other entities located outside of the PRC have been translated into RMB.Assets and liabilities are translated at the exchange rates on the balance sheet date,equity amounts are translated at historical exchange rates,and revenues,expenses,gains and losses are translated using the average rate for the period.Translation adjustments are reported as foreign currency translation adjustments,and are shown as a component of other comprehensive income on the unaudited interim condensed consolidated statement of operations and comprehensive loss.Foreign currency transactions denominated in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions.Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using the applicable exchange rates at the balance sheet dates.Net gains and losses resulting from foreign exchange transactions are included in“Exchange losses”on the unaudited interim condensed c
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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-Q(Mark One)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 30,2024ORTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _ to _Commission file number 001-40653Duolingo,Inc.(Exact name of registrant as specified in its charter)Delaware45-3055872(State or other jurisdiction of incorporation or organization)(I.R.S.Employer Identification No.)5900 Penn AvenuePittsburgh,Pennsylvania 15206(412)567-6602(Address,Including Zip Code,and Telephone Number,IncludingArea Code,of Registrants Principal Executive Offices)Securities registered pursuant to Section 12(b)of the Act:Title of each classTrading Symbol(s)Name of each exchange on which registeredClass A common stock,$0.0001 per shareDUOL The Nasdaq Stock Market LLCIndicate by check mark whether the registrant:(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12 months(or for suchshorter period that the registrant was required to file such reports);and(2)has been subject to such filing requirements for the past 90 days.Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(232.405 of this chapter)duringthe preceding 12 months(or for such shorter period that the registrant was required to submit such files).Yes No Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company,or an emerging growth company.See the definitions of“large accelerated filer,”“accelerated filer”,“smaller reporting company”and“emerging growth company”in Rule 12b-2 of the Exchange Act.Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth companyIf an emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standardsprovided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Act).Yes No As of August 6,2024,37,436,672 shares of the registrants Class A common stock were outstanding,and 6,102,077 shares of the registrants Class B common stock were outstanding.Table of Contents PageSpecial Note Regarding Forward-Looking Statements2Special Note Regarding Key Operating Metrics4Risk Factors Summary4Part I Financial Information6Item 1.Financial Statements(Unaudited)6Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations24Item 3.Quantitative and Qualitative Disclosures About Market Risk38Item 4.Controls and Procedures39Part II Other Information40Item 1.Legal Proceedings40Item 1A.Risk Factors40Item 2.Unregistered Sales of Equity Securities and Use of Proceeds83Item 3.Defaults Upon Senior Securities83Item 4.Mine Safety Disclosures83Item 5.Other Information83Item 6.Exhibits85Signatures861Special Note Regarding Forward-Looking StatementsThis Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Actof 1995.We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained inSection 27A of the Securities Act of 1933,as amended(the“Securities Act”)and Section 21E of the Securities Exchange Act of 1934,asamended(the“Exchange Act”).All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q,including without limitation,statements regarding our business model and strategic plans,including the introduction of new brands orproducts,and our implementation thereof;statements regarding our expectations,beliefs,plans,objectives,prospects,assumptions,futureevents or expected performance,including our ability to compete in our industry;the sufficiency of our cash,cash equivalents andinvestments;and the plans and objectives of management for future operations and capital expenditures are forward-looking statements.Without limiting the generality of the foregoing,you can identify forward-looking statements because they contain words such as“may,”“will,”“shall,”“should,”“expects,”“plans,”“anticipates,”“could,”“intends,”“target,”“projects,”“contemplates,”“believes,”“estimates,”“predicts,”“potential,”“goal,”“objective,”“seeks,”or“continue”or the negative of these words or other similar terms or expressions that concern ourexpectations,strategy,plans,or intentions.Such forward-looking statements are neither promises nor guarantees,but involve a number ofknown and unknown risks,uncertainties and assumptions that may cause our actual results,performance or achievements to differ materiallyfrom those expressed or implied in the forward-looking statements due to various factors,including,but not limited to:our ability to retain and grow our users and sustain their engagement with our products;competition in the online language learning industry;our limited operating history;our ability to maintain profitability;our ability to manage our growth and operate at such scale;the success of our investments;our reliance on third-party platforms to store and distribute our products and collect revenue;our reliance on third-party hosting and cloud computing providers;our ability to compete for advertisements;acceptance by educational organizations of technology-based education;changes in our business and macroeconomic conditions;andthose identified in Part I,Item 2.“Managements Discussion and Analysis of Financial Condition and Results of Operations and PartII,Item 1A.“Risk Factors”in this Quarterly Report on Form 10-Q,and in Part II,Item 7.“Managements Discussion and Analysis ofFinancial Condition and Results of Operations”in our Annual Report on Form 10-K for the fiscal year ended December 31,2023(the“Annual Report on Form 10-K”).We caution you that the foregoing list does not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.You should not rely upon forward-looking statements as predictions of future events.We have based the forward-looking statementscontained in this Quarterly Report on Form 10-Q primarily on our current2expectations,estimates,forecasts,and projections about future events and trends that we believe may affect our business,financialcondition,results of operations and prospects.These statements are based upon information available to us as of the date of this QuarterlyReport on Form 10-Q and,although we believe that we have a reasonable basis for each forward-looking statement contained in thisQuarterly Report on Form 10-Q,such information may be limited or incomplete,and our statements should not be read to indicate that wehave conducted an exhaustive inquiry into,or review of,all potentially available relevant information.We cannot guarantee that the futureresults,levels of activity,performance,or events and circumstances reflected in the forward-looking statements will be achieved or occur atall.Moreover,we operate in a very competitive and rapidly changing environment.New risks and uncertainties emerge from time to time,andit is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in thisQuarterly Report on Form 10-Q.The results,events,and circumstances reflected in the forward-looking statements may not be achieved oroccur,and actual results,events,or circumstances could differ materially from those described in the forward-looking statements.You shouldnot place undue reliance on our forward-looking statements.The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements aremade.While we may elect to update such forward-looking statements at some point in the future,we disclaim any obligation to do so,even ifsubsequent events cause our views to change.You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q completelyand with the understanding that our actual future results may be materially different from what we expect.We qualify all of the forward-looking statements in this Quarterly Report on Form 10-Q by these cautionary statements.Unless the context otherwise requires,all references in this Quarterly Report on Form 10-Q to“Duolingo,”the“Company”,“we,”“our,”“us,”orsimilar terms refer to Duolingo,Inc.and its subsidiaries.3Special Note Regarding Key Operating MetricsWe manage our business by tracking several operating metrics,including monthly active users(MAUs),daily active users(DAUs),paidsubscribers,subscription bookings,and total bookings.We believe each of these operating metrics provides useful information to investorsand others.For information concerning these metrics as measured by us,see Part I,Item 2.“Managements Discussion and Analysis ofFinancial Condition and Results of Operations-Key Operating Metrics and Non-GAAP Financial Measures.”While these metrics are based on what we believe to be reasonable estimates of our user base for the applicable period of measurement,there are inherent challenges in measuring how our platform is used.These metrics are determined by using internal data gathered on ananalytics platform that we developed and operate and have not been validated by an independent third party.This platform tracks useraccount and session activity.If we fail to maintain an effective analytics platform,our metrics calculations may be inaccurate.We believe that these metrics are reasonable estimates of our user base for the applicable period of measurement,and that themethodologies we employ and update from time-to-time to create these metrics are reasonable bases to identify trends in user behavior.Because we update the methodologies we employ to create metrics,our operating metrics may not be comparable to those in prior periods.See the section titled“Risk FactorsOur user metrics and other operating metrics are subject to inherent challenges in measurement,andreal or perceived inaccuracies in those metrics may negatively affect our reputation and our business”.Other companies,includingcompanies in our industry,may calculate these metrics differently.Risk Factors SummaryThe following is a summary of the principal risks that could materially adversely affect our business,financial condition,and results ofoperations,all of which are more fully described in Part II,Item 1A.“Risk Factors.”This summary should be read in conjunction with Part II,Item 1A.“Risk Factors”and should not be relied upon as an exhaustive summary of the material risks facing our business.If we fail to keep existing users or add new users,or if our users decrease their level of engagement with our products or do notconvert to or remain paying users,our revenue,financial results and business may be significantly harmed.The online language learning industry is highly competitive,with low switching costs and a consistent stream of new products andentrants,and innovation by our competitors may disrupt our business.Changes to our existing brand and products,or the introduction of a new brand or products,could fail to attract or keep users orgenerate revenue and profits.We have had operating losses in the past and we may not be able to achieve or maintain profitability in the future.Our costs are continuing to grow,and some of our investments have the effect of reducing our operating margin and profitability.Ifour investments are not successful,our business and financial performance could be harmed.Our quarterly operating results and other operating metrics may fluctuate from quarter to quarter,which makes these metrics difficultto predict.Our user metrics and other operating metrics are subject to inherent challenges in measurement,and real or perceived inaccuraciesin those metrics may negatively affect our reputation and our business.4We rely on third-party platforms such as the Apple App Store and the Google Play Store to distribute our products and collectpayments.If we are unable to maintain a good relationship with such platform providers,if their terms and conditions or pricingchanged to our detriment,if we violate,or if a platform provider believes that we have violated,the terms and conditions of itsplatform,or if any of these platforms loses market share or falls out of favor or is unavailable for a prolonged period of time,ourbusiness will suffer.We rely on third-party hosting and cloud computing providers,like Amazon Web Services(“AWS”)and Google Cloud,to operatecertain aspects of our business.A significant portion of our product traffic is hosted by a limited number of vendors,and any failure,disruption or significant interruption in our network or hosting and cloud services could adversely impact our operations and harm ourbusiness.If we are not able to maintain the value and reputation of our brand,our ability to expand our base of users may be impaired,and ourbusiness and financial results may be harmed.Our business is subject to complex and evolving U.S.and international laws and regulations.Many of these laws and regulations aresubject to change and uncertain interpretation,and could result in claims,changes to our business practices,monetary penalties,increased cost of operations,or declines in user growth or engagement,or otherwise harm our business.Our success depends,in part,on our ability to access,protect,collect,and use personal data,and our failure to comply with thevarying and rapidly-evolving regulatory framework on privacy and data protection across jurisdictions could result in claims or otherforms of liability,increased costs of operations,reputational harm,or decline in user growth or engagement,or otherwise have amaterial adverse effect on our business.Regulatory and legislative developments on the use of artificial intelligence(“AI”)and machine learning could adversely affect ouruse of such technologies in our products and services.From time to time,we may be party to intellectual property-related litigation and proceedings that are expensive and time consumingto defend,and,if resolved adversely,could materially adversely impact our business,financial condition and results of operations.We may fail to adequately obtain,protect and maintain our intellectual property rights or prevent third parties from makingunauthorized use of such rights.The dual class structure of our common stock has the effect of concentrating voting control with those stockholders who held ourcapital stock prior to the listing of our Class A common stock on the Nasdaq Global Select Market,including our directors,executiveofficers,and 5%stockholders and their respective affiliates,who held in the aggregate 79.0%of the voting power of our outstandingcapital stock as of June 30,2024.This ownership will limit or preclude your ability to influence corporate matters,including theelection of directors,amendments of our organizational documents,and any merger,consolidation,sale of all or substantially all ofour assets,or other major corporate transaction requiring stockholder approval.5Part I Financial InformationItem 1.Financial Statements(Unaudited)DUOLINGO,INC.AND SUBSIDIARIESUNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS(Amounts in thousands,except par value amounts)June 30,2024December 31,2023ASSETSCurrent assetsCash and cash equivalents$888,240$747,610 Accounts receivable77,722 88,975 Deferred cost of revenues63,285 53,931 Prepaid expenses and other current assets12,317 7,282 Total current assets1,041,564 897,798 Operating lease right-of-use assets49,760 19,103 Intangible assets,net20,586 15,995 Property and equipment,net18,343 11,792 Goodwill4,050 4,050 Restricted cash2,735 2,735 Deferred tax assets,net835 766 Other assets1,570 1,718 Total assets$1,139,443$953,957 LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesDeferred revenues$291,477$249,192 Accounts payable3,405 2,447 Income tax payable38 792 Accrued expenses and other current liabilities22,804 24,931 Total current liabilities317,724 277,362 Long-term obligation under operating leases54,775 21,094 Total liabilities372,499 298,456 Commitments and contingencies(Note 9)Stockholders equityClass A common stock,$0.0001 par value;2,000,000 shares authorized as of June 30,2024 andDecember 31,2023;37,377 and 36,311 issued and outstanding at June 30,2024 andDecember 31,2023,respectivelyClass B common stock,$0.0001 par value;30,000 shares authorized as of June 30,2024 andDecember 31,2023;6,123 and 6,215 issued and outstanding at June 30,2024 andDecember 31,2023,respectively4 4 Additional paid-in capital930,054 869,918 Accumulated deficit(163,114)(214,421)Total stockholders equity766,944 655,501 Total liabilities and stockholders equity$1,139,443$953,957 See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.6DUOLINGO,INC.AND SUBSIDIARIESUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME(Amounts in thousands,except per share amounts)Three Months Ended June 30,Six Months Ended June 30,2024202320242023Revenues$178,327$126,839$345,880$242,500 Cost of revenues47,349 33,788 92,540 65,280 Gross profit130,978 93,051 253,340 177,220 Operating expenses:Research and development55,147 47,947 106,025 93,791 Sales and marketing20,174 17,734 40,105 34,335 General and administrative36,957 32,235 72,071 62,478 Total operating expenses112,278 97,916 218,201 190,604 Income(loss)from operations18,700(4,865)35,139(13,384)Other expense,net of other income(707)(268)(1,328)(86)Income(loss)before interest income and income taxes17,993(5,133)33,811(13,470)Interest income10,721 7,543 20,754 13,182 Income(loss)before income taxes28,714 2,410 54,565(288)Provision(benefit)for income taxes4,363(1,315)3,258(1,431)Net income and comprehensive income$24,351$3,725$51,307$1,143 Net income per share attributable to Class A and ClassB common stockholders,basic$0.56$0.09$1.19$0.03 Net income per share attributable to Class A and ClassB common stockholders,diluted$0.51$0.08$1.08$0.02 See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.7DUOLINGO,INC.AND SUBSIDIARIESUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITYTHREE MONTHS ENDED JUNE 30,2024 AND 2023(Amounts in thousands)CommonStockSharesAmountAdditional Paid-InCapitalAccumulatedDeficitTotalBALANCEApril 1,202341,018$4$798,254$(233,070)$565,188 Stock-based compensation expense 23,714 23,714 Stock options exercised374 3,778 3,778 Release of restricted stock units139 Net income 3,725 3,725 BALANCEJune 30,202341,531$4$825,746$(229,345)$596,405 BALANCEApril 1,202443,057$4$898,513$(187,465)$711,052 Stock-based compensation expense 26,746 26,746 Stock options exercised254 4,795 4,795 Release of restricted stock units189 Net income 24,351 24,351 BALANCEJune 30,202443,500$4$930,054$(163,114)$766,944 See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.8DUOLINGO,INC.AND SUBSIDIARIESUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITYSIX MONTHS ENDED JUNE 30,2024 AND 2023(Amounts in thousands)Common StockSharesAmountAdditional Paid-InCapitalAccumulatedDeficitTotalBALANCEJanuary 1,202340,361$4$772,562$(230,488)$542,078 Stock-based compensation expense 44,787 44,787 Stock options exercised916 8,397 8,397 Release of restricted stock units254 Net income 1,143 1,143 BALANCEJune 30,202341,531$4$825,746$(229,345)$596,405 BALANCEJanuary 1,202442,526$4$869,918$(214,421)$655,501 Stock-based compensation expense 51,731 51,731 Stock options exercised580 8,405 8,405 Release of restricted stock units394 Net income 51,307 51,307 BALANCEJune 30,202443,500$4$930,054$(163,114)$766,944 See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.9DUOLINGO,INC.AND SUBSIDIARIESUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Amounts in thousands)Six Months Ended June 30,20242023Cash flows from operating activities:Net income$51,307$1,143 Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization4,317 3,396 Stock-based compensation expense51,731 44,787 Gain on sale of capitalized software(100)Changes in assets and liabilities:Deferred revenue42,285 35,203 Accounts receivable11,253(6,678)Deferred cost of revenues(9,354)(7,679)Prepaid expenses and other current assets(5,035)(2,916)Accounts payable736 1,059 Accrued expenses and other current liabilities(4,199)(1,036)Noncurrent assets and liabilities2,861(408)Net cash provided by operating activities145,902 66,771 Cash flows from investing activities:Capitalized software expense and purchases of intangible assets(6,700)(3,275)Purchase of property and equipment(6,977)(1,508)Proceeds from sale of capitalized software 100 Net cash used for investing activities(13,677)(4,683)Cash flows from financing activities:Proceeds from exercise of stock options8,405 8,397 Net cash provided by financing activities8,405 8,397 Net increase in cash,cash equivalents and restricted cash140,630 70,485 Cash,cash equivalents and restricted cash-Beginning of period750,345 608,180 Cash,cash equivalents and restricted cash-End of period$890,975$678,665 See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.10DUOLINGO,INC.AND SUBSIDIARIESSUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION(Amounts in thousands)Six Months Ended June 30,20242023Supplemental disclosure of cash flow information:Cash paid for income taxes$4,927$1,939 Supplemental disclosure of noncash investing activities:Property and equipment included in Current liabilities$1,782$114 Right of use assets obtained in exchange for new operating lease liabilities$33,039$Right of use assets disposed or adjusted modifying operating leases liabilities$1,303$See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.11DUOLINGO,INC.AND SUBSIDIARIESNOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS1.DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATIONDuolingo,Inc.(the“Company”or“Duolingo”)was formed on August 18,2011,and the Duolingo App was launched to the general public onJune 19,2012.The Companys headquarters are located in Pittsburgh,Pennsylvania.Duolingo is a US-based mobile learning platform,as well as a digital language proficiency assessment exam.The Company has a freemiumbusiness model:the app and the website are accessible free of charge,although Duolingo also offers premium services for a subscriptionfee.As of the date of this filing,Duolingo offers courses in over 40 different languages,including Spanish,English,French,German,Italian,Portuguese,Japanese and Chinese.We have locations in the U.S.,China and Germany.Principles of ConsolidationThe Unaudited Condensed Consolidated Financial Statements include the accounts of the Company andsubsidiaries over which the Company has control.All intercompany transactions and balances have been eliminated.Basis of PresentationThe accompanying Unaudited Condensed Consolidated Financial Statements have been prepared in accordancewith generally accepted accounting principles in the U.S.(“GAAP”)from the Companys accounting records and reflect the consolidatedfinancial position and results of operations for the three and six months ended June 30,2024 and 2023.Unless otherwise specified,all dollaramounts(other than per share amounts)are referred to in thousands.The Unaudited Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securitiesand Exchange Commission(“SEC”).Certain information and note disclosures normally included in financial statements prepared inaccordance with GAAP have been condensed or omitted pursuant to such SEC rules.We believe that the disclosures made are adequate tomake the information presented not misleading.In our opinion,all adjustments considered necessary for a fair presentation of the financialstatements have been included,and all adjustments are of a normal and recurring nature.We consistently applied the accounting policiesconsistent with the annual Unaudited Condensed Consolidated Financial Statements elsewhere in this Quarterly Report on Form 10-Q,inpreparing these Unaudited Condensed Consolidated Financial Statements.These Unaudited Condensed Consolidated Financial Statementsshould be read in conjunction with the audited financial statements and the notes for the fiscal year ended December 31,2023 included inthe Annual Report on Form 10-K and filed with the SEC.2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESAccounting PrinciplesThe Unaudited Condensed Consolidated Financial Statements and accompanying notes are prepared inaccordance with GAAP.Use of EstimatesThe preparation of Unaudited Condensed Consolidated Financial Statements in conformity with GAAP requiresmanagement to make estimates and assumptions that affect the amounts reported in the Unaudited Condensed Consolidated FinancialStatements and accompanying notes.Significant estimates and assumptions reflected in the Unaudited Condensed Consolidated FinancialStatements include,but are not limited to,useful lives of property and equipment,valuation of deferred tax assets and liabilities,stock-basedcompensation,common stock valuation,operating lease right-of-use assets and liabilities,capitalization of internally developed software andassociated useful lives and contingent liabilities.Actual results may differ materially from such estimates.Management believes that theestimates,and judgments upon which they rely,are reasonable based upon information available to12them at the time that these estimates and judgments are made.To the extent that there are material differences between these estimatesand actual results,the Companys Unaudited Condensed Consolidated Financial Statements will be affected.Cash and Cash EquivalentsCash consists primarily of cash on hand and bank deposits.Cash equivalents consist primarily of moneymarket accounts with maturities of three months or less at the date of acquisition and are stated at cost,which approximates fair value.TheCompany maintains cash deposits with financial institutions that may exceed federally insured limits at times.The following table shows thebreakout between cash and money market funds.(In thousands)June 30,2024December 31,2023Cash$96,294$50,373 Money market funds791,946 697,237 Total$888,240$747,610 The Money market funds are considered Level 1 financial assets.Level 1 financial assets use inputs that are the unadjusted,quoted prices inactive markets for identical assets or liabilities at the measurement date.Advertising Costs Advertising costs were approximately$13,448 and$27,468 for the three and six months ended June 30,2024,and$12,206 and$23,299 for the three and six months ended June 30,2023,respectively,and are included within Sales and marketing in theUnaudited Condensed Consolidated Statements of Operations and Comprehensive Income.Income TaxesThe Companys provision for income taxes is computed by using an estimate of the annual effective tax rate,adjusted fordiscrete items taken into account in the relevant period,if any.Each quarter,the annual effective income tax rate is recomputed and if thereare material changes in the estimate,a cumulative adjustment is made.Concentration of Credit RiskThe Companys concentration of credit risk relates to financial institutions holding the Companys cash andcash equivalents and platforms with significant accounts receivable balances and revenue transactions.The Company maintains cash deposits with financial institutions that may exceed federally insured limits at times.Management believes thatthe financial institutions that hold the Companys deposits are financially credit worthy and,accordingly,minimal credit risk exists with respectto those balances.The majority of our revenue comes through our subscriptions and advertising streams,and payments are made to Duolingo through serviceproviders.Two service providers,Apple and Google accounted for 70.0%and 15.3%of total Accounts receivable as of June 30,2024,respectively.Three service providers,Apple,Google,and Stripe accounted for 65.2%,20.7%,and 10.7%of total Accounts receivable as ofDecember 31,2023,respectively.Impairment of long-lived assets The Company reviews its long-lived assets for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset may not be recoverable.If the sum of the estimated undiscounted future cashflows expected to result from the use and eventual disposition of an asset is less than the carrying amount of the asset,an impairment loss isrecognized.Measurement of an impairment loss is based on the fair value of the asset.No assets were impaired during the three and sixmonths ended June 30,2024 and 2023.Recently Issued Pronouncements Not Yet Adopted13In November 2023,the Financial Accounting Standards Board(“FASB”)issued Accounting Standards Update(“ASU”)2023-07,SegmentReporting(Topic 280),which improves reportable segment disclosure requirements,primarily through enhanced disclosures about significantsegment expenses.The standard is effective for fiscal years beginning after December 15,2023,and interim periods within fiscal yearsbeginning after December 15,2024.Early adoption is permitted.The Company does not expect the adoption of the new guidance will have amaterial impact on the Companys consolidated financial statements and related disclosures.In December 2023,the FASB issued ASU 2023-09,Income Taxes(Topic 740),which includes improvements to income tax disclosures.Thestandard is effective for public entities in fiscal years beginning after December 15,2024.Early adoption is permitted.The Company does notexpect the adoption of the new guidance will have a material impact on the Companys consolidated financial statements and relateddisclosures.Recently Adopted Accounting PronouncementsThere are no recently adopted accounting pronouncements.3.REVENUEThe Company has four predominant sources of revenues;time-based subscriptions,in-app advertising placement by third parties,theDuolingo English Test,and In-App Purchases.Revenue is recognized upon transfer of control of promised products or services to users in anamount that reflects the consideration the Company expects to receive in exchange for those services.The Company does not enter intocontracts with a customer that contain multiple promises that result in multiple performance obligations.Revenue is recorded net of taxesassessed by a government authority that are both imposed on and concurrent with specific revenue transactions between us and our users.Revenue from time-based subscriptions includes a stand-ready obligation to provide hosting services that are consumed by the customerover the subscription period.Users can purchase Duolingo monthly or they can purchase a year-long subscription and pay for thesubscription at the time of purchase.Under the year-long subscription,users can also purchase a single plan or a family plan.The familyplan includes up to six users on one subscription.Such payments are initially recorded to deferred revenue.The user has the ability todownload limited content offline.However,as there is a significant level of integration and interdependency with the online functionality,theCompany considers the service to be a single performance obligation for the online and offline content.The Company enters into arrangements with advertising networks to monetize the in-app advertising inventory.Revenue from in-appadvertising placement is recognized at a point in time when the advertisement is placed and is based upon the amount received.Duolingo English Test revenue is generally recognized once the tests have gone through the proctoring process and a certification decisionhas been made.This process usually takes less than 48 hours after the test has been completed and uploaded.Customers have 21 daysfrom the date of purchase to take the exam or their purchase will expire and revenue will be recognized.Virtually all customers complete theirexams prior to expiration.Sometimes organizations may purchase tests in bulk via coupons with a one year expiration date.The Companywill defer revenue from all tests that have neither been proctored nor expired.The Companys users have the option to purchase consumable in-app virtual goods.The Company recognizes revenue over the period inwhich the user consumes the virtual good,which is generally within a month.14The Company also recognizes revenue from Duos Taquera,a restaurant that opened during 2022,in the space adjacent to ourheadquarters in Pittsburgh.Revenue from Duos Taquera is recognized at a point in time when the sales are made.Principal Agent ConsiderationsThe Company makes its application available to be downloaded through third-party digital distributionservice providers.Users who purchase subscriptions also pay through the respective app stores.The Company evaluates the purchases viathird-party payment processors to determine whether its revenues should be reported gross or net of fees retained by the paymentprocessor.The Company is the principal in the transaction with the end user as a result of controlling,hosting,and integrating the delivery ofthe virtual items to the end user.The Company records revenue gross as a principal and records fees paid to third-party payment processorsas Cost of revenues.Contract BalancesDeferred revenue mostly consists of payments we receive in advance of revenue recognition,and is mostly related totime-based subscriptions,which will be recognized into revenue over the course of the upcoming year(recognized over 12 months or less).Additionally,the Duolingo English Test has deferred revenue related to tests that have been purchased,but will not be recognized until thetests have been proctored.Disaggregation of RevenueIn accordance with ASC 606,Revenue from Contracts with Customers,the Company disaggregates revenue from contracts with customersinto revenue streams,which most closely depicts how the nature,amount,timing and uncertainty of revenue and cash flows are affected byeconomic factors.Three Months Ended June 30,Six Months Ended June 30,(In thousands)2024202320242023Revenues:Subscription$143,909$95,158$275,597$181,343 Other(1)34,418 31,681 70,283 61,157 Total revenues$178,327$126,839$345,880$242,500 _(1)Other revenue is comprised of the below.Three Months Ended June 30,Six Months Ended June 30,(In thousands)2024202320242023Advertising$13,258$13,061$26,210$24,696 Duolingo English Test10,698 9,809 23,453 19,781 In-App Purchases10,176 8,675 20,100 16,527 Other286 136 520 153 Total other revenue$34,418$31,681$70,283$61,157 Three service providers,Apple,Google and Stripe,processed 60.7%,23.7%,and 11.2%,and 60.0%,23.7%,and 12.0%of total Revenuesfor the three and six months ended June 30,2024,respectively.Three services providers,Apple,Google,and Stripe processed 58.2%,26.1%,and 11.9%,and 57.7%,26.2%and 11.9%of total Revenues for the three and six months ended June 30,2023,respectively.15Changes in deferred revenues were as follows:Six Months Ended June 30,(In thousands)20242023Beginning balanceJanuary 1$249,192$157,550 Amount from beginning balance recognized into revenue(176,854)(112,514)Recognition of deferred revenue(121,625)(88,507)Deferral of revenue340,764 236,224 Ending balanceJune 30$291,477$192,753 4.PROPERTY and EQUIPMENT,netProperty and equipment consists of the following as of June 30,2024 and December 31,2023:(In thousands)20242023Leasehold improvements$25,933$18,191 Furniture,fixtures and equipment6,886 5,869 Total property and equipment32,819 24,060 Less:accumulated depreciation(14,476)(12,268)Total property and equipment,net$18,343$11,792 Depreciation expense is included within the following financial statement line items within the Companys Unaudited CondensedConsolidated Statements of Operations and Comprehensive Income.Three Months Ended June 30,Six Months Ended June 30,(In thousands)2024202320242023Research and development$500$409$940$816 Sales and marketing59 45 111 93 General and administrative582 557 1,157 1,111 Total$1,141$1,011$2,208$2,020 5.INTANGIBLE ASSETS AND GOODWILLIntangible assets consist of the following as of June 30,2024 and December 31,2023:(In thousands)20242023Capitalized software$33,595$26,895 Other intangible assets117 117 Total intangible assets33,712 27,012 Less:accumulated amortization(13,126)(11,017)Intangible assets,net$20,586$15,995 The Company capitalized$6,700 and$3,176 of software development costs,with the majority of the costs being employee wages,during thesix months ended June 30,2024 and 2023,respectively.Amortization expense is included within the following financial statement line itemswithin the Companys Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income.16Three Months Ended June 30,Six Months Ended June 30,(In thousands)2024202320242023Cost of revenues$944$402$1,792$805 Sales and marketing158 221 317 571 Total$1,102$623$2,109$1,376 The estimated future amortization expense of capitalized software with definite lives as of June 30,2024 was as follows:(In thousands)Amortization ExpenseRemainder of 2024$3,813 20257,677 20266,182 20272,797 2028 Total estimated future amortization expense$20,469 _(1)All capitalized software is expected to be fully amortized by December 31,2028,therefore there is no estimated amortization for the year 2029.Goodwill was$4,050 at June 30,2024 and December 31,2023.As of June 30,2024 and December 31,2023,$3,578 and$3,713 of goodwillis deductible for tax purposes,respectively.6.LEASESThe Company has entered into various operating leases for its office space expiring between fiscal 2024 and 2036.Certain leaseagreements contain an option for the Company to renew a lease for a term of up to five years.The Company considers these options,whichmay be elected at the Companys sole discretion,in determining the lease term on a lease-by-lease basis.On December 18,2023,the Company entered into an Agreement of Sub-Sublease,with Spotify USA Inc.,as Sub-Sublandlord for 85,666square feet of office space in the building located at 4 World Trade Center,150 Greenwich Street,New York,New York 10007 for use asadditional office space.The term of the Sub-Sublease commenced on January 8,2024 and will expire on April 29,2034The initial base rent is$442 per month on a triple net basis,increasing to$478 per month at the beginning of the sixth year of the lease term.Payment of rent will commence 20 months after commencement of the Sub-Sublease.In lieu of a security deposit,the Company is has provided an irrevocable stand-by letter of credit to the Sub-Sublandlord.This letter of creditacts as security for the faithful performance by the Company of all terms,covenants and conditions of the lease agreement.The cashcollateral and deposits for the letters of credit have been recognized as restricted cash in the unaudited condensed consolidated balancesheets and totaled$2,735 as of June 30,2024 and December 31,2023.(1)17In February 2024,the Company signed a lease with Bullitt Center LLC for 7,940 square feet of office space in Seattle,Washington.The termof the lease is 63 months beginning on March 1,2024 and expiring on May 31,2029.In March 2024,the Company entered into the First and Second Amendments(“the Amendments”)to the Office Lease Agreement with 5704Penn Office,LLC(the Landlord)for office space located at Liberty East(the“Premise)at 141 South Saint Clair Street,Pittsburgh,Pennsylvania,which,among other things,increased the leased square footage by 110,008 square feet to a total of 148,266 square feetbeginning on August 1,2025,with an expiration date of April 30,2036.Under the Amendments,the monthly fixed base rent for the initialsquare footage increases to approximately$188 per month for the period commencing June 16,2035 and ending April 30,2036.The initialbase rent of the additional square footage is approximately$394 per month and will increase by approximately 2%per annum,with theexception of the third and fifth years,which have increases of approximately 9%related to additional parking access.Under the terms of theAmendments,the Landlord will provide the Company with an improvement allowance of up to approximately$6,800 for costs relating to thedesign,permitting,and construction of improvements to the Premise.In May 2024,the Company signed a lease with Beijing Hengshi Huarong Holding Co.,Ltd.for 16,314 square feet of office space in Beijing,China.The term of the lease is 39 months beginning on May 20,2024 and expiring on July 15,2027.The following represents the components of lease cost for the three and six months ended June 30,2024 and 2023 along with supplementaldisclosures of cash flow information,lease term and discount rate:Three Months Ended June 30,Six Months Ended June 30,2024202320242023Operating lease cost$2,706$1,860$5,696$3,721 Short term lease cost14 19 22 22 Variable lease cost105 127 252 160 Total lease cost$2,825$2,006$5,970$3,903 Cash paid for amounts included in the measurementof lease liabilities$1,606$1,698$3,645$3,447 Right-of-use assets obtained in exchange for newoperating lease liabilities$1,681$33,039$Right of use assets disposed or adjusted,modifyingoperating leases liabilities$774$1,303$1,397 Gain from termination of leases$8$June 30,2024June 30,2023Weighted-average remaining lease term10 years9 yearsWeighted-average discount rate7.14%6.53%Sublease income was immaterial for the three and six months ended June 30,2024 and 2023.The following table reconciles future minimum undiscounted rental commitments for operating leases to operating lease liabilities recordedon the Unaudited Condensed Consolidated Balance Sheet as of June 30,2024:18Fiscal yearRemainder of 2024$2,026 20254,189 20269,579 20279,507 20289,299 Thereafter48,482 Total undiscounted lease payments$83,082 Present value adjustment(25,851)Operating lease liabilities$57,231 Current lease liabilities of$2,456 and$3,944 are presented within Accrued expenses and other liabilities while non-current lease liabilities of$54,775 and$21,094 are presented within Long-term obligation under operating leases on the Unaudited Condensed Consolidated BalanceSheet as of June 30,2024 and the Audited Consolidated Balance Sheet as of December 31,2023,respectively.7.INCOME TAXESYear-to-date income tax expense or benefit is the product of the most current projected annual effective tax rate(“PAETR”)and the actualyear-to-date pretax income(loss)adjusted for any discrete items.The income tax expense or benefit for a particular quarter,is the differencebetween the year-to-date calculation of income tax expense or benefit and the year-to-date calculation for the prior year period.Itemsunrelated to current period ordinary income or loss are recognized entirely in the period identified as a discrete item of tax.The Companys PAETR differs from the U.S.federal statutory rate of 21.0%during the three and six months ended June 30,2024 and 2023primarily due to the impact of maintaining a U.S.valuation allowance provided on U.S.deferred tax assets.The Companys income before taxes,income tax provision or benefit and effective tax rates were as follows:Three Months Ended June 30,Six Months Ended June 30,(In thousands,except percentages)2024202320242023Income(loss)before income taxes$28,714$2,410$54,565$(288)Provision(benefit)for income taxes4,363(1,315)$3,258$(1,431)Effective tax rate15.2%(54.6)%6.0I6.9%For the three and six months ended June 30,2024,the Company recorded an income tax provision of$4,363 and$3,258,respectively.Forthe three and six months ended June 30,2023,the Company recorded an income tax benefit of$1,315 and$1,431,respectively.For both of the periods ending June 30,2024 and June 30,2023,the Company has recognized a year-to-date discrete tax benefitattributable to the excess tax benefits of stock-based compensation activity.For 2024,however,there was tax expense on pretax operatingactivities which more than offset the discrete benefit,resulting in an overall year-to-date tax expense position.The Company periodically evaluates the realizability of its net deferred tax assets based on all available evidence,both positive andnegative.The realization of net deferred tax assets is dependent on the Companys ability to generate sufficient future taxable income to fullyutilize these assets.As of June 30,192024,the Company continues to maintain a full allowance against its U.S.federal and state net deferred tax assets.8.STOCK-BASED COMPENSATIONPrior to the IPO,the Company granted options to purchase shares of the Companys common stock and restricted stock units(“RSU”)inrespect of shares of the Companys common stock to employees,directors and consultants under the Companys 2011 Equity Incentive Plan.In July 2021,Duolingo adopted the 2021 Incentive Award Plan(“2021 Plan”)and the 2021 Employee Stock Purchase Plan(“ESPP”),each ofwhich became effective on July 26,2021 in connection with the IPO.An aggregate of 7,946 shares and 1,119 shares of Class A commonstock were made available for future issuance under the 2021 Plan and ESPP,respectively.Pursuant to the terms of the plan,on eachJanuary 1 through January 1,2031,the number of shares of the Companys Class A common stock available for issuance automaticallyincreases by the lesser of(i)5%of the shares outstanding on the preceding December 31(calculated on an as-converted basis)and(ii)suchsmaller number of shares of common stock as determined by the Board or the Committee(as defined in the 2021 Plan).Pursuant to theterms of the ESPP,on each January 1 through January 1,2031,the number of shares of the Companys Class A common stock available forissuance automatically increases by the lesser of(i)1%of the shares outstanding on the preceding December 31 and(ii)such smallernumber of shares of common stock as determined by the Board or the Committee(as defined in the ESPP).On January 1,2024,the numberof Class A shares available under the 2021 Plan was increased by 2,126 shares of common stock.The Board waived the 2024 automaticannual increase of shares available for future issuance under the ESPP,and the Company intends to waive such automatic annual increasefor all applicable future periods.The Companys stock options vest based on terms in the stock option agreements,which generally provide for vesting over four years basedon continued service to the Company and its subsidiaries.Each option has a term of ten years.Stock options granted under the 2021 Planmust generally have an exercise price of not less than the estimated fair market value of the underlying Class A common stock at the date ofthe grant.No options have been granted under the 2021 Plan.A summary of stock option activity under the Plans was as follows:(In thousands,except prices and years)Number of optionsWeighted-average exercise priceWeighted-averageremaining contractuallife(years)Aggregate intrinsicvalueOptions outstanding at January 1,20242,985$16.04 5.60$629,865 Granted(1)Exercised(580)14.48 Forfeited and expired(2)19.40 Options outstanding at June 30,20242,405$16.42 5.16$462,801 Options exercisable at June 30,20242,375$16.21 5.15$457,011 _(1)There were no stock options granted during the three and six months ended June 30,2024.(2)There was a nominal amount of forfeitures and expirations during the six months ended June 30,2024.The total intrinsic value of options exercised was approximately$110,042 and$106,750 for the periods ended June 30,2024 and 2023,respectively.20A summary of RSU activity under the Plans was as follows:(In thousands,except prices)Restricted stock unitsWeighted-average grant date fair value pershareOutstanding at January 1,20242,027$106.32 Granted458 178.83 Released(394)97.59 Forfeited(67)113.90 Outstanding at June 30,20242,024$124.17 As of June 30,2024,there was approximately$285 of unrecognized stock-based compensation expense related to stock options grantedunder the plans with a weighted-average period of approximately 5 months.The amount of unrecognized stock-based compensationexpense for RSUs as of June 30,2024 was$235,245 with a weighted-average period of approximately three years.Total unrecognizedcompensation expense as of June 30,2024 was$235,530.There were 9,013 shares available for grant at June 30,2024.Performance-based RSUsIn June 2021,the Company granted an aggregate of 1,800 performance-based RSUs(the“Founder Awards”)to the Companys founders.The Founder Awards vest upon the satisfaction of both a service-based condition and a performance-based condition and generally aresettled one year after vesting.The service-based condition is satisfied as to 25%of the Founder Awards on each anniversary of the IPO onJuly 27,2021,subject to the continuous service of the founders through the applicable date.The performance-based condition will besatisfied with respect to each of 10 equal tranches only if the trailing 60-calendar day volume-weighted-average closing trading price of theCompanys Class A common stock reaches certain stock-price hurdles for each such tranche,as set forth below,over a period of 10 yearsfrom the date of grant.Any RSUs associated with stock-price hurdles not achieved by the tenth anniversary of the date of grant will terminate and be canceled forno additional consideration to the founders.The stock-price hurdles and number of RSUs eligible to vest will be adjusted to reflect any stocksplits,stock dividends,combinations,reorganizations,reclassifications,or similar events under the 2021 Plan.The Founder Awards will besettled in shares of the Companys Class B common stock.TrancheCompany Stock Price HurdleNumber of RSUs Eligible to Vest1(1)$127.50 90 2(1)$153.00 90 3(2)$178.50 90 4(3)$204.00 180 5$255.00 180 6$306.00 180 7$357.00 180 8$408.00 180 9$612.00 270 10$816.00 360 21_(1)Stock price hurdle for the tranche was achieved in 2021,the service condition satisfied in 2022,and shares were released to CEO and CTO on August 14,2023(2)Stock price hurdle and the service condition for the tranche was achieved as of November 22,2023;the shares will be released after the one-year holding requirement hasbeen satisfied(3)Stock price hurdle and the service condition for the tranche was achieved as of December 26,2023;the shares will be released after the one-year holding requirement hasbeen satisfiedThe Company estimated the grant date fair value of the Founder Awards using a model based on multiple stock-price paths developedthrough the use of a Monte Carlo simulation that incorporates into the valuation the possibility that the stock-price hurdles may not besatisfied.The weighted-average grant date fair value of the Founder Awards was estimated to be$61.56 per share and the Companyestimates that it will recognize total stock-based compensation expense of approximately$110,817 over the derived service period of each ofthe ten separate tranches which is between 3.58 5.92 years.If the stock-price hurdles are met sooner than the requisite service period,thestock-based compensation expense will be adjusted to prospectively recognize the remaining expense over the remaining derived serviceperiod.Provided that the founders continue to provide services to the Company,stock-based compensation expense is recognized over thederived service period,regardless of whether the stock-price hurdles are achieved.The Company recognized$5,557 and$11,097 of stock-based compensation expense related to performance-based RSUs for the three andsix months ended June 30,2024,and$7,094 and$14,234 for the three and six months ended June 30,2023,respectively,which is includedwithin General and administrative in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income.As ofJune 30,2024,there is$25,638 of unrecognized stock-based compensation expense related to these awards.Total stock-based compensation expense was$26,746 and$51,731 for the three and six months ended June 30,2024,and$23,714 and$44,787 for the three and six months ended June 30,2023,respectively.Stock-based compensation expense is included in the Unaudited Condensed Consolidated Statements of Operations and ComprehensiveIncome as shown in the following table:Three Months Ended June 30,Six Months Ended June 30,(In thousands)2024202320242023Cost of revenues$18$14$34$25 Research and development14,095 10,978 27,101 20,324 Sales and marketing1,198 969 2,252 1,748 General and administrative11,435 11,753 22,344 22,690 Total$26,746$23,714$51,731$44,787 Nominal amounts of stock-based compensation expense is capitalized into intangible assets for the three and six months ended June 30,2024 and 2023.9.COMMITMENTS AND CONTINGENCIESLegal Proceedings From time to time,the Company may become involved in various legal proceedings in the ordinary course of itsbusiness and may be subject to third-party infringement claims.The outcome of any such claims or proceedings,regardless of the merits,isinherently uncertain.The Company is not currently party to any material legal proceedings.22Related Parties The Company has determined that there were no transactions with related parties as of or during the three and sixmonths ended June 30,2024 and 2023.Letters of Credit The Company has a standby letter of credit obtained in connection with an operating lease.This letter of credit acts assecurity for the faithful performance by us of all terms,covenants and conditions of the lease agreement.The amount of the letter of credit isequal to six months rent of$442,totaling$2,656.The cash collateral for the letter of credit has been recognized as restricted cash in theUnaudited Condensed Consolidated Balance Sheet and is equivalent to 103%of the letter of credit and totaled$2,735.For more information,refer to Note 6,Leases.10.EMPLOYEE BENEFIT PLANThe Company sponsors a profit sharing plan with a 401(k)feature,the Duolingo Retirement Plan(the“Plan”),for eligible employees.Thecurrent Plan,effective January 1,2021,provides for Company safe harbor matching contributions of 100%of the first 4%of the employeeselective deferrals and 50%of the next 2%,with vesting starting upon the first day of employment.The Company also has the option to makediscretionary matching or profit sharing contributions.The Company made safe harbor matching contributions of approximately$1,705 and$1,473 during the three months ended June 30,2024 and 2023,respectively,and$3,288 and$2,870 during the six months ended June 30,2024 and 2023,respectively.The Company did not make any discretionary matching or profit sharing contributions during the three and sixmonths ended June 30,2024 or 2023.11.EARNINGS PER SHAREBasic and diluted net income per share attributable to common stockholders is presented in conformity with the two-class method requiredfor participating securities.Basic net income per share attributable to common stockholders is calculated by dividing the net income by the weighted-average number ofshares of common stock outstanding during the period,less shares subject to repurchase.The diluted net income per share attributable tocommon stockholders is calculated by giving effect to all potential dilutive common stock equivalents outstanding for the period.The rights,including the liquidation and dividend rights,of the holders of Class A and Class B common stock are identical,except with respect to votingand conversion.Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitledto 20 votes per share.Each share of Class B common stock is convertible into a share of Class A common stock voluntarily at any time bythe holder,and automatically upon certain events.The Class A common stock has no conversion rights.As the liquidation and dividend rightsare identical for Class A and Class B common stock,the undistributed earnings are allocated on a proportional basis and the resulting netincome per share attributable to common stockholders will,therefore,be the same for both Class A and Class B common stock on anindividual or combined basis.23Three Months Ended June 30,Six Months Ended June 30,(In thousands,except per share data)2024202320242023Numerator:Net income attributable to Class A and Class Bcommon stockholders$24,351$3,725$51,307$1,143 Denominator:Weighted-average shares in computing net incomeper share attributable to Class A and Class Bcommon stockholders,basic and diluted43,260 41,222 43,020 40,921 Effect of dilutive securitiesFounder awards where performance has been met270 180 270 180 Dilutive effect of stock options outstanding(1)2,216 3,097 2,216 3,097 RSUs outstanding2,024 2,373 2,024 2,373 Denominator for dilutive net income per commonshare-weighted-average shares47,770 46,872 47,530 46,571 Basic income per common share$0.56$0.09$1.19$0.03 Diluted income per common share$0.51$0.08$1.08$0.02 _(1)The Company had 2.4 million options outstanding as of June 30,2024.The estimated dilutive effect is calculated as the number of shares expected to be issued uponvesting or exercise,adjusted for the strike price proceeds that are received by the Company and assumed to be used to repurchase shares of Duolingo common stock.12.SUBSEQUENT EVENTSDuring July of 2024,the Company completed two acquisitions for a total purchase price of$7,500,which included cash of$6,600 andcontingent consideration of$900.At the time of this filing,the Company is currently in the process of completing the preliminary purchaseprice allocation,which will be included in the Companys Quarterly Report on Form 10-Q for the period ending September 30,2024.Item 2.Managements Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion and analysis of our financial condition and results of operations should be read in conjunction with our UnauditedCondensed Consolidated Financial Statements and related notes included elsewhere in this Quarterly Report on Form 10-Q,the auditedconsolidated financial statements and related notes included in our Annual Report on Form 10-K and in Part II,Item 7.“ManagementsDiscussion and Analysis of Financial Condition and Results of Operations”of our Annual Report on Form 10-K.The following discussioncontains forward-looking statements,such as those relating to our plans,objectives,expectations,intentions,and beliefs,that involve risks,uncertainties and assumptions.Our actual results could differ materially from these forward-looking statements as a result of many factors,including those discussed in Part II,Item 1A.“Risk Factors,”“Special Note Regarding Forward-Looking Statements,”and included elsewherein this Quarterly Report on Form 10-Q,and in in Part II,Item 7.“Managements Discussion and Analysis of Financial Condition and Resultsof Operations”of our Annual Report on Form 10-K.Our historical results are not necessarily indicative of the results that may be expected forany periods in the future.Amounts reported in millions are rounded based on the amounts in thousands.As a result,the sum of the components reported in millionsmay not equal the total amount reported in millions due to rounding.In24addition,percentages presented are calculated from the underlying numbers in thousands and may not add to their respective totals due torounding.OverviewOur flagship app has organically become the worlds most popular way to learn languages and the top-grossing Education app in the AppStores,offering courses in over 40 languages to over 100 million monthly active users for the three months ended June 30,2024.We believethat we have become the preeminent online destination for language learning due to our beautifully designed products,exceptional userengagement,and demonstrated learning efficacy.Key Operating Metrics and Non-GAAP Financial MeasuresWe regularly review a number of key operating metrics and non-GAAP financial measures to evaluate our business,measure ourperformance,identify trends,prepare financial projections and make business decisions.The measures set forth below should be consideredin addition to,not as a substitute for or in isolation from,our financial results prepared in accordance with GAAP.Monthly active users(MAUs)and daily active users(DAUs),along with paid subscribers,subscription bookings and total bookings,are operating metrics that helpinform management about the underlying growth in users of our platform,and are a measure of our monetization efforts.To calculate theyear-over-year change in MAUs and DAUs for a given period,we subtract the average for the same period in the previous year from theaverage for the same period in the current year and divide the result by the average for the same period in the previous year.Othercompanies,including companies in our industry,may calculate these measures differently or not at all,which reduces their usefulness ascomparative measures.Three Months Ended June 30,(In millions)20242023Operating MetricsMonthly active users(MAUs)103.6 74.1 Daily active users(DAUs)34.1 21.4 Paid subscribers(at period end)8.0 5.2 Three Months Ended June 30,Six Months Ended June 30,(In thousands)2024202320242023Operating MetricsSubscription bookings$156,484$106,254$317,950$216,376 Total bookings$190,092$137,539$387,544$277,593 Non-GAAP Financial MeasuresNet income(GAAP)$24,351$3,725$51,307$1,143 Adjusted EBITDA$48,117$20,871$92,122$35,982 Net cash provided by operating activities(GAAP)$62,388$37,167$145,902$66,771 Free cash flow$54,867$34,340$134,488$63,132 Operating MetricsMonthly active users(MAUs).MAUs are defined as unique users who engage with our Duolingo App or the learning section of our websiteeach month.MAUs are reported for a measurement period by taking the average of the MAUs for each calendar month in that measurementperiod.The measurement period25for MAUs is the three months ended June 30,2024 and the same period in the prior year where applicable,and the analysis of results isbased on those periods.MAUs are a measure of the size of our global active user community on Duolingo.We had approximately 103.6 million and 74.1 million MAUs for the three months ended June 30,2024 and 2023,respectively,representingan increase of 40%from the prior year period.We grew MAUs through product initiatives designed to make the app more social andengaging,through marketing,and through improving our courses,all of which we believe helped us attract new users,retain existing users,and reengage the millions of former users who return to our Duolingo App.Daily active users(DAUs).DAUs are defined as unique users who engage with our Duolingo App or the learning section of our websiteeach calendar day.DAUs are reported for a measurement period by taking the average of the DAUs for each day in that measurementperiod.The measurement period for DAUs is the three months ended June 30,2024 and the same period in the prior year where applicable,and the analysis of results is based on those periods.DAUs are a measure of the consistent engagement of our global user community onDuolingo.We had approximately 34.1 million and 21.4 million DAUs for the three months ended June 30,2024 and 2023,respectively,representing anincrease of 59%from the prior year period.The DAU/MAU ratio,which we believe is an indicator of user engagement,increased to 32.9%from 28.9%a year ago.We grew DAUs through many of the same product initiatives as we grew MAUs,such as making the product morefun and engaging.Paid Subscribers.Paid subscribers are defined as users who pay for access to any Duolingo subscription offering and had an activesubscription as of the end of the measurement period.Each unique user account is treated as a single paid subscriber regardless of whethersuch user purchases multiple subscriptions,and the count of paid subscribers does not include users who are currently on a free trial or whoare non-paying members of a family plan.As of June 30,2024 and 2023,we had approximately 8.0 million and 5.2 million paid subscribers,respectively,representing an increase of52%from the prior year period.We grew paid subscribers through product initiatives designed to make Duolingo subscription offerings moreappealing,which we believe helped us attract new subscribers and retain existing subscribers.Subscription Bookings and Total Bookings.Subscription bookings represent the amounts we receive from a purchase of any Duolingosubscription offering.Total bookings include subscription bookings,income from advertising networks for advertisements served to our users,purchases of the Duolingo English Test,and in-app purchases of virtual goods.We believe bookings provide an indication of trends in ouroperating results,including cash flows,that are not necessarily reflected in our revenues because we recognize subscription revenuesratably over the lifetime of a subscription,which is generally from one to twelve months.For the three months ended June 30,2024 and 2023,we generated$156.5 million and$106.3 million of subscription bookings,respectively,representing an increase of 47%from the prior year period.For the six months ended June 30,2024 and 2023,we generated$318.0 millionand$216.4 million of subscription bookings,respectively,representing an increase of 47%from the prior year period.We grew subscriptionbookings by selling more first-time and renewal subscriptions.For the three months ended June 30,2024 and 2023,we generated$190.1 million and$137.5 million total bookings,respectively,representing an increase of 38%from the prior year period.For the six months ended June 30,2024 and 2023,we generated$387.5 millionand$277.6 million total bookings,respectively,representing an increase of 40%from the prior year period.We grew total bookings through26growth in subscription bookings noted above,in addition to growth in the Duolingo English Test,advertising and in-app purchases.Non-GAAP Financial MeasuresWe use certain non-GAAP financial measures to supplement our Unaudited Condensed Consolidated Financial Statements,which arepresented in accordance with GAAP.These non-GAAP financial measures include Adjusted EBITDA,free cash flow and constant currency.We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-periodcomparisons.By excluding certain items that may not be indicative of our recurring core operating results,we believe that Adjusted EBITDA,free cash flow and constant currency provide meaningful supplemental information regarding our performance.Accordingly,we believe thesenon-GAAP financial measures are useful to investors and others because they allow for additional information with respect to financialmeasures used by management in its financial and operational decision-making and they may be used by our institutional investors and theanalyst community to help them analyze the health of our business.However,there are a number of limitations related to the use of non-GAAP financial measures,and these non-GAAP financial measures should be considered in addition to,not as a substitute for or in isolationfrom,our financial results prepared in accordance with GAAP.Other companies,including companies in our industry,may calculate thesenon-GAAP financial measures differently or not at all,which reduces their usefulness as comparative measures.The effect of currency exchange rates on our business is an important factor in understanding period to period comparisons.We use non-GAAP percentage change in constant currency revenues,which exclude the impact of fluctuations in foreign currency exchange rates,forfinancial and operational decision-making and as a means to evaluate period-to-period comparisons.We believe this information is useful toinvestors to facilitate comparisons and better identify trends in our business.The impact of changes in foreign currency may vary significantlyfrom period to period,and such changes generally are outside of the control of our management.We calculate constant currency revenuesby using current period foreign currency revenues and translating them to constant currency using prior year comparable period exchangerates for the entire period of related bookings.Constant currency revenue percentage change is calculated by dividing the differencebetween constant currency revenue and the prior year comparable period revenue by the prior year comparable period revenue.Adjusted EBITDA.Adjusted EBITDA is defined as net income excluding interest income,income taxes,depreciation and amortization,stock-based compensation expenses related to equity awards,transaction costs related to acquisitions,acquisition earn-out costs,and gainon sale of capitalized software.Adjusted EBITDA is used by management to evaluate the financial performance of our business and wepresent Adjusted EBITDA because we believe it is helpful in highlighting trends in our operating results and that it is frequently used byanalysts,investors and other interested parties to evaluate companies in our27industry.The following table presents a reconciliation of our net income,the most directly comparable financial measure presented inaccordance with GAAP,to Adjusted EBITDA.Three Months Ended June 30,Six Months Ended June 30,(In thousands)2024202320242023Net income$24,351$3,725$51,307$1,143 Add(deduct):Interest income(10,721)(7,543)(20,754)(13,182)Provision(benefit)for income taxes4,363(1,315)3,258(1,431)Depreciation and amortization2,243 1,634 4,317 3,396 Stock-based compensation expenses related toequity awards(1)27,544 24,258 53,657 45,931 Acquisition transaction costs(2)337 337 Acquisition earn-out costs(3)112 225 Gain on sale of capitalized software(4)(100)Adjusted EBITDA$48,117$20,871$92,122$35,982 _(1)In addition to stock-based compensation expense of$26.7 million and$23.7 million for the three months ended June 30,2024 and 2023,respectively,and$51.7 millionand$44.8 million for the six months ended June 30,2024 and 2023,respectively,this includes costs incurred related to taxes paid on equity transactions as follows:Three Months Ended June 30,Six Months Ended June 30,(In thousands)2024202320242023Research and development$376$341$912$581 Sales and marketing24 26 53 40 General and administrative398 177 961 523 Total$798$544$1,926$1,144(2)Represents costs incurred related to acquisitions,including integration costs,which are included in General and administration expense within our Unaudited CondensedConsolidated Statements of Operations and Comprehensive Income.(3)Represents costs incurred related to the earn-out payment on an acquisition,which is included within General and administrative within our Unaudited CondensedConsolidated Statements of Operations and Comprehensive Income.(4)Represents proceeds from a sale of capitalized software,which is included within Other expense,net of other income within our Unaudited Condensed ConsolidatedStatements of Operations and Comprehensive Income.For the three months ended June 30,2024 and 2023,we generated net income of$24.4 million and$3.7 million,respectively.For the sixmonths ended June 30,2024 and 2023,we generated net income of$51.3 million and$1.1 million,respectively.The increase in net incomeas compared to the comparative period was due to a combination of our growth in revenue and interest income in addition to a reduction inoperating expenses as a percentage of revenue as compared to the prior year period.For the three months ended June 30,2024 and 2023,we generated Adjusted EBITDA of$48.1 million and$20.9 million,respectively.For thesix months ended June 30,2024 and 2023,we generated Adjusted EBITDA of$92.1 million and$36.0 million,respectively.AdjustedEBITDA increased due to a combination of our growth in revenue and a reduction in operating expenses as a percentage of revenue ascompared to the prior year periods.28Free Cash Flow.Free cash flow represents net cash provided by operating activities,reduced by capitalized software development costsand purchases of property and equipment and increased by taxes paid related to stock-based compensation equity awards and transactioncosts related to acquisitions as we believe they are not indicative of future liquidity.We believe that free cash flow is a measure of liquiditythat provides useful information to our management,investors and others in understanding and evaluating the strength of our liquidity andfuture ability to generate cash that can be used for strategic opportunities or investing in our business.Free cash flow has certain limitationsin that it does not represent our residual cash flow for discretionary expenditures and our non-discretionary commitments.The following tablepresents a reconciliation of net cash provided by operating activities,the most directly comparable financial measure calculated inaccordance with GAAP,to free cash flow:Three Months Ended June 30,Six Months Ended June 30,(In thousands)2024202320242023Net cash provided by operating activities$62,388$37,167$145,902$66,771 Less:Capitalized software development costs andpurchases of intangible assets(3,093)(2,544)(6,700)(3,275)Less:Purchases of property and equipment(5,563)(827)(6,977)(1,508)Plus:Taxes paid related to stock-basedcompensation equity awards798 544 1,926 1,144 Plus:Acquisition transaction costs(1)337 337 Free cash flow$54,867$34,340$134,488$63,132 _(1)Represents costs incurred related to acquisitions,including integration costs.For the three months ended June 30,2024 and 2023,we generated$62.4 million and$37.2 million of net cash provided by operatingactivities,respectively,which was mainly due to our generation of positive net income as discussed under the heading Adjusted EBITDAabove.For the six months ended June 30,2024 and 2023,we generated$145.9 million and$66.8 million of net cash provided by operatingactivities,respectively.In addition to the generation of positive net income,timing of amounts received from our payment service providers inthe current period as compared to the same period in the prior year caused the increase in net cash provided by operating activities for thesix months ended June 30,2024 and 2023.For the three months ended June 30,2024 and 2023,we generated$54.9 million and$34.3 million of free cash flow,respectively.For the sixmonths ended June 30,2024 and 2023,we generated$134.5 million and$63.1 million of free cash flow,respectively.The increase in freecash flow was mainly attributable to the increase in net cash provided by operating activities.Constant Currency.The effect of currency exchange rates on our business is an important factor in understanding period to periodcomparisons.We use non-GAAP constant currency revenues and non-GAAP percentage change in constant currency revenues for financialand operational decision-making and as a means to evaluate period-to-period comparisons.Total revenues were$178.3 million for the three months ended June 30,2024,which represents an increase of 41%on a reported basis and42%on a constant currency basis over the three months ended June 30,2023.Subscription revenues totaled$143.9 million for the threemonths ended June 30,2024,which represented an increase of 51%on a reported basis and 52%on a constant currency basis over thethree months ended June 30,2023.29Total revenues were$345.9 million for the six months ended June 30,2024,which represents an increase of 43%(on both a reported andconstant currency basis)over the six months ended June 30,2023.Subscription revenues totaled$275.6 million for the six months endedJune 30,2024,which represented an increase of 52%on a reported basis and 53%on a constant currency basis over the six months endedJune 30,2023.Components of Our Results of OperationsRevenueWe generate revenues primarily from the sale of subscriptions.The term-length of our subscription agreements are primarily monthly orannual,with the family plan offered as an annual subscription.We also generate revenue from advertising,the in-app sale of virtual goods,and the Duolingo English Test.Cost of RevenuesCost of revenues predominantly consists of third-party payment processing fees charged by various distribution channels in addition tohosting fees.To a much lesser extent,cost of revenues includes customer support costs,such as contractor fees,wages and stock-basedcompensation for certain employees working in customer support,in addition to amortization of revenue generating capitalized software,anddepreciation of certain property and equipment.We intend to continue to invest additional resources in our infrastructure and our customer support and success organization to expand thecapabilities of our platform and ensure that our users are realizing the full benefit of our products.The level,timing,and relative investment inthese areas could affect our cost of revenues in the future.Gross Profit and Gross MarginGross profit represents revenues less cost of revenues.Gross margin is gross profit expressed as a percentage of revenues.Our gross profitmay fluctuate from period to period as our revenues fluctuate,and also as a result of the timing and amount of investments we make in itemsrelated to cost of revenues.Operating ExpensesOur operating expenses consist of research and development,sales and marketing,and general and administrative expenses.Personnelcosts are the most significant component of operating expenses and consist of salaries,benefits,and stock-based compensation expense.Operating expenses also include overhead costs for facilities,including depreciation expense.Research and Development.We invest heavily in research and development to create new products and product features that help us growour user base,engage our users,monetize our users,and teach our users.This,in turn,drives additional growth in,and better lifetime valueof,our paid subscribers,as well as increased advertising revenue from impressions from our free users.Expenses are primarily made up ofcosts incurred for the development of new and improved products and features in our applications during the preliminary productdevelopment stage.Such expenses include employee-related compensation,including stock-based compensation,of engineers,designers,and product managers,in addition to materials,travel and direct costs associated with the design and required testing of our platform.Weexpect engineers,designers,and product managers to represent a significant portion of our employees for the foreseeable future.Wetypically capitalize a small portion of research and development costs once the product has reached application development phase,mostlyconsisting of wages,each period into capitalized software when the work is specific to launching a new product,or making major30upgrades to our existing products or platforms.We regularly test product improvements with our users.Many of these tests start by makingsmall changes in the product that affect small numbers of users.As the tests evolve,they can require increasing investment and can impactmore users.This process of constant testing is how we implement many of our new products and improvements to our platform and,in total,require large investments and involve substantial time and risks to develop and launch.Some of these products and product improvementsmay not be well received or may take a long time for users to adopt.As a result,the benefits of our research and development investmentsmay be difficult to forecast.We expect research and development to continue to be our largest operating expense,but expect that it willdecline as a percentage of revenues over the long-term.Sales and Marketing.Sales and marketing expenses are expensed as incurred and consists primarily of brand advertising,marketing,digital and social media spend,field marketing,travel,trade show sponsorships and events,conferences,and employee-relatedcompensation,including stock-based compensation for personnel engaged in sales and marketing functions,and amortization of non-revenue generating capitalized software used to promote Duolingo.We expect our sales and marketing expenses will decline as apercentage of revenues over the near-term.General and Administrative.General and administrative expenses primarily consist of employee-related compensation,including stock-based compensation,for management and administrative functions,including our finance and accounting,legal,and people teams.Generaland administrative expenses also include certain professional services fees,general corporate and director and officer insurance,ourfacilities costs,public company costs to comply with the rules and regulations of the Securities and Exchange Commission(“SEC”)and theListing Rules of the Nasdaq Global Select Market,and other general overhead costs that support our operations.We expect that our generaland administrative expenses will increase in absolute dollars as our business grows.However,we expect that our general and administrativeexpenses will decrease as a percentage of our revenues as our revenues grow faster than these expenses over the long-term.Interest IncomeInterest income consists of income earned on our money market funds included in cash and cash equivalents and on our marketablesecurities.Other expense,net of other incomeOther expense,net of other income consists primarily of foreign currency exchange gains and losses.Provision(benefit)for income taxesThe provision(benefit)for income taxes represents the income tax provision(benefit)associated with our operations based on the tax laws ofthe jurisdictions in which we operate.In addition to the U.S.,we also operate in foreign jurisdictions that have different statutory rates.Oureffective tax rates will vary depending on the relative proportion of foreign to domestic income,changes in the valuation of our deferred taxassets and liabilities,and changes in tax laws.31Results of OperationsComparison of the three and six months ended June 30,2024 and 2023The following table sets forth our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income data,includingyear-over-year change,for the periods indicated:Three Months Ended June 30,Six Months Ended June 30,(In thousands)20242023%Change20242023%ChangeRevenues$178,327$126,839 41%$345,880$242,500 43%Cost of revenues(1)(2)47,349 33,788 4092,540 65,280 42Gross profit130,978 93,051 41253,340 177,220 43Operating expenses:Research and development(1)(2)55,147 47,947 15106,025 93,791 13Sales and marketing(1)(2)20,174 17,734 1440,105 34,335 17General and administrative(1)(2)36,957 32,235 1572,071 62,478 15Total operating expenses112,278 97,916 15218,201 190,604 14Income(loss)from operations18,700(4,865)nm35,139(13,384)nmOther expense,net of other income(707)(268)100(1,328)(86)100Income(loss)before interest incomeand income taxes17,993(5,133)nm33,811(13,470)nmInterest income10,721 7,543 4220,754 13,182 57Income(loss)before income taxes28,714 2,410 10054,565(288)nmProvision(benefit)for income taxes4,363(1,315)nm3,258(1,431)nmNet income and comprehensiveincome$24,351$3,725 100$51,307$1,143 100_(1)Includes stock-based compensation expenses as follows:Three Months Ended June 30,Six Months Ended June 30,(In thousands)2024202320242023Cost of revenues$18$14$34$25 Research and development14,095 10,978 27,101 20,324 Sales and marketing1,198 969 2,252 1,748 General and administrative11,435 11,753 22,344 22,690 Total$26,746$23,714$51,731$44,787 32(2)Includes amortization of capitalized software and depreciation of property and equipment as follows:Three Months Ended June 30,Six Months Ended June 30,(In thousands)2024202320242023Cost of revenues(a)$944$402$1,792$805 Research and development500 409 940 816 Sales and marketing(a)217 266 428 664 General and administrative582 557 1,157 1,111 Total$2,243$1,634$4,317$3,396 _(a)Amortization of capitalized software is recorded to Cost of revenue and Sales and marketing for revenue and non-revenue generating capitalized software,respectively.The following table sets forth the components of our Unaudited Condensed Consolidated Statements of Operations and ComprehensiveIncome for each of the periods presented as a percentage of revenue.Three Months Ended June 30,Six Months Ended June 30,2024202320242023Revenues100000%Cost of revenues27 27 27 27 Gross profit73 73 73 73 Operating expenses:Research and development31 38 31 39 Sales and marketing11 14 12 14 General and administrative21 25 21 26 Total operating expenses63 77 63 79 Income(loss)from operations10(4)10(6)Other expense,net of other income Income(loss)before interest income and incometaxes10(4)10(6)Interest income6 6 6 5 Income(loss)before income taxes16 2 16 Provision(benefit)for income taxes2(1)1(1)Net income and comprehensive income14%3%RevenuesRevenues increased$51.5 million,or 41%,to$178.3 million during the three months ended June 30,2024,from revenues of$126.8 millionduring the three months ended June 30,2023.Revenues increased$103.4 million,or 43%,to$345.9 million during the six months endedJune 30,2024,from revenues of$242.5 million during the six months ended June 30,2023.The main drivers of the increase were:Subscription revenue increased$48.8 million,or 51%,to$143.9 million during the three months ended June 30,2024,and$94.3million,or 52%,to$275.6 million during the six months ended June 30,2024,primarily due to an increase in the average number ofpaid subscribers during the period;33Other revenue increased by$2.7 million,or 9%,to$34.4 million during the three months ended June 30,2024,primarily due toincreased In-App Purchases of$1.5 million which was driven by the increase in DAU.Other revenue increased by$9.1 million,or 15%,to$70.3 million during the six months ended June 30,2024,due to increasedDuolingo English Test revenue of$3.7 million.The increase was mainly driven by increases in the average revenue per test.Additionally,In-App Purchases revenue increased by$3.6 million primarily driven by the increase in DAUs and Advertising revenueincreased by$1.5 million driven by the increase in DAUs,which resulted in increased advertisements served,offset by decreases inaverage revenue per DAU.The following table provides the changes in revenues by product type:Three Months Ended June 30,Six Months Ended June 30,(in thousands)20242023Change%Change20242023Change%ChangeSubscription$143,909$95,158$48,751 51%$275,597$181,343$94,254 52%Other(1)34,418 31,681 2,737 970,283 61,157 9,126 15Total revenues$178,327$126,839$51,488 41%$345,880$242,500$103,380 43%_(1)Other revenue is comprised mainly of Advertising,Duolingo English Test,and In-App Purchases.Cost of Revenues and Gross Margin.Total gross margin was 73.4%during both the three months ended June 30,2024 and 2023.Thiswas primarily due to higher subscription gross margin contribution from an increase in subscriber revenue as a percentage of total revenue,offset by a decline in Advertising margins,which was due to decreases in average revenue per DAU.Total gross margin increased slightly to 73.2%from 73.1%during the six months ended June 30,2024 and 2023.This was primarily due tohigher subscription gross margin contribution from an increase in subscriber revenue as a percentage of total revenue,partially offset by adecline in Advertising margins,which was due to decreases in average revenue per DAU.The following table provides the change in cost of revenues,along with related gross margins:Three Months Ended June 30,Six Months Ended June 30,2024202320242023Change%Change(In thousands,except grossmargin)CostsGrossMarginCostsGrossMarginCostsGrossMarginCostsGrossMarginCostsGrossMarginTotal cost ofrevenues$47,349 73.4%$33,788 73.4%$92,540 73.2%$65,280 73.1%$27,260 0.1%Operating ExpensesResearch and Development.Research and development expense increased by$7.2 million,or 15%,to$55.1 million during the threemonths ended June 30,2024 from$47.9 million during the three months ended June 30,2023.The increase was mainly due to:Increased net personnel costs of$7.9 million,driven primarily by the growth in headcount.Total gross personnel costs increased by$8.2 million,of which$3.2 million of the increase was related to stock-based compensation expense.This increase was reduced by$0.3 million of wages recorded as capitalized software as compared to the same period in the prior year;Increased web services and other costs of$1.1 million.34The above increases were partially offset by a decrease in net contractor costs of$1.8 million.Research and development expense increased by$12.2 million,or 13%,to$106.0 million during the six months ended June 30,2024 from$93.8 million during the six months ended June 30,2023.The increase was mainly due to:Increased net personnel costs of$13.5 million,driven primarily by the growth in headcount.Total gross personnel costs increased by$16.5 million,of which$7.1 million of the increase was related to stock-based compensation expense.This increase was reduced by$3.0 million of wages recorded as capitalized software as compared to the same period in the prior year;Increased web services and technology costs of$1.4 million;andIncreased travel and other costs of$0.5 million.The above increases were partially offset by a decrease in net contractor costs of$3.2 million.Research and development continues to be our largest operating expense as we test and experiment with new products and productfeatures and improve existing ones to drive engagement and efficacy of our products.Increased engagement and efficacy,we believe,helpdrive organic growth in MAUs and DAUs,growth in,and better retention of,paid subscribers,as well as increased advertising opportunitieswith free users.Sales and Marketing.Sales and marketing expense increased by$2.4 million,or 14%,to$20.2 million during the three months ended June30,2024 from$17.7 million during the three months ended June 30,2023.This increase was mainly due to:Increased direct marketing and other expenses of$1.5 million;andIncreased personnel costs of$0.9 million driven primarily by the growth in headcount,including increased stock-based compensationexpense of$0.2 million.Sales and marketing expense increased by$5.8 million,or 17%,to$40.1 million during the six months ended June 30,2024 from$34.3 million during the six months ended June 30,2023.This increase was mainly due to:Increased direct marketing and other expenses of$4.4 million;andIncreased personnel costs of$1.4 million driven primarily by the growth in headcount,including increased stock-based compensationexpense of$0.5 million.Direct marketing spend and other marketing expenses as a percentage of revenue decreased as a result of applying learnings from pastyears,which enabled us to leverage marketing expenses more efficiently.General and Administrative.General and administrative expense increased by$4.7 million,or 15%,to$37.0 million during the threemonths ended June 30,2024 from$32.2 million during the three months ended June 30,2023.This increase was mainly due to:Increased gross personnel costs of$1.4 million,offset by decreased stock-based compensation expense of$0.1 million;Increased travel and meals expenses of$1.1 million;Increased web services and technology costs of$1.0 million;35Increased facility-related costs of$0.8 million;andIncreased other costs of$0.8 million.The above increases were partially offset by decreases in insurance costs and other costs of$0.3 million.General and administrative expense increased by$9.6 million,or 15%,to$72.1 million during the six months ended June 30,2024 from$62.5 million during the six months ended June 30,2023.This increase was mainly due to:Increased personnel costs of$3.1 million,including increased stock-based compensation expense of$0.1 million;Increased facility-related costs of$2.1 million;Increased web services and technology costs of$1.6 million;Increased travel and meals expenses of$1.5 million;Increased professional fees of$1.2 million;andIncreased other expenses of$0.8 million.The above increases were partially offset by decreases in insurance costs and other costs of$0.7 million.Interest IncomeInterest income increased by$3.2 million,or 42%,to$10.7 million during the three months ended June 30,2024,from$7.5 million during thethree months ended June 30,2023.Interest income increased by$7.6 million,or 57%,to$20.8 million during the six months ended June 30,2024,from$13.2 million during the six months ended June 30,2023.Both period increases were due to an increase in interest rates earnedon our money market funds and higher average balances.Other expense,net of other incomeOther expense,net of other income decreased by$0.4 million,during the three months ended June 30,2024,and$1.2 million,during the sixmonths ended June 30,2024,mainly from the impact from changes in foreign currency rates.Provision(benefit)for income taxesFor the three and six months ended June 30,2024,the Company recorded an income tax provision of$4.4 million and$3.3 million,respectively.For the three and six months ended June 30,2023,the Company recorded an income tax benefit of$1.3 million and$1.4million,respectively.For both of the periods ending June 30,2024 and June 30,2023,the Company has recognized a year-to-date discretetax benefit attributable to the excess tax benefits of stock-based compensation activity.For 2024,however,there was tax expense on pretaxoperating activities which more than offset the discrete benefit,resulting in the an overall year-to-date tax expense position.Liquidity and Capital ResourcesSince inception,we have financed operations primarily through revenues and the net proceeds we have received from the issuance of equity.36As of June 30,2024,we had$888.2 million in cash and cash equivalents.Our cash and cash equivalents primarily consist of bank depositsand money market funds.Our marketable securities consist of U.S.government treasury and agency securities.We believe that our existing cash and cash equivalents,and cash flow from operations will be sufficient to support working capital and capitalexpenditure requirements for at least the next 12 months.Our future capital requirements will depend on many factors,including oursubscription growth rate and renewal activity,the timing of cash received from our payment processing platforms,the expansion of our salesand marketing activities,the introduction of new products and the enhancements to existing products,and the current uncertainty in theglobal markets impacting,for example,consumer spending,inflation and foreign currency exchange rates.If we cannot meet our futurecapital requirements,we may be required to seek additional liquidity.If we are unable to raise additional capital or generate cash flowsnecessary to expand our operations and invest in continued innovation,we may not be able to compete successfully,which would harm ourbusiness and financial condition and results of operations.A substantial source of our cash from operations comes from deferred revenue,which is included in the liabilities section of our UnauditedCondensed Consolidated Balance Sheet.Deferred revenues consists of the unearned portion of customer billings,which is recognized asrevenue in accordance with our revenue recognition policy.As of June 30,2024,we had deferred revenues of$291.5 million,which isrecorded as a current liability and expected to be recognized as revenue in the next 12 months,provided all other revenue recognition criteriahave been met.The following table summarizes our cash flows for the periods presented:Six Months Ended June 30,(In thousands)20242023Net cash provided by operating activities$145,902$66,771 Net cash used for investing activities(13,677)(4,683)Net cash provided by financing activities8,405 8,397 Net increase in cash,cash equivalents and restricted cash$140,630$70,485 Operating ActivitiesCash flows from operating activities can fluctuate significantly from period to period due to timing of payments and cash collections.Ourlargest source of operating cash is cash collection from sales of subscriptions to our users.Our primary uses of cash from operating activitiesare for personnel expenses,marketing expenses,hosting expenses,and overhead expenses.Cash provided by operating activities increased by$79.1 million,or 119%,to$145.9 million for the six months ended June 30,2024 from$66.8 million for the six months ended June 30,2023.This increase was mainly due to generation of net income during the current periodand the timing of amounts received from our payment service providers in the current period as compared to the same period in the prioryear.Investing ActivitiesCash used for investing activities increased by$9.0 million,or 192%,to$13.7 million for the six months ended June 30,2024,from$4.7million for the six months ended June 30,2023.The increase was due to the increases in costs from capitalization of software developmentand purchases of property and equipment as compared to the prior period.37Financing ActivitiesCash provided by financing activities was$8.4 million for both the six months ended June 30,2024 and 2023 and was related to proceedsfrom exercises of stock options.Critical Accounting EstimatesOur Unaudited Condensed Consolidated Financial Statements and the related notes thereto included elsewhere in this Quarterly Report onForm 10-Q are prepared in accordance with GAAP.The preparation of Unaudited Condensed Consolidated Financial Statements alsorequires us to make estimates and assumptions that affect the reported amounts of assets,liabilities,revenue,costs and expenses,andrelated disclosures.We base our estimates on historical experience and on various other assumptions that we believe to be reasonableunder the circumstances.Actual results could differ significantly from the estimates made by management.To the extent that there aredifferences between our estimates and actual results,our future financial statement presentation,financial condition,results of operations,and cash flows will be affected.There have been no material changes to our critical accounting policies and estimates as compared to those described in“ManagementsDiscussion and Analysis of Financial Condition and Results of Operations”set forth in our Annual Report on Form 10-K.Recent Accounting PronouncementsSee Note 1.Description of the Business and Basis of Presentation and Note 2.Summary of Significant Accounting Policies in the notes toour Unaudited Condensed Consolidated Financial Statements included in Part I,Item I of this Quarterly Report on Form 10-Q for adiscussion of Recent Accounting Pronouncements.Item 3.Quantitative and Qualitative Disclosures About Market RiskInterest Rate RiskAs of June 30,2024,we had$791.9 million of cash equivalents invested in money market funds.Our cash and cash equivalents are held forworking capital purposes in addition to future investments in our product.We do not enter into investments for trading or speculativepurposes.Our investments are exposed to market risk due to a fluctuation in interest rates,which may affect our interest income and the fairmarket value of our investments.As of June 30,2024,a hypothetical 10%relative change in interest rates would not have a material impacton our Unaudited Condensed Consolidated Financial Statements.Foreign Currency Exchange RiskOur reporting currency and the functional currency of our wholly owned foreign subsidiaries is the U.S.dollar.Certain of our paymentproviders translate our payments from local currency into USD at time of settlement,which means that during periods of a strengthening U.S.dollar,our international receipts could be reduced.Our operating expenses are denominated in the currencies of the countries in which ouroperations are located,which are primarily in the U.S.,China and Germ
2024-08-25
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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549 FORM 10-Q (Mark One)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF1934For the quarterly period ended June 30,2024 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF1934For the transition period from to Commission File No.001-42130 Tempus AI,Inc.(Exact name of registrant as specified in its charter)Delaware 47-4903308(State or other jurisdiction ofincorporation or organization)(I.R.S.EmployerIdentification No.)600 West Chicago Avenue,Suite 510Chicago,IL 60654(Address of Principal Executive Offices,Zip Code)(800)976-5448(Registrants telephone number,including area code)N/A(Former name,former address and former fiscal year,if changed since last report)Securities registered pursuant to Section 12(b)of the Act:Title of each class TradingSymbol(s)Name of each exchangeon which registeredClass A common stock,$0.0001 par value pershare TEM The Nasdaq Stock Market LLC Indicate by check mark whether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934during the preceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filingrequirements for the past 90 days.Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required to submit suchfiles).Yes No Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company,or anemerging growth company.See the definitions of“large accelerated filer,”“accelerated filer,”“smaller reporting company,”and“emerging growthcompany”in Rule 12b-2 of the Exchange Act.Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company If an emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period for complying with anynew or revised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act):Yes No As of August 6,2024,there were 149,274,923 shares of Class A common stock and 5,043,789 shares of Class B common stock,each with a par value of$0.0001 per share,outstanding.Page Part I Condensed Consolidated Financial Statements(unaudited)1 Item 1.Condensed Consolidated Quarterly Financial Statements(Unaudited)1 Condensed Consolidated Balance Sheets 2 Condensed Consolidated Statements of Operations and Comprehensive Loss 4 Condensed Consolidated Statements of Cash Flows 5 Condensed Consolidated Statements of Redeemable Convertible Preferred Stock,Common Stock and Stockholders Equity(Deficit)7 Notes to Condensed Consolidated Financial Statements 9 Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations 32 Item 3.Quantitative and Qualitative Disclosures about Market Risk 57 Item 4.Controls and Procedures 58 Part II Other Information 59 Item 1.Legal Proceedings 59 Item 1A.Risk Factors 59 Item 2.Unregistered Sales of Equity Securities and Use of Proceeds 138 Item 3.Defaults Upon Senior Securities 138 Item 4.Mine Safety Disclosures 138 Item 5.Other Information 138 Item 6.Exhibits 139 Signatures 140 Tempus AI,Inc.Condensed Consolidated Quarterly Financial Statements(Unaudited)June 30,2024Tempus AI,Inc.CONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)(in thousands,except share and per share amounts)June 30,2024 December 31,2023 Assets Current Assets Cash and cash equivalents$478,811$165,767 Accounts receivable,net of allowances of$1,092 and$1,115 at June 30,2024 and December 31,2023,respectively 118,106 94,462 Inventory 32,690 28,845 Warrant asset 800 5,070 Prepaid expenses and other current assets 29,704 17,295 Marketable equity securities 11,255 31,807 Deferred offering costs 7,085 Total current assets$671,366$350,331 Property and equipment,net 60,539 61,681 Goodwill 73,345 73,354 Warrant asset,less current portion 1,500 4,930 Intangible assets,net 16,252 21,916 Investments and other assets 7,677 8,971 Warrant contract asset,less current portion 19,077 21,499 Operating lease right-of-use assets 13,994 20,530 Restricted cash 861 840 Total Assets$864,611$564,052 Liabilities,Convertible redeemable preferred stock,and Stockholders equity(deficit)Current Liabilities Accounts payable 28,646 54,421 Accrued expenses 85,185 82,517 Deferred revenue 50,905 64,860 Other current liabilities 7,273 8,213 Operating lease liabilities 5,828 6,437 Accrued data licensing fees 3,727 6,382 Accrued dividends 9,797 Total current liabilities$181,564$232,627 Operating lease liabilities,less current portion 27,238 32,040 Convertible promissory note 180,648 193,124 Warrant liability 33,600 34,500 Other long-term liabilities 16,790 19,751 Interest payable 62,608 55,321 Long-term debt,net 261,853 256,541 Deferred revenue,less current portion 2,059 16,768 Total Liabilities$766,360$840,672 Commitments and contingencies(Note 7)Convertible redeemable preferred stock,$0.0001 par value,no and 69,803,765 shares authorized at June 30,2024 and December 31,2023,respectively;no and 63,525,953 shares issued and outstanding at June 30,2024 and December 31,2023,respectively;aggregate liquidation preference of$0 and$1,130,429 at June 30,2024 and December 31,2023,respectively 1,105,543 The accompanying notes are an integral part of these condensed consolidated financial statements.2Stockholders equity(deficit)Class A Voting Common Stock,$0.0001 par value,1,000,000,000 and 200,228,024 shares authorized at June 30,2024 and December 31,2023,respectively;149,274,923 and58,367,961 shares issued and outstanding at June 30,2024 and December 31,2023,respectively$15$6 Class B Voting Common Stock,$0.0001 par value,5,500,000 and 5,374,899 shares authorized at June 30,2024 and December 31,2023,respectively;5,043,789 and no shares issued andoutstanding at June 30,2024 and December 31,2023,respectively 1 Non-voting Common Stock,$0.0001 par value,no and 66,946,627 shares authorized at June 30,2024 and December 31,2023,respectively;no shares issued and outstanding at June 30,2024,and 5,205,802 shares issued and 5,060,336 shares outstanding at December 31,2023 0 Treasury Stock,145,466 shares at June 30,2024 and December 31,2023,at cost (3,602)(3,602)Additional Paid-In Capital 2,163,911 18,345 Accumulated Other Comprehensive(Loss)Income (94)5 Accumulated deficit (2,061,980)(1,396,917)Total Stockholders equity(deficit)$98,251$(1,382,163)Total Liabilities,Convertible redeemable preferred stock,and Stockholders equity(deficit)$864,611$564,052 The accompanying notes are an integral part of these condensed consolidated financial statements.3Tempus AI,Inc.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS(Unaudited)(in thousands,except per share amounts)Three Months Ended June 30,Six Months Ended June 30,2024 2023 2024 2023 Net revenue Genomics$112,324$91,924$214,893$173,982 Data and services 53,645 40,493 96,896 74,059 Total net revenue$165,969$132,417$311,789$248,041 Cost and operating expenses Cost of revenues,genomics 68,324 46,961 121,159 92,241 Cost of revenues,data and services 22,132 13,807 37,420 25,200 Technology research and development 77,908 23,427 104,975 46,329 Research and development 68,025 22,171 92,365 43,034 Selling,general and administrative 463,072 71,189 542,636 140,236 Total cost and operating expenses 699,461 177,555 898,555 347,040 Loss from operations$(533,492)$(45,138)$(586,766)$(98,999)Interest income 1,718 1,957 2,749 4,381 Interest expense (13,295)(11,712)(26,533)(20,903)Other(expense)income,net (7,048)(766)(6,299)5,622 Loss before provision for income taxes$(552,117)$(55,659)$(616,849)$(109,899)Provision for income taxes (95)(3)(106)(9)Losses from equity method investments (170)(301)Net Loss$(552,212)$(55,832)$(616,955)$(110,209)Dividends on Series A,B,B-1,B-2,C,D,E,F,G,G-3,and G-4 preferred shares (11,540)(10,897)(39,347)(21,566)Cumulative Undeclared Dividends on Series C preferred shares (668)(745)(1,174)(1,466)Net loss attributable to common shareholders,basic and diluted (564,420)(67,474)(657,476)(133,241)Net loss per share attributable to common shareholders,basic and diluted$(6.86)$(1.07)$(9.02)$(2.11)Weighted-average shares outstanding used to compute net loss per share,basic and diluted 82,325 63,286 72,930 63,257 Comprehensive Loss,net of tax Net loss$(552,212)$(55,832)$(616,955)$(110,209)Foreign currency translation adjustment (43)53 (99)25 Comprehensive loss$(552,255)$(55,779)$(617,054)$(110,184)The accompanying notes are an integral part of these condensed consolidated financial statements.4Tempus AI,Inc.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)(in thousands,except share and per share amounts)Six Months Ended June 30,2024 2023 Operating activities Net loss$(616,955)$(110,209)Adjustments to reconcile net loss to net cash used in operating activities Change in fair value of warrant liability$(900)$(5,700)Stock-based compensation 488,313 Gain on warrant exercise (173)Gain on marketable equity securities (2,541)Amortization of original issue discount 691 489 Amortization of deferred financing fees 255 255 Change in fair value of contingent consideration 165 Amortization of warrant contract asset 2,422 3,307 Depreciation and amortization 18,348 16,185 Provision for bad debt expense 327 1,376 Change in fair value of warrant asset 7,700 Loss from equity-method investments 301 Amortization of finance right-of-use lease assets 190 Non-cash operating lease costs 3,252 3,382 Minimum accretion expense 92 187 Impairment of intangible assets 7,359 PIK interest added to principal 4,366 297 Change in assets and liabilities Accounts receivable (23,971)(6,850)Inventory (3,845)(5,101)Prepaid expenses and other current assets (12,409)(1,634)Investments and other assets 1,294 (4,528)Accounts payable (33,371)(4,195)Deferred revenue (28,669)(19,974)Accrued data licensing fees (2,749)(7,608)Accrued expenses&other (2,805)8,125 Interest payable 7,287 7,611 Operating lease liabilities (4,582)(4,352)Net cash used in operating activities$(198,458)$(121,087)Investing activities Purchases of property and equipment$(14,116)$(15,906)Proceeds from sale of marketable equity securities 23,098 Business combinations,net of cash acquired(Note 4)(2,869)Net cash provided by(used in)investing activities$8,982$(18,775)Financing activities Proceeds from issuance of common stock in connection with initial public offering,net of underwriting discountsand commissions$381,951$Tax withholding related to net share settlement of restricted stock units (69,918)Issuance of Series G-5 Preferred Stock 199,750 Principal payments on finance lease liabilities (192)Purchase of treasury stock (3,602)Payment of deferred offering costs (2,714)(151)Dividends paid (5,625)(5,625)Proceeds from long-term debt,net of original issue discount 48,750 Payment of indemnity holdback related to acquisition (813)Net cash provided by financing activities$502,631$39,180 Effect of foreign exchange rates on cash$(90)$28 The accompanying notes are an integral part of these condensed consolidated financial statements.5Net increase(decrease)in Cash,Cash Equivalents and Restricted Cash$313,065$(100,654)Cash,cash equivalents and restricted cash,beginning of period 166,607 303,731 Cash,cash equivalents and restricted cash,end of period$479,672$203,077 Cash,Cash Equivalents and Restricted Cash are Comprised of:Cash and cash equivalents$478,811$202,266 Restricted cash and cash equivalents 861 811 Total cash,cash equivalents and restricted cash$479,672$203,077 Supplemental disclosure of cash flow information Cash paid during the year for interest$13,921$5,691 Cash paid for income taxes$89$41 Supplemental disclosure of noncash investing and financing activities Dividends payable$5,487$4,545 Purchases of property and equipment,accrued but not paid$1,108$2,952 Deferred offering costs,accrued but not yet paid$6,051$2,917 Redemption of convertible promissory note$12,476$13,926 Non-voting common stock issued in connection with business combinations$344$4,305 Operating lease liabilities arising from obtaining right-of-use assets$892 Conversion of redeemable convertible preferred stock to common stock in connection with initial public offering$1,348,809$Taxes related to net share settlement of restricted stock units not yet paid$164$Reclassificiation of deferred offering costs to additional paid-in capital upon initial public offering$12,347$Issuance of Series G-3 Preferred Stock$3,809$2,738 Issuance of Series G-4 Preferred Stock$611$The accompanying notes are an integral part of these condensed consolidated financial statements.6Tempus AI,Inc.CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLEPREFERRED STOCK,COMMON STOCK AND STOCKHOLDERS EQUITY(DEFICIT)(Unaudited)(in thousands,except share and per share amounts)RedeemableConvertible PreferredStock VotingCommon Stock Non-VotingCommon Stock Treasury Stock AdditionalPaid-inCapital AccumulatedDeficit Accumulated OtherComprehensive(Loss)Income TotalStockholdersDeficit Class A Class B Units Amount Units Amount Units Amount Units Amount Units Amount Balance at December31,2023 63,525,953$1,105,543 58,367,961$6$5,205,802$0 (145,466)$(3,602)18,345$(1,396,917)$5$(1,382,163)Issuance of Series G-3Preferred Stock 66,465 3,809 Issuance of Series G-4Preferred Stock 10,666 611 Issuance of Series G-5Preferred Stock 3,489,981 199,750 Common stock issuedin connection withbusinesscombinations 9,141 0 344 344 Dividends 33,669 (39,347)(39,347)Issuance of commonstock in connectionwith initial publicoffering,net ofoffering costs,underwritingdiscounts andcommissions 11,100,000 1 369,603 369,604 Conversion ofredeemableconvertiblepreferred stock tocommon stock inconnection withinitial publicoffering (67,093,065)(1,343,382)71,976,178 7 5,043,789 1 1,357,562 (8,761)1,348,809 Conversion of non-voting commonstock to Class Acommon stock 5,069,477 1 (5,214,943)0 (1)0 Issuance of commonstock uponsettlement ofrestricted stockunits,net 2,651,848 0 (70,082)(70,082)Issuance of commonstock uponsettlement ofwarrant 109,459 0 (173)(173)Stock-basedcompensationexpense 488,313 488,313 Foreign currencytranslationadjustment (99)(99)Net loss (616,955)(616,955)Balance at June 30,2024$149,274,923$15 5,043,789$1$(145,466)$(3,602)$2,163,911$(2,061,980)$(94)$98,251 RedeemableConvertible PreferredStock VotingCommon Stock Non-VotingCommon Stock Treasury Stock AdditionalPaid-inCapital AccumulatedDeficit Accumulated OtherComprehensive(Loss)Income TotalStockholdersDeficit Class A Class B Units Amount Units Amount Units Amount Units Amount Units Amount Balance atDecember 31,2022 62,692,927$1,026,143 58,367,961$6$4,932,415$0 0$9,251$(1,138,302)$18$(1,129,027)Issuance of Series G-3Preferred Stock 47,781 2,738 Foreign currencytranslationadjustment 25 25 Dividends 13,980 (21,566)(21,566)Repurchase ofNon-votingCommon Stock (145,466)(3,602)(3,602)Common stock issuedin connection withbusinesscombination 130,874 0 4,305 4,305 Net loss (110,209)(110,209)Balance at June 30,2023 62,740,708$1,042,861 58,367,961$6$5,063,289$0 (145,466)$(3,602)$13,556$(1,270,077)$43$(1,260,074)The accompanying notes are an integral part of these condensed consolidated financial statements.7Tempus AI,Inc.CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLEPREFERRED STOCK,COMMON STOCK AND STOCKHOLDERS EQUITY(DEFICIT)(Unaudited)(in thousands,except share and per share amounts)RedeemableConvertible PreferredStock VotingCommon Stock Non-VotingCommon Stock Treasury Stock AdditionalPaid-inCapital AccumulatedDeficit Accumulated OtherComprehensive(Loss)Income TotalStockholdersDeficit Class A Class B Units Amount Units Amount Units Amount Units Amount Units Amount Balance at March 31,2024 63,603,084$1,134,802 58,367,961$6$5,214,943$0 (145,466)$(3,602)$18,689$(1,489,467)$(51)$(1,474,425)Issuance of Series G-5Preferred Stock 3,489,981 199,750 Dividends 8,830 (11,540)(11,540)Issuance of common stockin connection with initialpublic offering,net ofoffering costs,underwriting discountsand commissions 11,100,000 1 369,603 369,604 Conversion of redeemableconvertible preferredstock to common stock inconnection with initialpublic offering (67,093,065)(1,343,382)71,976,178 7 5,043,789 1 1,357,562 (8,761)1,348,809 Conversion of non-votingcommon stock to Class Acommon stock 5,069,477 1 (5,214,943)0 (1)0 Issuance of common stockupon settlement ofrestricted stock units,net 2,651,848 0 (70,082)(70,082)Issuance of common stockupon settlement ofwarrant 109,459 0 (173)(173)Stock-based compensationexpense 488,313 488,313 Foreign currency translationadjustment (43)(43)Net loss (552,212)(552,212)Balance at June 30,2024$149,274,923$15 5,043,789$1$(145,466)$(3,602)$2,163,911$(2,061,980)$(94)$98,251 RedeemableConvertible PreferredStock VotingCommon Stock Non-VotingCommon Stock Treasury Stock AdditionalPaid-inCapital AccumulatedDeficit Accumulated OtherComprehensive(Loss)Income TotalStockholdersDeficit Class A Class B Units Amount Units Amount Units Amount Units Amount Units Amount Balance at March 31,2023 62,740,708$1,034,321 58,367,961$6$5,063,289$0 (145,466)$(3,602)13,556$(1,203,348)$(10)$(1,193,398)Foreign currency translationadjustment 53 53 Dividends 8,540 (10,897)(10,897)Net loss (55,832)(55,832)Balance at June 30,2023 62,740,708$1,042,861 58,367,961$6 0$5,063,289$0 (145,466)$(3,602)$13,556$(1,270,077)$43$(1,260,074)The accompanying notes are an integral part of these condensed consolidated financial statements.8NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)1.DESCRIPTION OF BUSINESSCompany InformationTempus AI,Inc.,together with the subsidiaries through which it conducts business(the“Company”),is a healthcare technology company focusedon bringing artificial intelligence and machine learning to healthcare in order to improve the care of patients across multiple diseases.The Companycombines the results of laboratory tests with other multimodal datasets to improve patient care by supporting all parties in the healthcare ecosystem,including physicians,researchers,payers,and pharmaceutical companies.The Company primarily derives revenue from selling comprehensive genetictesting to physicians and large academic research institutions,licensing data to third parties,matching patients to clinical trials,and related services.The Company,based in Chicago,Illinois,was founded by Eric P.Lefkofsky,the Companys CEO and Executive Chairman,and evolved from abusiness Mr.Lefkofsky founded called Bioin.Bioin originally was established as a limited liability company.Effective September 21,2015,Bioinconverted its legal form to a corporation organized and existing under the General Corporation Law of the State of Delaware.Bioin subsequentlychanged its legal name to Tempus Health,Inc.in September 2015,to Tempus Labs,Inc.in October 2016 and to Tempus AI,Inc.in December 2023.Initial Public OfferingOn June 13,2024,the Companys registration statement relating to its initial public offering(the“IPO”)was declared effective and its Class Acommon stock began trading on the Nasdaq Global Select Market on June 14,2024.On June 17,2024,the Company completed its IPO in which itissued and sold 11,100,000 shares of Class A common stock,at a public offering price of$37.00 per share.The Company received net proceeds of$382.0 million after deducting underwriting discounts and commissions of$28.7 million.In connection with the closing of the IPO,all shares of the Companys then-outstanding redeemable convertible preferred stock,other than theCompanys Series B redeemable convertible preferred stock,converted into an aggregate of 66,309,550 shares of Class A common stock.TheCompanys Series B redeemable convertible preferred stock converted on a one-for-one basis into an aggregate of 5,374,899 shares of Class B commonstock.Subsequently,331,110 shares of Class B common stock were automatically converted into shares of Class A common stock,such that thereare 5,043,789 shares of Class B common stock outstanding immediately following the IPO.The Company issued an additional 236,719 shares of ClassA common stock pursuant to a separate agreement with an investor in the Series G-3 convertible preferred stock.As of June 16,2024,the Companys redeemable convertible preferred stock had accrued$188.2 million of unpaid dividends,which were paid in5,098,799 shares of Class A common stock at the closing of the IPO.Outstanding shares of non-voting common stock were converted on a one-for-one basis into 5,069,477 shares of Class A common stock.The restricted stock units(“RSUs”)granted to employees pursuant to the Companys 2015 Plan are subject to two vesting conditions.The first is atime-based component.The second vesting condition is the occurrence of a liquidity event.The liquidity event condition related to these awards wassatisfied upon the IPO and,as a result,the Company recognized$488.3 million of stock-based compensation expense for the six months ended June 30,2024.In connection with the IPO,the Company settled an aggregate of 4,568,291 fully vested RSUs(the“IPO Settled RSUs”).To meet the related taxwithholding requirements,the Company withheld 1,911,316 shares from the 4,563,164 shares of Class A common stock issuable upon settlement of theIPO Settled RSUs.Based on the public offering price of$37.00 per share,the tax withholding obligation was$70.8 million.The Company issued 109,459 shares of Class A common stock upon the automatic net exercise of a warrant issued to Allen&Company LLC(“Allen”),as further described in Note 8.In connection with the IPO,the Company amended and restated its certificate of incorporation(the“Restated Certificate”),under whichauthorized capital stock consists of 1,000,000,000 shares of Class A common stock,5,500,000 shares of Class B common stock,and 20,000,000 sharesof preferred stock.2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESPrinciples of Consolidation and Basis of PresentationThe condensed consolidated financial statements include the accounts of Tempus AI,Inc.and its wholly owned subsidiaries.All intercompanyaccounts and transactions have been eliminated in consolidation.The condensed consolidated financial statements and accompanying notes wereprepared in accordance with accounting principles generally accepted in the United States of America(“GAAP”)and applicable rules and regulations ofthe U.S.Securities and Exchange Commission(the“SEC”)regarding interim financial information and include the assets,liabilities,revenue andexpenses of all wholly owned subsidiaries.Investments in unconsolidated entities in which the Company does not have a controlling financial interest,but has the ability to exercise significant influence,are accounted for under the equity method of accounting.Investments in unconsolidated entities inwhich the Company is not able to exercise significant influence are accounted for under the cost method of accounting.Certain information anddisclosures normally included in the annual consolidated financial statements prepared in 9NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)accordance with GAAP have been omitted.Accordingly,the unaudited interim condensed consolidated financial statements should be read inconjunction with the audited consolidated financial statements and notes included in the Companys final prospectus,dated June 13,2024,filed with theSEC pursuant to Rule 424(b)under the Securities Act of 1933,as amended(the“Securities Act”),on June 17,2024(the“Prospectus”)in connectionwith the IPO.The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidatedfinancial statements and reflect,in managements opinion,all the adjustments of a normal,recurring nature that are necessary for the fair statement ofthe Companys financial position,results of operations,and cash flows for the interim periods,but are not necessarily indicative of the results expectedfor the full year or any other period.In the opinion of the Company,the accompanying unaudited condensed consolidated financial statements contain all adjustments,consisting ofonly normal recurring adjustments,necessary for a fair statement of its financial position as of June 30,2024 and its results of operations for the threeand six months ended June 30,2024 and 2023,and cash flows for the six months ended June 30,2024 and 2023.The condensed consolidated balancesheet at December 31,2023,was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annualfinancial statements.The Company believes that its existing cash and cash equivalents and marketable equity securities at June 30,2024 will be sufficient to allow theCompany to fund its current operating plan through at least a period of one year from the date of issuance.As the Company continues to incur losses,itstransition to profitability is dependent upon a level of revenues adequate to support the Companys cost structure.Future capital requirements willdepend on many factors,including the timing and extent of spending on research and development activities and growth related expenditures.Other than described below,there have been no changes to the Companys significant accounting policies described in the“Notes to theConsolidated Financial Statements”included in the Companys audited consolidated financial statements as of and for the year ended December 31,2023 included in the Prospectus that have had a material impact on the Companys consolidated financial statements and accompanying notes.ReclassificationCertain prior year amounts have been reclassified for consistency with the current year presentation.Emerging Growth CompanyThe Company is an“emerging growth company”as defined in Section 2(a)of the Securities Act,as modified by the Jumpstart Our BusinessStartups Act of 2012(the“JOBS Act”),and it may take advantage of certain exemptions from various reporting requirements that are applicable to otherpublic companies that are not emerging growth companies including,but not limited to,not being required to comply with the auditor attestationrequirements of Section 404 of the Sarbanes-Oxley Act,reduced disclosure obligations regarding executive compensation in its periodic reports andproxy statements,and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval ofany golden parachute payments not previously approved.Further,Section 102(b)(1)of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financialaccounting standards until private companies(that is,those that have not had a Securities Act registration statement declared effective or do not have aclass of securities registered under the Securities Exchange Act of 1934,as amended)are required to comply with the new or revised financialaccounting standards.The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirementsthat apply to non-emerging growth companies but any such election to opt out is irrevocable.The Company has elected not to opt out of such extendedtransition period which means that when a standard is issued or revised and it has different application dates for public or private companies,theCompany,as an emerging growth company,can adopt the new or revised standard at the time private companies adopt the new or revised standard.Thismay make comparison of the Companys condensed consolidated financial statements with another public company which is neither an emerginggrowth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of thepotential differences in accounting standards used.Use of EstimatesThe preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimatesand assumptions that affect the reported amounts and classifications of assets and liabilities,revenue and expenses,and the related disclosures ofcontingent assets and liabilities in the condensed consolidated financial statements and accompanying notes.The most significant estimates are relatedto revenue,accounts receivable,stock-based compensation,operating lease liabilities,and the useful lives of property,equipment and intangible assets.Actual results could differ from those estimates.10NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)Net Loss Per Share Attributable to Common StockholdersBasic and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required forparticipating securities.The Company considers all series of its redeemable convertible preferred stock to be participating securities.Prior to the IPO,under the two-class method,the net loss attributable to common stockholders was not allocated to the redeemable convertible preferred stock as theholders of its redeemable convertible preferred stock did not have a contractual obligation to share in the Companys losses.Upon IPO,the Companysredeemable convertible preferred stock converted to either Class A or Class B common stock and therefore will be included in allocation of net lossattributable to common stockholders as they will share in the Companys losses.Net income is attributed to common stockholders and participatingsecurities based on their participation rights.Basic net loss per share attributable to common stockholders is computed by dividing the net lossattributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.Diluted earnings pershare attributable to common stockholders adjusts basic earnings per share for the potentially dilutive impact of stock options and redeemableconvertible preferred stock.As the Company has reported losses for all periods presented,all potentially dilutive securities are antidilutive andaccordingly,basic net loss per share equals diluted net loss per share.Deferred Offering CostsDeferred offering costs consist primarily of accounting,legal,and other fees related to the IPO.The Company had$7.1 million of deferredoffering costs as of December 31,2023.Prior to the IPO,deferred offering costs were capitalized on the consolidated balance sheets.Upon theconsummation of the IPO,$12.3 million of deferred offering costs were reclassified into additional paid-in capital as an offset against IPO proceeds.Recently Issued Accounting Pronouncements Not Yet AdoptedIn November 2023,the FASB issued ASU No.2023-07,Segment Reporting(Topic 280),which provides enhanced disclosures about significantsegment expenses.The standard also enhances interim disclosure requirements and provides new segment disclosure requirements for entities with asingle reportable segment.The standard is effective for public companies for fiscal years beginning after December 15,2023,and interim periods withinfiscal years beginning after December 15,2024.Retrospective adoption is required for all prior periods presented.Early adoption is permitted.TheCompany is currently evaluating the effect that this guidance will have on the consolidated financial statements and related disclosures.In December 2023,the FASB issued ASU 2023-09,Income Taxes(Topic 740):Improvements to Income Tax Disclosures,which requires publicentities,on an annual basis,to provide disclosure of specific categories in the rate reconciliation,as well as disclosure of income taxes paiddisaggregated by jurisdiction.ASU 2023-09 is effective for fiscal years beginning after December 15,2024,with early adoption permitted.TheCompany is currently evaluating the effect that this guidance will have on the consolidated financial statements and related disclosures.11NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)3.REVENUE RECOGNITIONThe Company derives revenue from selling lab services(“Genomics”)to physicians,academic research institutions,and other parties.TheCompany also derives revenue from the commercialization of data generated in the lab(“Data and services”)through the licensing of de-identifieddatasets to third parties and by providing clinical trial support,such as matching patients to clinical trials enrolled in its clinical trial network,and relatedservices.The majority of the Companys revenue is generated in North America.The Company accounts for revenue in accordance with Financial Accounting Standards Board(“FASB”)ASC 606 Revenue from Contracts withCustomers(“ASC 606”).The Company commences revenue recognition when control of these products is transferred to customers in an amount thatreflects the consideration the Company expects to be entitled to in exchange for such products.This principle is achieved by applying the five-stepapproach:(i)the Company accounts for a contract when it has approval and commitment from both parties,(ii)the rights of the parties are identified,(iii)payment terms are identified,(iv)the contract has commercial substance and(v)collectability of consideration is probable.Revenues and anycontract assets are not recognized until such time that the required conditions are met.Disaggregation of RevenueThe Company provides disaggregation of revenue based on Genomics and Data and services on the condensed consolidated statements ofoperations and comprehensive loss,as it believes these best depict how the nature,amount,timing and uncertainty of revenue and cash flows areaffected by economic factors.GenomicsThe Company generally recognizes revenue for its Genomics product offering when it has met its performance obligation relating to an order.TheCompany has determined its sole performance obligation to be the delivery of the testing results to the ordering party.The Company receives paymentsfrom Medicare,Medicaid,and commercial insurance for clinical orders and directly from research institutions,pharmaceutical companies or other thirdparties for direct bill orders.The Company recognized Genomics revenue of$112.3 million and$91.9 million for the three months ended June 30,2024and 2023,respectively.The Company recognized Genomics revenue of$214.9 million and$174.0 million for the six months ended June 30,2024 and2023,respectively.For clinical orders from Medicare,Medicaid,and commercial insurance,the Company determines transaction price by reducing the standardcharge by the estimated effects of any variable consideration,such as contractual allowance and implicit price concessions.The Company estimates thecontractual allowances and implicit price concessions based on historical collections in relation to established rates,as well as known current oranticipated reimbursement trends not reflected in the historical data.Estimates are inclusive of the consideration to which the Company will be entitledat an amount for which it is probable that a reversal of cumulative consideration will not occur.The Company monitors the estimated amount to becollected at each reporting period based on actual cash collections in order to assess whether a revision to the estimate is required.Payment is typicallydue after the claim has been processed by the payer,generally 30-120 days from date of service.While management believes that the estimates areaccurate,actual results could differ and the potential impact on the financial statements could be significant.The Company recognized revenue forclinical orders of$101.7 million and$84.4 million for the three months ended June 30,2024 and 2023,respectively.The Company recognized revenuefor clinical orders of$195.1 million and$156.9 million for the six months ended June 30,2024 and 2023,respectively.For direct bill orders from research institutions,pharmaceutical companies,or other third parties,the Company determines the transaction pricesbased on established contractual rates with the customer,net of any applicable discounts.Payment is typically due between 30 and 60 days following thedate of invoice.The Company recognized Genomics revenue for direct bill orders of$10.6 million and$7.5 million for the three months ended June 30,2024 and 2023,respectively and$19.8 million and$17.1 million for the six months ended June 30,2024 and 2023,respectively.12NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)Data and servicesData and services revenue primarily represents data licensing and clinical trial services that the Company provides to pharmaceutical andbiotechnology companies.The Companys arrangements with these customers often have terms that span multiple years.However,these contractsgenerally also include customer opt-in or early termination clauses after twelve months without contractual penalty.The customers option to renew isgenerally not viewed as a material right,and as a result,the Companys contract period for these agreements is generally considered less than one year.The Company determines the transaction price based on established contractual rates with the customer,net of any applicable discounts.The Companyrecognizes revenue for its Data and services product offering when it has met its performance obligation under the terms of the agreement with thecustomer.The Companys two product offerings are as follows:InsightsThe Companys Insights product consists primarily of licensing and analysis of de-identified records.Each Insights contract is unique and mayinclude multiple promises,including the delivery of licensed de-identified records,including refreshes,analytical services or access to the Companysenhanced Lens application.The Company evaluates each contract to determine which performance obligations are capable of being distinct andseparately identifiable from other promises in the contract and,therefore,represent distinct performance obligations.The actual timing of data deliveriescan be based on a variety of factors,including,but not limited to,the customers requirement and/or the Companys technological,operational,andhuman capital capacity;in addition,management assesses relevant contractual terms in contracts with customers and applies significant judgment inidentifying and accounting for all terms and conditions in certain contracts.The transaction price is allocated to the distinct performance obligations andrevenue is recognized once the performance obligation has been fulfilled.The standalone selling prices are based on the Companys normal pricingpractices when sold separately with consideration of market conditions and other factors,including customer demographics.The Company has determined that the delivery of de-identified records and,when applicable,analytical services,and access to its enhanced Lensapplication are separate and distinct performance obligations.The primary Insights contract types are as follows:Data licensing on a one-time or limited duration basis Customer licenses a specific dataset of records,and the Company accounts forindividual licensed data records as a right to use license.Revenue is typically recognized upon delivery of the data to the customer,as theCompanys obligations for an individual record is complete once the data has been delivered,and the customer is able to benefit from theprovision of data as it is received.Multi-year data subscriptions Customer licenses an interchangeable maximum number of de-identified records,and the Companyaccounts for the service as a right to access license and one performance obligation.Revenue is recognized as access to the dataset isprovided,ratably over-time,with the measure of progress time-based.Analytical services and other services Services typically involve data analysis and research performed on behalf of the customer by theCompany.The resulting delivery of data,or a report addressing a series of questions and analytical results,is considered a singleperformance obligation.Revenue is generally recognized upon the delivery of these services,as defined by the contract.Enhanced Lens application subscription services Customer licenses access to the Companys enhanced Lens application under asoftware-as-a-service model.Customers do not have the right to take possession of the Lens platform application,and the online softwareproduct is fully functional once a customer has access.Lens subscription revenues are recognized ratably over the contract terms beginningon the date the Companys service is made available to the customer.For the periods presented,revenue from Lens subscription servicesare not material.13NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)The Company recognized revenue from Insights products of$40.7 million and$29.1 million for the three months ended June 30,2024 and 2023,respectively and$72.0 million and$51.9 million for the six months ended June 30,2024 and 2023,respectively.TrialsThe Companys Trials product includes TIME clinical trial matching services and other clinical trial services.TIME consists primarily of matching patients to clinical trial sponsors of a potential match.To the extent the contract requires,the Company mayalso assist in opening the clinical trial site and enrolling the patient in the clinical trial.The Company has determined that,depending on the type ofagreement,the performance obligation of these contracts is the delivery of a notification or the enrollment of a patient in a clinical trial.As such,revenue is recognized upon one of the following:delivery of a notification to the physician alerting them to a clinical trial match,or once a patient isenrolled in a trial.Concurrently,the customer,which is the clinical trial sponsor,also receives notification from the Company to establish theperformance obligations delivered or fulfilled for the billing period.In addition to TIME,the Company provides other clinical trial services conducting or supporting studies.Tempus Compass LLC,a subsidiary ofthe Company,is a contract research organization,or CRO,which manages and executes early and late-stage clinical trials,primarily in oncology.Contracts for clinical trial services can take the form of fee-for-service or fixed-price contracts.Fee-for-service contracts are typically priced based ontime and materials,and revenue is recognized based on hours and materials used as the services are provided.Fixed-price contracts generally represent asingle performance obligation and are recognized over-time using a cost-based input method.Progress on the performance obligation is measured by theproportion of actual costs incurred to the total costs expected to complete the contract.This cost-based method of revenue recognition requires theCompany to make estimates of costs to complete its projects on an ongoing basis.Contract costs principally include direct labor and reimbursableout-of-pocket costs.The Company recognized revenue from Trials products of$10.5 million and$10.6 million for the three months ended June 30,2024 and 2023,respectively and$21.8 million and$20.9 million for the six months ended June 30,2024 and 2023,respectively.For Insights and Trials arrangements,pricing is fixed and the Company may be compensated through a combination of an upfront payment andperformance-based,non-refundable payments due upon completion of the stated performance obligation(s).Payment is generally due 60 to 90 days afterthe date of service.The Company has no significant obligations for refunds,warranties,or similar obligations for Data and services product offerings.The Company has elected the practical expedient,which allows the Company to not disclose remaining performance obligations for contracts withoriginal terms of twelve months or less.Cancelable contracted revenue is not considered a remaining performance obligation.The Company recognizedData and other revenue from pharmaceutical companies,non-for-profits,and researchers of$53.6 million and$40.5 million for the three months endedJune 30,2024 and 2023,respectively and$96.9 million and$74.1 million for the six months ended June 30,2024 and 2023,respectively.Multi-year contract performance obligationsThe Company has limited multi-year contracts that do not contain early termination or customer opt-in clauses.These contracts contained defined,noncancelable performance obligations that will be fulfilled in future years.The Companys remaining performance obligations related to multi-yearcontracts was$197.3 million as of June 30,2024,of which the Company expects to recognize approximately 42%as revenue over the next year,and theremaining 34%,19%,and 5%of its remaining performance obligations as revenue in years two,three,and four,respectively.14NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)Contract AssetsTiming of revenue recognition may differ from the timing of invoicing to customers.Certain performance obligations may require payment beforedelivery of the service to the customer.The Company recognizes contract assets when the Company has an unconditional right to payment,and whenrevenues earned on a contract exceeds the billings.Contract assets are presented under accounts receivable,net.Accounts receivable as of June 30,2024and December 31,2023 included contract assets of$9.3 million and$2.4 million,respectively.During the fourth quarter of 2021,and in conjunction with the signing of a November 2021 Master Services Agreement(“the MSA”)withcustomer AstraZeneca AB(“AstraZeneca”),the Company recognized a contract asset for consideration payable concurrent with the issuance of thecommon stock warrant in accordance with ASC 606.The contract asset was initially measured equal to the initial fair value of the warrant liability basedon the authoritative guidance under FASB ASC 718 CompensationStock Compensation.As revenue is recognized over the period of the contractualcommitment of the MSA,the associated contract asset amortization is recorded as reduction of revenue.At each reporting period,the short-term portionof the warrant asset is adjusted based on the financial commitment and reclassified to Prepaid expenses and other current assets.The following summarizes the warrant contract asset presentation as of June 30,2024 and December 31,2023(in thousands):June 30,2024 December 31,2023 Prepaid expenses and other current assets$4,843$4,843 Warrant contract asset,less current portion 19,077 21,499 Total warrant contract asset$23,920$26,342 In November 2023,the Company entered into a Commercialization and Reference Laboratory Agreement with Personalis,Inc.(“Personalis”).The Company will pay up to$12.0 million to Personalis over three years as certain milestones are met,$7.0 million of which has been paid as ofJune 30,2024.These payments are treated as contract assets and amortized into revenue over the life of the contract.In addition,as consideration for theCompanys obligations to Personalis under the Commercialization and Reference Laboratory Agreement,Personalis issued certain warrants to theCompany to purchase up to an aggregate of 9,218,800 shares of Personalis common stock,up to 4,609,400 of which are exercisable for cash at any timeprior to December 31,2024 at an exercise price of$1.50 per share,and up to 4,609,400 of which are exercisable for cash at any time prior to December31,2025 at an exercise price of$2.50 per share.Contract asset balances are offset by deferred revenue generated from issuance of the Personalis warrantasset.As of June 30,2024 and December 31,2023,there was$1.1 million and$0.1 million,respectively,of net contract assets related to this agreementrecorded in Prepaid expenses and other current assets,respectively.Deferred RevenueDeferred revenue consists of billings or cash received for services in advance of revenue recognition and is recognized as revenue when all theCompanys revenue recognition criteria are met.The deferred revenue balance is influenced primarily by upfront contractual payments from theCompanys Data and Services product offerings and timing of delivery of the Companys de-identified licensed data and clinical test results.The portionof deferred revenue that is anticipated to be recognized as revenue during the succeeding twelve-month period is recorded as deferred revenue,currentand any remaining portion is recorded as deferred revenue,non-current.The Company recognized$39.5 million and$26.4 million during the sixmonths ended June 30,2024 and 2023,respectively,that was included in the corresponding deferred revenue balance at the beginning of the periods.4.BUSINESS COMBINATIONSSEngineOn October 3,2023,the Company acquired all of the issued and outstanding interests of SEngine Precision Medicine LLC(“SEngine”),aDelaware limited liability company.The acquisition gives the Company access to SEngines meaningful organoid repository,advanced bioinformaticscapabilities,and PARIS test platform.15NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)The acquisition resulted in goodwill of$9.6 million.The aggregate acquisition date fair value of consideration for the SEngine acquisition totaled$9.9 million.Consideration consisted of$2.8 million of cash and$6.3 million of non-voting common stock.The transaction also includes contingentconsideration of up to 35,000 additional shares of non-voting common stock if a liquidity event is completed prior to December 31,2027.Thecontingent consideration liability is remeasured at fair value in each period following the closing within selling,general and administrative expense.Inaccordance with the terms of the agreement,$1.4 million in equity was held back and is payable on October 3,2024,which is net of a net workingcapital adjustment less than$0.1 million.The Company issued 429 shares of non-voting common stock to the selling corporation in February 2024related to the net working capital adjustment.MpirikOn March 8,2023,the Company acquired all of the issued and outstanding interests of Mpirik,Inc.(“Mpirik”),a cardiology-focused healthcaretechnology company specializing in data-driven patient screening,automated care coordination,and clinical research.Mpiriks platform adds to theCompanys existing portfolio to address the way heart disease is detected,diagnosed,and treated,further expanding Tempuss cardiology business.Theacquisition resulted in goodwill of$10.6 million.The aggregate acquisition date fair value of consideration for the Mpirik acquisition totaled$9.7 million.Consideration was made up of$4.6 million of non-voting common stock,$4.7 million of cash,and contingent consideration payable incash with an acquisition date fair value of$0.4 million.In accordance with the terms of the agreement,$0.8 million in cash consideration and$0.3 million in equity consideration was held back and paid on March 11,2024.In accordance with the equity consideration held back,the Companyissued 8,724 shares of non-voting common stock to Mpirik shareholders in March 2024.Cash consideration of$4.7 million is net of a$0.3 million net working capital adjustment.In accordance with the terms of the agreement,thesecurityholders of the acquired business were entitled to receive contingent consideration from the Company payable in an aggregate value of$1.0 million in cash,contingent upon the acquired business reaching a revenue target of$1.5 million for the twelve-month period ended December 31,2023.The contingent consideration had an acquisition fair value date of$0.4 million,which the Company recognized within Other current liabilities.The contingent consideration was remeasured at fair value in each period following the closing within selling,general and administrative expense.Mpirik did not achieve the revenue target for the twelve-month period ended December 31,2023.As such,the contingent consideration liability waswritten down to$0.In addition,the Company issued 17,450 performance stock units to certain retained Mpirik employees on the closing date of theacquisition.In July 2023,the Companys board of directors approved the removal of the performance-vesting condition,following which performancestock units are treated as restricted stock units.ArterysOn October 3,2022,the Company acquired Arterys,Inc.(“Arterys”),a company that provides a platform to derive insights from radiologymedical imagines to improve diagnostic decision-making,efficiency,and productivity across multiple disease areas,which resulted in goodwill of$11.1 million.The aggregate acquisition date fair value of consideration for the Arterys acquisition totaled$8.3 million,net of cash acquired of$0.3 million.Consideration was made up of$4.9 million of non-voting common stock and$3.0 million of cash.Cash consideration of$3.0 million is netof a$1.0 million working capital adjustment paid back to Tempus in March 2023.16NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)5.BALANCE SHEET COMPONENTSProperty and Equipment,netThe following summarizes property and equipment,net as of June 30,2024 and December 31,2023(in thousands):June 30,2024 December 31,2023 Equipment$101,631$91,656 Leasehold improvements 44,000 42,433 Furniture and fixtures 6,633 6,633 Total property and equipment,gross 152,264 140,722 Less:accumulated depreciation (91,725)(79,041)Property and equipment,net$60,539$61,681 Depreciation expense on property and equipment is classified as follows in the accompanying condensed consolidated statements of operations forthe three and six months ended June 30,2024 and 2023(in thousands):Three Months Ended June 30,Six Months Ended June 30,2024 2023 2024 2023 Cost of revenue,genomics$3,293$3,222$6,674$6,363 Selling,general and administrative costs 3,122 1,972 6,010 3,891 Total depreciation$6,415$5,194$12,684$10,254 Accrued ExpensesAccrued expenses as of June 30,2024 and December 31,2023,consist of the following(in thousands):June 30,2024 December 31,2023 Accrued compensation and employee benefits$18,532$21,950 Accrued expenses 44,053 37,783 Accrued cloud storage costs 13,723 13,921 Interest payable 8,877 8,863 Total accrued expenses$85,185$82,517 6.GOODWILL AND INTANGIBLESGoodwillGoodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired.There were no goodwill additions for the three months ended June 30,2024 and 2023,or for the six months ended June 30,2024.During the six monthsended June 30,2023,goodwill of$10.6 million was recorded in connection with the acquisition of Mpirik.The Company recorded no impairment lossduring the three and six months ended June 30,2024 and 2023.Intangible assetsIntangible assets are initially recorded at their acquisition cost,or fair value if acquired as part of a business combination and amortized over theirestimated useful lives.Intangible assets consist of a website domain,customer relationships and trade names acquired as part of a business combination,and licensed data acquired by entering into research collaboration agreements.In each license arrangement,the other party provides the Company withspecified data,which currently is used primarily for research and development purposes but may also be licensed to third parties.The asset representsthe Companys right to use these datasets.The Company also recognizes a liability for the associated minimum payments that are presented withinaccrued data licensing fees.17NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)During the six months ended June 30,2023,the Company recorded an additional$3.8 million in licensed data related to de-identified dataobtained through an additional agreement.During the three months ended June 30,2024 and 2023 and the six months ended June 30,2024,theCompany did not record any additions in licensed data.In January 2023,the Company amended a data licensing agreement,which reduced the future data license payments the Company owes inexchange for waiving exclusivity rights on the licensed data.The Company remeasured the related licensed data intangible asset to fair value,whichresulted in an impairment of$7.4 million recorded in Research and development during the six months ended June 30,2023.A$7.9 million gainresulting from the related reduction of future data license payments was also recorded in Research and development during the six months endedJune 30,2023.The impairment resulted in a reduction of$40.1 million and$32.7 million to gross intangible assets and accumulated amortization,respectively.There were no impairment charges recognized related to intangible assets during the three months ended June 30,2024 and 2023,respectively,or the six months ended June 30,2024.The following table summarizes intangible assets as of June 30,2024 and December 31,2023(in thousands):June 30,2024 December 31,2023 GrossAmount AccumulatedAmortization Net GrossAmount AccumulatedAmortization Net Customer relationships$20,550$13,913$6,637$20,550$12,219$8,331 Licensed data 19,321 14,868 4,453 19,321 11,469 7,852 Website domain 19 19 19 19 Trade names 8,000 2,857 5,143 8,000 2,286 5,714$47,891$31,638$16,252$47,890$25,974$21,916 Amortization of intangible assets is recognized using the straight-line method over their estimated useful lives,which range from three to sevenyears.Amortization expense was$2.8 million and$3.1 million for the three months ended June 30,2024 and 2023,respectively,and$5.7 million and$6.0 million for the six months ended June 30,2024 and 2023,respectively,and is recorded in cost of revenues,research and development,or selling,general and administrative expense,depending on use of the asset.The weighted average life of the Companys intangibles is approximately six years.7.COMMITMENTS AND CONTINGENCIESLegal MattersFrom time to time in the normal course of business,the Company may be subject to various legal matters such as threatened or pending claims orproceedings.There were no material such matters as of and for the three and six months ended June 30,2024 and 2023.8.STOCKHOLDERS EQUITYCommon StockPrior to the IPO,the Company had authorized two classes of common stock,voting and non-voting.In March 2021,the Company amended itscertificate of incorporation to bifurcate the voting common stock into two classes,Class A common stock and Class B common stock.As ofDecember 31,2023,the Company had authorized 200,228,024 shares of Class A common stock,5,374,899 shares of Class B common stock,and63,946,627 shares of non-voting common stock.In April 2024,the Company increased the number of authorized shares of Class A common stock to204,590,500 in conjunction with the Series G-5 Preferred stock financing(see Note 9,Redeemable Convertible Preferred Stock).In connection with theIPO,the Restated Certificate became effective,which authorized 1,000,000,000 shares of Class A common stock,5,500,000 shares of Class B commonstock,and 20,000,000 shares of preferred stock.18NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)Class A common stock and Class B common stock are collectively referred to as“Common Stock”throughout the notes to these unaudited interimcondensed consolidated financial statements unless otherwise noted.The rights of the holders of Class A common stock and Class B common stock are identical,except with respect to voting.Each share of Class Acommon stock is entitled to one vote per share and each share of Class B common stock is entitled to thirty votes per share.Prior to the IPO,theCompany also had shares of non-voting common stock authorized and outstanding,which were not entitled to any voting rights.Following the IPO,noshares of non-voting common stock are authorized or outstanding.Each share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock.Under the Restated Certificate,any holders shares of Class B common stock will convert automatically into Class A common stock,on aone-to-one basis,upon certain circumstances,including:(1)the sale or transfer of such shares of Class B common stock,other than to a“controlledentity,”which is any person or entity which,directly or indirectly,is controlled by,or is under common control with,the holder of such shares ofClass B common stock;(2)the trading day that is no less than 90 days and no more than 150 days following the twenty-year anniversary of the filing ofthe Restated Certificate,which was filed with the Secretary of State of the State of Delaware on June 17,2024;(3)the date on which Mr.Lefkofsky isno longer providing services to the Company as an executive officer or member of the board of directors;and(4)the trading day that is no less than 90days and no more than 150 days following the date that Mr.Lefkofsky and his controlled entities hold,in the aggregate,fewer than 10,000,000 shares ofthe Companys capital stock(as adjusted for stock splits,stock dividends,combinations,subdivisions and recapitalizations).Once transferred and converted into Class A common stock,the Class B common stock may not be reissued.The Company issues stock-based awards to its employees in the form of stock options,restricted stock units,performance stock units andrestricted stock,all of which have the potential to increase the outstanding shares of common stock in the future(see Note 10,Stock-BasedCompensation).Upon any liquidation,dissolution,or winding-up,the holders of Class A common stock and Class B common stock will be entitled to shareequally,identically,and ratably in all assets remaining after the payment of any liabilities,liquidation preferences,and accrued or declared but unpaiddividends,if any,with respect to any outstanding preferred stock,unless a different treatment is approved by the affirmative vote of the holders of amajority of the outstanding shares of such affected class,voting separately as a class.Common Stock WarrantIn connection with the MSA with AstraZeneca,the Company granted AstraZeneca warrants to purchase$100 million in shares of the CompanysClass A common stock at an exercise price equal to the IPO price of$37.00 per share.The number of shares of Class A common stock issuable uponexercise of the warrant is 2,702,703,based on the IPO price of$37.00 per share.19NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)The warrant will be automatically cancelled and terminated for no consideration in the event AstraZeneca declines to extend its financial commitmentbefore December 31,2024.If AstraZeneca exercises the warrant,AstraZeneca will be required to increase its minimum commitment under the MSAfrom$220 million to$320 million through December 2028.On December 8,2023,the Company issued Allen a warrant to purchase 150,000 shares of the Companys Class A common stock at a price pershare of$10.00.The warrant was issued as compensation for Allens assistance with the issuance of the Companys Series G-4 preferred stock,and assuch has been treated as an issuance cost and presented net of proceeds from Series G-4 preferred stock in Convertible redeemable preferred stock onthe Companys consolidated balance sheet.In connection with the IPO,the Company issued 109,459 shares of Class A common stock upon the netexercise of the warrant.Treasury StockIn January 2023,the Company repurchased 145,466 shares of non-voting common stock previously issued to the former owners of AKESOgen,Inc.,which the Company acquired in December 2019.These shares were accounted for as treasury stock.The Company records treasury stock at cost.9.REDEEMABLE CONVERTIBLE PREFERRED STOCKIn January 2023,the Company issued 47,781 shares of Series G-3 convertible preferred stock as payment of paid-in-kind dividends.In January 2024,the Company issued 66,465 shares of Series G-3 convertible preferred stock and 10,666 shares of Series G-4 convertiblepreferred stock as payment of paid-in-kind dividends.In October 2023,the Company issued 785,245 shares of Series G-4 convertible preferred stock(“Series G-4 Preferred”)for aggregate proceeds of$45.0 million.Each share had a par value of$0.0001.Under the terms of Series G-4 Preferred,holders receive an amount equal to 5%of the per shareoriginal issue price for each share of Series G-4 Preferred(the“G-4 Special Payment”),in the event that following an IPO,the average of the lasttrading price on each trading day during the ten day trading period beginning on the first day of trading of the Companys Class A common stock is lessthan 110%of the price per share of Class A common stock sold in the IPO.Following the Companys IPO,the average ten day trading price was lessthan 110%of the price per share of Class A common stock sold in the IPO.As such,holders of Series G-4 Preferred are owed an aggregate payment of$2.3 million,which is recorded in Accrued expenses as of June 30,2024.In April 2024,the Company issued 3,489,981 shares of Series G-5 convertible preferred stock(“Series G-5 Preferred”)for aggregate proceeds of$200.0 million.Each share has a par value of$0.0001.The Company will use the proceeds for working capital and general corporate purposes.20NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)In connection with the IPO,all of the Companys then-outstanding shares of redeemable convertible preferred stock and accrued but unpaiddividends were automatically converted into 71,976,178 shares of Class A voting common stock and 5,043,789 shares of Class B voting common stock.Redeemable convertible preferred stock outstanding as of December 31,2023 consisted of the following(in thousands,except share amounts):As of December 31,2023 Series Year Shares Liquidation Carrying Preferred Issued Authorized Outstanding Amount Value Series A 2015 10,000,000 10,000,000$10,500$10,000 Series B 2016 5,374,899 5,374,899 10,500 10,000 Series B-1 2016 2,500,000 2,500,000 10,500 10,000 Series B-2 2017 4,191,173 4,191,173 31,500 30,000 Series C 2017 9,779,403 9,779,403 86,757 70,000 Series D 2018 8,534,330 8,534,330 105,107 104,145 Series E 2018 6,630,905 6,630,905 151,621 151,621 Series F 2019 8,077,674 8,077,674 261,722 261,722 Series G 2020 2,537,290 2,537,290 119,928 119,928 Series G-2*2020/2021 3,453,139 3,453,139 197,889 197,889 Series G-3*2022/2023 4,362,476 1,661,895 98,891 95,238 Series G-4*2023 4,362,476 785,245 45,514 45,000 Total convertible preferred stock 69,803,765 63,525,953 1,130,429 1,105,543 *Excludes amounts related to the conversion of convertible note*Excludes amounts related to embedded conversion features 10.STOCK-BASED COMPENSATION2015 Stock PlanIn 2015,the Company adopted the Tempus AI,Inc.2015 Stock Plan(the“2015 Plan”),which has been amended and restated numerous times toincrease the aggregate shares authorized to be issued to employees,consultants,and directors of the Company.As of December 31,2023,therewere 28,115,750 shares authorized under the 2015 Plan.On January 18,2023,the Company approved a two-year extension of the expiration date for active employees whose RSUs expire either in 2023or 2024.The Company accounted for the extension as a stock compensation modification,which resulted in an increase in unrecognized compensationcost of$47.5 million and$35.3 million for the three and six months ended June 30,2024 and 2023,respectively.During the three and six months ended June 30,2024,the Company granted 1,647,906 and 1,933,606 RSUs,respectively.Restricted Stock UnitsThe RSUs granted under the 2015 Plan are subject to two vesting conditions.The first is a time-based component.The majority of the awards areeligible to vest over a four-year period,with 20%of the awards being eligible to vest after one year and the remaining awards becoming eligible to veston a quarterly basis thereafter.The second vesting condition is the occurrence of a liquidity event,as defined in the grant agreement,which was satisifedin connection with the IPO.The table below summarizes restricted stock unit activity under the 2015 Plan for the six months ended June 30,2024:Restricted Stock Units Weighted-AverageGrant Date Fair Value Unvested at December 31,2023 20,788,500$26.47 Granted 1,933,606$37.59 Vested and settled (4,563,164)$11.93 Vested and not yet settled (10,870,652)$24.46 Forfeited (457,785)$25.58 Expired (147,376)$0.28 Unvested at June 30,2024 6,683,129$36.77 21NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)Stock-based compensation is classified as follows in the accompanying condensed consolidated statements of operations for the three and sixmonths ended June 30,2024 and 2023(in thousands):Three months ended June 30,Six months ended June 30,2024 2023 2024 2023 Cost of revenues,genomics$11,327$11,327$Cost of revenues,data and services 7,229 7,229 Technology research and development 50,434 50,434 Research and development 42,233 42,233 Selling,general and administrative 377,090 377,090 Total stock-based compensation$488,313$488,313$Total unrecognized stock-based compensation expense related to RSUs was$125.3 million as of June 30,2024 and is expected to be recognizedover a weighted-average period of 1.4 years.No further grants will be made under the 2015 Plan.2024 Equity Incentive PlanIn February 2024,the Companys board of directors adopted,and in April 2024,the Companys stockholders approved,the 2024 Equity IncentivePlan(the“2024 Plan”),which became effective in connection with the IPO in June 2024.The 2024 Plan provides for the grant of incentive stockoptions,(“ISOs”)nonstatutory stock options(“NSOs”),stock appreciation rights,RSUs,restricted stock unit awards(“RSAs”),performance-basedawards(“PSUs”)and other awards.The maximum number of shares of Class A common stock that may be issued under the 2024 Plan is 7,430,000shares of the Companys Class A common stock and will automatically increase on January 1 of each year,beginning on January 1,2025 and continuingthrough and including January 1,2034 in an amount equal to either(i)a number of shares of the Companys Class A common stock(the“EvergreenIncrease”),such that the sum of(x)the remaining number of shares available under the 2024 Plan and(y)the Evergreen Increase is equal to 5%of thetotal number of shares of common stock(both Class A and Class B)outstanding on December 31 of the preceding calendar year,or(ii)a lesser numberof shares determined by the Companys board of directors prior to the applicable January 1.The maximum number of shares that may be issued uponthe exercise of ISOs under the 2024 Plan is 22,290,000 shares.11.DEBTTerm Loan FacilityOn September 22,2022,the Company entered into a Credit Agreement with Ares Capital Corporation(“Ares”)for a senior secured loan(the“Term Loan Facility”)in the amount of$175 million,less original issue discount of$4.4 million and deferred financing fees of$2.6 million.OnApril 25,2023,the Company entered into an amendment to the Credit Agreement,which was accounted for as a debt modification.The amendment tothe Credit Agreement increased the Term Loan Facility by an aggregate principal amount of$50 million,less original issue discount of$1.3 million andincreased the interest rate on the Term Loan Facility by 25 basis points.On October 11,2023,the Company signed a second amendment to its CreditAgreement with Ares which provided an additional$35.0 million in term debt.The Company received$34.1 million in cash,which is the aggregateprincipal amount of$35.0 million less original issue discount of$0.9 million.Terms of the second amendment are consistent with existing terms of theCredit Agreement.The proceeds of the Term Loan Facility will be used for working capital and general corporate purposes,to finance growthinitiatives,to pay for operating expenses,and to pay the related transaction costs.The Term Loan Facility is due at maturity on September 22,2027 andis subject to quarterly interest payments for Base Rate Loans and at the end of the applicable interest rate period for Secured Overnight Financing Rate(“SOFR”)Loans.22NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)After the first three months from the effective date,each quarter,the Company has the option to convert the borrowing type to either a Base RateBorrowing,which bears interest based on a Base Rate,defined as the greatest of the(a)the“Prime Rate”appearing the“Money Rates”section of theWall Street Journal or another national publication selected by the Agent,(b)the Federal Funds Rate plus 0.50%,(c)Term SOFR for a one-month tenorin effect on such day plus 1.00%in each instance as of such day and(d)2.00%,or a SOFR Borrowing,which bears interest based on Term SOFR.Additionally,the Company may make either a PIK election or a Cash election.Based on these elections,the Term Loan Facility will bear interest at oneof the following rates:(i)the sum of the Base Rate plus an Applicable Rate of 4%per annum plus 3.25%per annum paid in-kind by adding the accrued interest tothe outstanding principal balance on each interest payment date (ii)the Base Rate plus an Applicable Rate of 6.25%per annum (iii)the sum of the Term SOFR for the interest period plus an Applicable rate of 5%per annum plus 3.25%per annum paid in-kind by addingthe accrued interest to the outstanding principal balance on each interest payment date (iv)the Term SOFR for the interest period in effect plus the Applicable Rate of 7.25%per annumIn addition,the Term Loan Facility contains customary representations and warranties,financial and other covenants,and events of default,including but not limited to,limitations on earnout,milestone,or deferred purchase obligations,dividends on preferred stock and stock repurchases,cash investments,and acquisitions.The Company is required to maintain a minimum liquidity of at least$25 million and maintain specified amounts ofconsolidated revenues for the trailing twelve-month period ending on the last day of each fiscal quarter.Minimum consolidated revenues increase eachquarter.For the years ended December 31,2024 and 2025,the Company is required to generate consolidated revenues of$459.1 million and$594.1 million,respectively.The Company was in compliance with all covenants of the Credit Agreement as of June 30,2024.All obligations under the Term Loan Facility are guaranteed by the Company and secured by substantially all of the assets of the Company.The original issue discount of$6.5 million and deferred financing fees of$2.6 million are amortized over the term of the underlying debt andunamortized amounts have been offset against long-term debt in the consolidated balance sheets.As of June 30,2024 and December 31,2023,theunamortized original issue discount was$4.5 million and$5.1 million,respectively,and the unamortized deferred financing fees were$1.6 million and$1.9 million,respectively.Through June 30,2024,the Company has not made any principal repayments on the Term Loan Facility.Through June 30,2024,the Companymade$13.9 million in interest payments.As of June 30,2024,the interest rate on the Term Loan Facility was 10.3%.As of June 30,2023,the interestrate on the$175 million originally borrowed under Term Loan Facility was 9.89%and 10.07%on the$50 million borrowed under the amended CreditAgreement.The Company recognized interest expense of$9.2 million and$18.3 million related to the Term Loan Facility during the three and six monthsended June 30,2024,respectively.The Company recognized interest expense of$6.9 million and$12.0 million related to the Term Loan Facility duringthe three and six months ended June 30,2023,respectively.23NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)Convertible Promissory NoteOn June 22,2020,in connection with entry into an agreement for use of Google LLCs,or Googles,Google Cloud Platform,the Company issuedGoogle a convertible promissory note,or the Note,in the original principal amount of$330.0 million.On November 19,2020,in connection with SeriesG-2 convertible preferred stock financing,the Company issued Google$80 million of Series G-2 preferred stock,at a 10%discount to the purchaseprice per share in such financing,in partial satisfaction of the outstanding principal amount under the Note,and the Company amended and restated theterms of the Note.The amended and restated Note,or the Amended Note,has a principal amount of$250.0 million,and bears interest at the rate set forth therein.The principal amount is automatically reduced each year based on a formula taking into account the aggregate value of the Google Cloud Platformservices used by the Company.The Company accounts for the principal reductions as an offset to its cloud and compute spend within selling,generaland administrative in its condensed consolidated statements of operations and comprehensive loss.The outstanding principal and accrued interest underthe Amended Note,or the Outstanding Amount,is due and payable on the earlier of(1)March 22,2026,which is the maturity date of the AmendedNote,(2)upon the occurrence and during the continuance of an event of default,and(3)upon the occurrence of an acceleration event,which includesany termination by the Company of its Google Cloud Platform agreement.The Company generally may not prepay the Outstanding Amount,except thatthe Company may,at its option,prepay the Outstanding Amount in an amount such that the principal amount remaining outstanding after suchrepayment is$150.0 million.If the Amended Note is outstanding at the maturity date,Google may,at its option,convert the then outstanding principal amount and interestaccrued under the Amended Note into a number of shares of the Companys Class A common stock equal to the quotient obtained by dividing(1)theOutstanding Amount on the maturity date,by(2)the average of the last trading price on each trading day during the twenty day period endingimmediately prior to the maturity date.The Company concluded that one of the conversion features meets the definition of an embedded derivative that is required to be accounted for asa separate unit of accounting.The fair value of the embedded derivative is not material and was therefore not bifurcated.As such,upon issuance of theNote the Company recorded a promissory note of$330.0 million.The Company recognized interest expense of$3.7 million and$3.8 million during thethree months ended June 30,2024 and 2023,respectively.The company recognized interest expense of$7.3 million and$7.6 million during the sixmonths ended June 30,2024 and 2023,respectively.12.NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERSBasic net loss per share is calculated by dividing the net loss by the weighted average number of outstanding shares of Common Stock eachperiod.The Companys Class A common stock and Class B common stock share equally in distributed and undistributed earnings;therefore,noallocation to participating securities or dilutive securities is performed.Diluted net loss per share is calculated by giving effect to all potential dilutiveCommon Stock equivalents,which includes stock options,RSUs,RSAs,PSUs,and preferred stock.Because the Company incurred net losses eachperiod,the basic and diluted calculations are the same.The Company used the if-converted method to calculate diluted EPS.As the Company had netlosses in the three and six months ended June 30,2024 and 2023,all potentially dilutive common stock equivalents have been excluded from thecalculation of diluted net loss per share attributable to common stockholders as their effect is anti-dilutive.24NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)The following table presents the calculation for basic and diluted net loss per share(in thousands,except share and per share data):Three Months Ended June 30,Six Months Ended June 30,2024 2023 2024 2023 Numerator:Net loss$(552,212)$(55,832)$(616,955)$(110,209)Dividends on Series A,B,B-1,B-2,C,D,E,F,G,G-3,and G-4 preferred shares (11,540)(10,897)(39,347)(21,566)Cumulative Undeclared Dividends on Series C preferred shares (668)(745)(1,174)(1,466)Net loss attributable to common stockholders$(564,420)$(67,474)$(657,476)$(133,241)Denominator:Weighted-average common shares outstanding,basic and diluted 82,325 63,286 72,930 63,257 Net loss per share attributable to common stockholders,basic and diluted$(6.86)$(1.07)$(9.02)$(2.11)The following outstanding shares of common stock equivalents were excluded from the calculation of diluted net loss per share for each period,asthe impact of including them would have been anti-dilutive.As disclosed in Note 8,the Company issued a warrant for$100 million in shares of theCompanys Class A common stock.As per the terms of the warrant,potentially dilutive shares are based on the latest equity financing price.As of June 30,2024 2023 Stock options outstanding 210,000 210,000 AstraZeneca warrant 2,702,703 1,744,991 Mpirik holdback liability 8,724 SEngine holdback liability 41,007 Sengine contingent consideration 35,000 Unvested RSUs 6,683,129 Total potentially dilutive shares 9,671,839 1,963,715 As disclosed in Note 10,the RSUs issued under the 2015 Plan include a triggering liquidation performance condition prior to vesting.As such,asof June 30,2023,these are treated as contingently issuable shares and are excluded from potentially dilutive shares as the liquidation performancecondition was not yet satisfied.As the liquidation performance condition was satisfied upon completion of the IPO,as of June 30,2024,these shares areincluded in potentially dilutive shares.As disclosed in Note 11,contingent upon certain financing events,the Amended Note will be converted to shares at the holders option,based onthe amount outstanding at the maturity date,which is subject to reduction based on services used by us prior to the maturity date.As such,these aretreated as contingently issuable shares and will be excluded from potential dilutive impact.As disclosed in Note 9,the Companys Series G-3 Preferred,Series G-4 Preferred and Series G-5 Preferred contain embedded conversion featuresresulted in the issuance of additional shares of Class A common stock upon completion of the IPO.The number of shares issued related to these featureswas dependent upon the IPO price.As such,prior to the IPO,these are treated as contingently issuable shares.Subsequent to the completion of the IPOin June 2024,the additional shares of Class A common stock are included in the weighted-average common shares outstanding.13.INCOME TAXESAccounting for income taxes for interim periods generally requires the provision for income taxes to be determined by applying an estimate of theannual effective tax rate for the full fiscal year to income or loss before income taxes,adjusted for discrete items,if any,for the reporting period.TheCompany updates its estimate of the annual effective tax rate each quarter and makes a cumulative adjustment in such period.25NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)Income tax expense(benefit)for the three and six months ended June 30,2024 and 2023 is less than$0.2 million.Due to the Companys history of losses in the United States,a full valuation allowance on all of the Companys deferred tax assets,including netoperating loss carryforwards and other book versus tax differences,was maintained.14.FAIR VALUE MEASUREMENTSThe carrying amounts of financial instruments,including cash and cash equivalents,accounts receivable,finance lease obligations,minimumroyalties,accounts payable,and accrued expenses approximate fair value due to the short maturity of these instruments.The carrying amounts of therelated party receivable,finance lease obligations,and minimum royalties approximate fair value because the interest rates used fluctuate with marketinterest rates or the fixed rates are based on current rates offered to the Company for debt with similar terms and maturities.The valuation methodologies used for the Companys assets and liabilities measured at fair value and their classification in the valuation hierarchyare summarized below:Marketable equity securitiesThe Company holds marketable equity securities,that are all publicly traded shares of Recursion Pharmaceuticals,Inc.(“Recursion”)Class A common stock,which have quoted prices in active markets and are classified as short-term.The securities aremeasured at fair value each reporting period.The Company classifies the marketable equity securities as Level 1 as they are valued using quotedmarket prices at each reporting period.During the three months ended June 30,2024,the Company did not sell any shares of Recursion Class A common stock.During the six monthsended June 30,2024,the Company sold 1,725,902 shares of Recursion Class A common stock at a weighted average price of$13.38 for$23.1 million.Changes in fair value are recorded in earnings within other(expense)income,net on the condensed consolidated statement ofoperations and comprehensive loss.The following summarizes the portion of unrealized gains recorded during the three and six months ended June 30,2024 that relate to marketablesecurities held as of June 30,2024(in thousands):Three Months Ended Six Months Ended June 30,2024 June 30,2024 Net(loss)gain during the period on marketable equity securities$(3,705)$2,541 Less:Net gain recognized during the period on marketable equity securities sold during the period (6,081)Unrealized gain recognized during the period on marketable equity securities still held at thereporting date$(3,705)$(3,540)Contingent considerationThe Company was subject to a contingent consideration arrangement to make a cash payment in an aggregate value of$1.0 million,contingent upon Mpirik reaching a revenue target of$1.5 million for the twelve-month period ended December 31,2023.See Note4,Business Combinations,for further discussion of that acquisition.The Company is also subject to a contingent consideration arrangement of 35,000 additional shares of non-voting common stock in connectionwith the SEngine acquisition,the amount of which is determined based on the per share price of the Companys non-voting common stock in aliquidity event completed prior to December 31,2027.The contingent consideration has an acquisition fair value date of$0.8 million.See Note 4,Business Combinations for further discussion of that acquisition.Liabilities for contingent consideration are measured at fair value each reporting period,with the acquisition date fair value included as part of theconsideration transferred in the related business combination and subsequent changes in fair value recorded in earnings within operating expenseon the condensed consolidated statements of operations and comprehensive loss.The Company used a risk-neutral simulation model and optionpricing framework to value the contingent consideration.Prior to the IPO,the Company classified the contingent consideration liabilities asLevel 3 due to the lack of relevant observable market data over fair value inputs such as probability-weighting of payment outcomes.Subsequentto the IPO completed in June 2024,the Company classified the contingent consideration arrangement of up to 35,000 additional shares ofnon-voting common stock as Level 1 as the shares are valued using a quoted market price.Warrant assetAs discussed in Note 3,the Company received warrants from Personalis.The warrant assets are measured at fair value eachreporting period using a Black-Scholes option pricing model,which takes into consideration the price and volatility of Personalis Class A commonstock.The Company classifies the warrant asset as Level 2 as they are valued using observable market prices of Personalis Class A commonstock.26NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)Warrant liabilityAs discussed in Note 8,the Company issued a$100 million warrant to AstraZeneca.The warrant liability is measured at fairvalue each reporting period,using a Black-Scholes option pricing model.The following table summarizes the assumptions used in the model as ofJune 30,2024:Expected term(in years)2.50 Risk-free interest rate 4.51%Expected volatility 55.00%Expected dividend yield 0.00%The Company classifies the warrant liability as Level 3 due to the lack of relevant observable market data over fair value inputs such as theexpected term.The Term Loan Facility and the Note were not recorded at fair value.The fair values of the Term Loan Facility and the Note approximated theircarrying values as of June 30,2024 and December 31,2023.Estimates of the fair values of the Term Loan Facility and the Note are classified as Level 3due to the lack of relevant observable market data over fair value inputs.The following tables summarize assets and liabilities that are measured at fair value on a recurring basis as of June 30,2024 and December 31,2023(in thousands):Fair Value Measurement at Reporting Date Using June 30,2024 Quoted Price inActive Market forIdentical Assets(Level 1)Significant OtherObservable Inputs(Level 2)SignificantUnobservable Inputs(Level 3)Assets Marketable equity securities$11,255$11,255$Warrant asset$2,300$2,300$Liabilities Warrant liability$33,600$33,600 Contingent consideration$940$940$Fair Value Measurement at Reporting Date Using December 31,2023 Quoted Price inActive Market forIdentical Assets(Level 1)Significant OtherObservable Inputs(Level 2)SignificantUnobservable Inputs(Level 3)Assets Marketable equity securities$31,807$31,807$Warrant asset$10,000$10,000$Liabilities Warrant liability$34,500$34,500 Contingent consideration$775$775 27NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)The following tables provide a reconciliation of the beginning and ending balances for the assets and liabilities measured at fair value usingsignificant unobservable inputs(Level 3)(in thousands):Warrant Liability ContingentConsideration Balance at December 31,2023$34,500$775 Change in fair value of warrant liability (900)Change in fair value of contingent consideration 194 Transfer out of Level 3 (969)Balance at June 30,2024$33,600$Warrant Liability ContingentConsideration Balance at December 31,2022$42,500$Contingent consideration from Mpirik acquisition 400 Change in fair value of warrant liability (5,700)Balance at June 30,2023$36,800$400 For the three months ended June 30,2024 and 2023,the Company recognized a gain of$1.7 million and expense of$0.7 million,respectively,inother(expense)income,net due to the change in the fair value of warrant liability determined by Level 3 valuation techniques.For the six months endedJune 30,2024 and 2023,the Company recognized a gain of$0.9 million and$5.7 million,respectively,in other expense,net due to the change in the fairvalue of warrant liability determined by Level 3 valuation techniques.15.RELATED PARTIESIn 2018,the Company received$1.5 million from a related party for assuming an office lease from such party.The liability is amortized throughthe right-of-use asset as a reduction of rent expense over the lease term.The Company had a remaining related liability of$0.7 million as of June 30,2024 and December 31,2023.The Company subleases a portion of office space to this related party on a month-to-month basis.Sublease incomereceived from the related party was insignificant for the three and six months ended June 30,2024 and 2023.Strategic InvestmentOn August 19,2021,the Company entered into a related party arrangement with Pathos AI,Inc.(“Pathos”)for the purpose of furthering thecommercialization efforts of drug development.Tempus received a warrant to purchase 23,456,790 shares,or approximately 19%of the currentoutstanding equity in Pathos,for$0.0125 per share.The warrant will automatically exercise upon a change of control(as defined therein)or upon anIPO of Pathos securities.The Company also has an optional exercise election window during the last 10 days of the 20 year term of the warrantagreement.Pursuant to this master agreement,the Company granted Pathos a limited,non-exclusive,revocable,non-transferable right and license,without right of sublicense,to access and download certain de-identified records from the Companys proprietary database.Pathos in turn agreed tocertain license fees depending on the number of de-identified records it elects to license during the term of the master agreement.Pathos also agreed topay the Company a subscription fee equal to$0.4 million per year for access to the Companys Lens product.The Company recognized$0.1 million and$0.2 million in revenue for this access fee in the three and six months ended June 30,2024 and 2023,respectively.The master agreement provides for aninitial term of five years,with a subsequent five-year renewal provision unless the agreement is terminated.Either party may terminate the agreementafter the initial five-year term by prior written notice to the other party.In 2022,the Company entered into two additional related party arrangements with Pathos for both sequencing and other data services.TheCompany recognized less than$0.3 million in revenue for both arrangements for both the three and six months ended June 30,2024 and 2023.In 2023,the Company entered into an additional related party arrangement with Pathos for other data services.The Company recognized less than$0.1 million inrevenue for both the three and six months ended June 30,2024 and 2023.28NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)As of June 30,2024 and December 31,2023,there was no amount due to related parties.As of both June 30,2024 and December 31,2023,theamount due from related parties was less than$0.1 million.16.SUBSEQUENT EVENTSJapan Joint VentureOn May 18,2024,the Company entered into a Joint Venture Agreement(the“Joint Venture Agreement”),by and among SoftBank GroupCorporation(“SoftBank”),SoftBank Group Japan Corporation,the Company and Pegasos Corp.(the“Joint Venture”),pursuant to which the JointVenture will engage in certain business activities in Japan similar to those conducted by the Company in the United States,including performing clinicalsequencing,organizing patient data,and building a real world data business in Japan.The Joint Venture closed on July 18,2024.The Company andSoftBank capitalized the Joint Venture with 30,000,000,000(approximately$191.1 million based on foreign exchange rates as of July 18,2024),splitevenly between the two parties and each received 50%of the Joint Ventures outstanding capital stock and board seats.In connection with entering into the Joint Venture Agreement,the Company entered into the following agreements with the Joint Venture:a DataLicense Agreement(the“Data License Agreement”),which became effective immediately upon signing the Joint Venture Agreement;an IntellectualProperty License Agreement(the“IP License Agreement”)and a Services Agreement,each of which became effective on July 18,2024 upon closing.Under the Data License Agreement,the Company granted the Joint Venture a limited,non-exclusive,transferable license with a limited right tosublicense certain de-identified data for certain specified uses solely in Japan.Under the Data License Agreement,the Joint Venture paid the Company7,500,000,000(approximately$47.8 million based on foreign exchange rates as of July 18,2024)in exchange for the license to the Initial RecordsBatch(as defined in the Data License Agreement)and an additional 7,500,000,000(approximately$47.8 million based on foreign exchange rates as ofJuly 18,2024)pursuant to the IP License Agreement in exchange for a non-exclusive license with respect to certain of the Companys technologies forcertain specified uses solely in Japan.Under the Services Agreement,the Company will provide the Joint Venture with certain services.The foreign exchange gain/loss on the exchange of funds on July 18,2024 upon closing of the Joint Venture was not material.29 NOTE REGARDING FORWARD-LOOKING STATEMENTSThis Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks anduncertainties.All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q,including statements regardingour future results of operations or financial condition,business strategy and plans and objectives of management for future operations,are forward-looking statements.In some cases,you can identify forward-looking statements because they contain words such as“anticipate,”“believe,”“contemplate,”“continue,”“could,”“estimate,”“expect,”“intend,”“may,”“plan,”“potential,”“predict,”“project,”“should,”“target,”“will”or“would”or the negative of these words or other similar terms or expressions.These forward-looking statements contained in this Quarterly Report onForm 10-Q include,but are not limited to,statements concerning the following:the evolving treatment paradigm for cancer,including physicians use of molecular data and targeted oncology therapeutics and the marketsize for our current and future products;our ability to expand our business beyond oncology into new disease areas;estimates of our addressable market and our expectations regarding our revenue,expenses,capital requirements and operating results;our ability to develop new products and services,including our goals and strategy regarding development and commercialization of AIApplications;our ability to maintain and grow our datasets,including in new disease areas and geographies;any expectation that the growth of our datasets will improve the quality of our products and services and accelerate their adoption;our ability to capture,aggregate,analyze or otherwise utilize genomic data in new ways and in additional diagnostic modalities;any expectation that we will continue to commercialize de-identified records and license them to multiple customers;the acceptance of our publications in peer-reviewed journals or of our presentations at scientific and medical conference presentations;the implementation of our business model and strategic plans for our products,technologies and businesses;competitive companies and technologies and our industry;the potential of Intelligent Diagnostics to be disruptive across a broad set of disease areas and the clinical trial process;our ability to manage and grow our business by expanding our sales to existing customers or introducing our products to new customers;third-party payer reimbursement and coverage decisions,including our strategy to increase reimbursement;our ability to establish and maintain intellectual property protection for our products or avoid claims of infringement;potential effects of evolving and/or extensive government regulation;the timing or likelihood of regulatory filings and approvals;our ability to hire and retain key personnel;our ability to expand internationally,including through the Joint Venture in Japan;our ability to successfully acquire businesses,form joint ventures or make investments in companies or technologies;our ability to protect and enforce our intellectual property rights,including our trade secret protected proprietary rights in our platform;our ability to service or pay down existing or future debt obligations;our anticipated cash needs and our needs for additional financing;anticipated trends and challenges in our business and the markets in which we operate;and the expiration or release of lock-up agreements or market standoff agreements,anticipation of such events,and sales of shares of ourClass A common stock by our stockholders.You should not rely on forward-looking statements as predictions of future events.We have based the forward-looking statements contained in thisQuarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect ourbusiness,financial condition and operating results.The outcome of the events described in these forward-looking statements is subject to risks,uncertainties and other factors described
2024-08-25
147页
5星级
1 Vipshop Reports Unaudited Second Quarter 2024 Financial Results Conference Call to Be Held at 7:3.
2024-08-15
12页
5星级
1 Autohome Inc.Announces Unaudited Second Quarter and Interim 2024 Financial Results BEIJING,July 31,2024 Autohome Inc.(NYSE:ATHM;HKEX:2518)(“Autohome”or the“Company”),the leading online destination for automobile consumers in China,today announced its unaudited financial results for the three months and six months ended June 30,2024.Second Quarter 2024 Highlights1 Net revenues in the second quarter of 2024 were RMB1,872.6 million(US$257.7 million),compared to RMB1,833.0 million in the corresponding period of 2023.Net income attributable to Autohome in the second quarter of 2024 was RMB524.8 million(US$72.2 million),compared to RMB504.7 million in the corresponding period of 2023,while net income attributable to ordinary shareholders in the second quarter of 2024 was RMB509.7 million(US$70.1 million),compared to RMB491.2 million in the corresponding period of 2023.Adjusted net income attributable to Autohome(Non-GAAP)2 in the second quarter of 2024 was RMB572.4 million(US$78.8 million),compared to RMB569.5 million in the corresponding period of 2023.Mr.Tao Wu,Chief Executive Officer of Autohome,stated,“We are pleased to deliver another solid quarter,highlighted by sustained growth in net revenues,a substantial increase in user traffic,and remarkable progress made in our innovative business initiatives.On content,our diverse and high-quality offerings,bolstered by our strong IP content matrix,has worked to consistently expand our user base and enhance user engagement.According to QuestMobile,our number of average mobile daily active users grew by 8.3%year-over-year,reaching 67.91 million in June,underscoring our leading position in the automotive media vertical.For our innovative businesses,we launched our Satellite Plan in May,a strategic initiative to establish satellite stores in lower-tier cities adjacent to flagship Autohome Space stores.This initiative will accelerate our network expansion,facilitating deeper penetration into broader geographical markets.Looking ahead,we remain committed to exploring new business areas and leveraging Ping Ans resources to enhance our long-term industry competitiveness.”Mr.Craig Yan Zeng,Chief Financial Officer of Autohome,added,“Our focus on innovative businesses has led to robust growth in our data products and new energy vehicle(“NEV”)business,with double-digit year-over-year increases in quarterly revenues.We have maintained a healthy balance sheet while driving the development of our businesses and fulfilling our commitment to provide stable shareholder returns.Moving forward,we will continue to focus on areas of emerging growth while maintaining stringent cost controls to ensure long-term shareholder value.”1 The reporting currency of the Company is Renminbi(“RMB”).For readers convenience,certain amounts throughout the release are presented in US dollars(“US$”).Unless otherwise noted,all conversions from RMB to US$are translated at the noon buying rate of US$1.00 to RMB7.2672 on June 28,2024 in the City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York.No representation is made that the RMB amounts could have been,or could be,converted into US$at such rate.2 For more information on this and other non-GAAP financial measures,please see the section captioned“Use of Non-GAAP Financial Measures”and the tables captioned“Unaudited Reconciliations of Non-GAAP and GAAP Results”set forth at the end of this release.2 Unaudited Second Quarter 2024 Financial Results Net Revenues Net revenues in the second quarter of 2024 were RMB1,872.6 million(US$257.7 million),compared to RMB1,833.0 million in the corresponding period of 2023.Media services revenues were RMB432.9 million(US$59.6 million)in the second quarter of 2024,compared to RMB532.0 million in the corresponding period of 2023.Leads generation services revenues were RMB820.3 million(US$112.9 million)in the second quarter of 2024,compared to RMB759.6 million in the corresponding period of 2023.Online marketplace and others revenues were RMB619.4 million(US$85.2 million)in the second quarter of 2024,compared to RMB541.4 million in the corresponding period of 2023.Cost of Revenues Cost of revenues was RMB346.1 million(US$47.6 million)in the second quarter of 2024,compared to RMB330.2 million in the corresponding period of 2023.Share-based compensation expense included in cost of revenues in the second quarter of 2024 was RMB1.9 million(US$0.3 million),compared to RMB1.8 million in the corresponding period of 2023.Operating Expenses Operating expenses were RMB1,185.3 million(US$163.1 million)in the second quarter of 2024,compared to RMB1,228.1 million in the corresponding period of 2023.Sales and marketing expenses were RMB752.5 million(US$103.6 million)in the second quarter of 2024,compared to RMB824.1 million in the corresponding period of 2023,due primarily to a decrease in marketing and promotional expenses.Share-based compensation expenses included in sales and marketing expenses in the second quarter of 2024 were RMB10.1 million(US$1.4 million),compared to RMB12.3 million in the corresponding period of 2023.General and administrative expenses were RMB117.6 million(US$16.2 million)in the second quarter of 2024,compared to RMB91.0 million in the corresponding period of 2023.Share-based compensation expenses included in general and administrative expenses in the second quarter of 2024 were RMB10.4 million(US$1.4 million),compared to RMB8.9 million in the corresponding period of 2023.Product development expenses were RMB315.2 million(US$43.4 million)in the second quarter of 2024,compared to RMB313.0 million in the corresponding period of 2023.Share-based compensation expenses included in product development expenses in the second quarter of 2024 were RMB18.8 million(US$2.6 million),compared to RMB18.7 million in the corresponding period of 2023.Operating Profit Operating profit was RMB412.4 million(US$56.7 million)in the second quarter of 2024,compared to RMB341.5 million in the corresponding period of 2023.Income Tax Expense 3 Income tax expense was RMB102.2 million(US$14.1 million)in the second quarter of 2024,compared to RMB35.8 million in the corresponding period of 2023.The increase in income tax expense was primarily attributable to a withholding tax related to the declared cash dividend plan for 2024 and beyond,and the tax filing adjustments of the previous year.Net Income Attributable to Autohome Net income attributable to Autohome was RMB524.8 million(US$72.2 million)in the second quarter of 2024,compared to RMB504.7 million in the corresponding period of 2023.Net Income Attributable to Ordinary Shareholders and Earnings per Share/ADS Net income attributable to ordinary shareholders was RMB509.7 million(US$70.1 million)in the second quarter of 2024,compared to RMB491.2 million in the corresponding period of 2023.Basic and diluted earnings per share(“EPS”)were RMB1.05(US$0.14)and RMB1.05(US$0.14),respectively,in the second quarter of 2024,compared to basic and diluted EPS of RMB1.00 and RMB1.00,respectively,in the corresponding period of 2023.Basic and diluted earnings per ADS were RMB4.20(US$0.58)and RMB4.19(US$0.58),respectively,in the second quarter of 2024,compared to basic and diluted earnings per ADS of RMB3.99 and RMB3.98,respectively,in the corresponding period of 2023.Adjusted Net Income Attributable to Autohome(Non-GAAP)and Non-GAAP EPS/ADS Adjusted net income attributable to Autohome(Non-GAAP)was RMB572.4 million(US$78.8 million)in the second quarter of 2024,compared to RMB569.5 million in the corresponding period of 2023.Non-GAAP basic and diluted EPS were RMB1.18(US$0.16)and RMB1.18(US$0.16),respectively,in the second quarter of 2024,compared to non-GAAP basic and diluted EPS of RMB1.16 and RMB1.15,respectively,in the corresponding period of 2023.Non-GAAP basic and diluted earnings per ADS were RMB4.72(US$0.65)and RMB4.71(US$0.65),respectively,in the second quarter of 2024,compared to non-GAAP basic and diluted earnings per ADS of RMB4.62 and RMB4.61,respectively,in the corresponding period of 2023.Balance Sheet and Cash Flow As of June 30,2024,the Company had cash and cash equivalents and short-term investments of RMB23.47 billion(US$3.23 billion).Net cash provided by operating activities in the second quarter of 2024 was RMB452.0 million(US$62.2 million).Employees The Company had 5,078 employees as of June 30,2024,including 1,755 employees from TTP Car,Inc.Conference Call Information The Company will host an earnings conference call at 8:00 a.m.U.S.Eastern Time on Wednesday,July 31,2024(8:00 p.m.Beijing Time on the same day).Please register in advance of the conference call using the registration link provided below.Upon registering,each participant will receive a set of participant dial-in numbers and a personal PIN,which will be used to join the conference call.4 Registration Link:https:/ Please use the conference access information to join the call 10 minutes before the call is scheduled to begin.Additionally,a live and archived webcast of the conference call will be available at https:/ and a replay of the webcast will be available following the session.About Autohome Autohome Inc.(NYSE:ATHM;HKEX:2518)is the leading online destination for automobile consumers in China.Its mission is to relentlessly reduce auto industry decision-making and transaction costs driven by advanced technology.Autohome provides occupationally generated content,professionally generated content,user-generated content,and AI-generated content,a comprehensive automobile library,and extensive automobile listing information to automobile consumers,covering the entire car purchase and ownership cycle.The ability to reach a large and engaged user base of automobile consumers has made Autohome a preferred platform for automakers and dealers to conduct their advertising campaigns.Further,the Companys dealer subscription and advertising services allow dealers to market their inventory and services through Autohomes platform,extending the reach of their physical showrooms to potentially millions of internet users in China and generating sales leads for them.The Company offers sales leads,data analysis,and marketing services to assist automakers and dealers with improving their efficiency and facilitating transactions.Further,through its websites and mobile applications,it also provides other value-added services,including auto financing,auto insurance,used car transactions,and aftermarket services.For further information,please visit https:/ Harbor Statement This press release contains statements that may constitute forward-looking statements pursuant to the safe harbor provisions of the U.S.Private Securities Litigation Reform Act of 1995.These forward-looking statements can be identified by terminology such as will,expects,anticipates,future,intends,plans,believes,estimates and similar statements.Among other things,Autohomes business outlook,Autohomes strategic and operational plans and quotations from management in this announcement contain forward-looking statements.Autohome may also make written or oral forward-looking statements in its periodic reports to the Securities and Exchange Commission(“SEC”),in announcements made on the website of The Stock Exchange of Hong Kong Limited(the“Hong Kong Stock Exchange”),in its annual report to shareholders,in press releases and other written materials and in oral statements made by its officers,directors or employees to third parties.Statements that are not historical facts,including statements about Autohomes beliefs and expectations,are forward-looking statements.Forward-looking statements involve inherent risks and uncertainties.A number of factors could cause actual results to differ materially from those contained in any forward-looking statement,including but not limited to the following:Autohomes goals and strategies;Autohomes future business development,results of operations and financial condition;the expected growth of the online automobile advertising market in China;Autohomes ability to attract and retain users and advertisers and further enhance its brand recognition;Autohomes expectations regarding demand for and market acceptance of its products and services;competition in the online automobile advertising industry;relevant government policies and regulatory environment of China;fluctuations in general economic and business conditions in China and assumptions underlying or related to any of the foregoing.Further information regarding these and other risks is included in Autohomes filings with the SEC and announcements on the website of the Hong Kong Stock Exchange.All information provided in this press release is as of the date of this press release,and Autohome does not undertake any obligation to update any forward-looking statement,except as required under applicable law.5 Use of Non-GAAP Financial Measures To supplement net income presented in accordance with U.S.GAAP,we use Adjusted Net Income attributable to Autohome,Non-GAAP basic and diluted EPS and earnings per ADS,Adjusted net margin and Adjusted EBITDA as non-GAAP financial measures.We define Adjusted Net Income attributable to Autohome as net income attributable to Autohome excluding share-based compensation expenses,amortization of intangible assets resulting from business acquisition,investment loss relating to non-operating impact of a write-down of the initial investment in a financial product,and loss/(gain)pickup of equity method investments,with all the reconciliation items adjusted for related income tax effects.We define non-GAAP basic and diluted EPS as Adjusted Net Income attributable to Autohome divided by the basic and diluted weighted average number of ordinary shares.We define non-GAAP basic and diluted earnings per ADS as Adjusted Net Income attributable to Autohome divided by the basic and diluted weighted average number of ADSs.We define Adjusted net margin as Adjusted Net Income attributable to Autohome divided by total net revenues.We define Adjusted EBITDA as net income attributable to Autohome before income tax expense,depreciation expenses of property and equipment,amortization expenses of intangible assets and share-based compensation expenses.We present these non-GAAP financial measures because they are used by our management to evaluate our operating performance,in addition to net income prepared in accordance with U.S.GAAP.We believe these non-GAAP financial measures are important to help investors understand our operating and financial performance,compare business trends among different reporting periods on a consistent basis and assess our core operating results,as they exclude certain non-cash charges or items that are non-operating in nature.The use of the above non-GAAP financial measures has certain limitations as they excluded certain items that have been and will continue to be incurred in the future,but such items should be considered in the overall evaluation of our results.These non-GAAP financial measures should be considered in addition to financial measures prepared in accordance with GAAP,but should not be considered a substitute for,or superior to,financial measures prepared in accordance with GAAP.For more information on these non-GAAP financial measures,please see the table captioned Unaudited Reconciliation of non-GAAP and GAAP Results set forth at the end of this press release.For investor and media inquiries,please contact:Autohome Inc.Investor Relations Sterling Song Investor Relations Director Tel: 86-10-5985-7483 E-mail: Christensen China Limited Suri Cheng Tel: 86-185-0060-8364 E-mail: 6 AUTOHOME INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS DATA (Amount in thousands,except per share/per ADS data)For three months ended June 30,For six months ended June 30,2023 2024 2023 2024 RMB RMB US$RMB RMB US$Net revenues:Media services 532,005 432,858 59,563 893,473 760,289 104,619 Leads generation services 759,635 820,271 112,873 1,440,269 1,546,694 212,832 Online marketplace and others 541,394 619,425 85,236 1,032,921 1,174,636 161,635 Total net revenues 1,833,034 1,872,554 257,672 3,366,663 3,481,619 479,086 Cost of revenues(330,227)(346,102)(47,625)(670,441)(646,994)(89,029)Gross profit 1,502,807 1,526,452 210,047 2,696,222 2,834,625 390,057 Operating expenses:Sales and marketing expenses (824,081)(752,543)(103,553)(1,347,197)(1,393,819)(191,796)General and administrative expenses (90,979)(117,564)(16,177)(240,135)(267,109)(36,755)Product development expenses (313,010)(315,230)(43,377)(637,376)(651,297)(89,621)Total operating expenses(1,228,070)(1,185,337)(163,107)(2,224,708)(2,312,225)(318,172)Other operating income,net 66,772 71,279 9,808 133,160 166,072 22,852 Operating profit 341,509 412,394 56,748 604,674 688,472 94,737 Interest and investment income,net 202,813 189,053 26,015 427,828 409,027 56,284(Loss)/income from equity method investments (1,690)4,640 638 (33,125)(44,493)(6,122)Income before income taxes 542,632 606,087 83,401 999,377 1,053,006 144,899 Income tax expense(35,796)(102,165)(14,058)(90,477)(170,566)(23,471)Net income 506,836 503,922 69,343 908,900 882,440 121,428 Net(income)/loss attributable to noncontrolling interests(2,102)20,839 2,868 1,336 36,820 5,067 Net income attributable to Autohome 504,734 524,761 72,211 910,236 919,260 126,495 Accretion of mezzanine equity(38,686)(42,687)(5,874)(75,185)(84,358)(11,608)Accretion attributable to noncontrolling interests 25,164 27,599 3,798 48,913 54,547 7,506 Net income attributable to ordinary shareholders 491,212 509,673 70,135 883,964 889,449 122,393 Earnings per share attributable to ordinary shareholders Basic 1.00 1.05 0.14 1.79 1.84 0.25 Diluted 1.00 1.05 0.14 1.79 1.83 0.25 Earnings per ADS attributable to ordinary shareholders(one ADS equals for four ordinary shares)Basic 3.99 4.20 0.58 7.17 7.34 1.01 Diluted 3.98 4.19 0.58 7.15 7.32 1.01 Weighted average shares used to compute earnings per share attributable to ordinary shareholders:Basic 492,534,428 484,860,625 484,860,625 492,927,049 484,569,763 484,569,763 Diluted 493,624,704 486,591,693 486,591,693 494,261,429 486,029,303 486,029,303 7 AUTOHOME INC.UNAUDITED RECONCILIATIONS OF NON-GAAP AND GAAP RESULTS(Amount in thousands,except per share/per ADS data)For three months ended June 30,For six months ended June 30,2023 2024 2023 2024 RMB RMB US$RMB RMB US$Net income attributable to Autohome 504,734 524,761 72,211 910,236 919,260 126,495 Plus:income tax expense 37,136 103,505 14,243 93,157 173,247 23,840 Plus:depreciation of property and equipment 42,259 31,750 4,369 90,197 65,284 8,983 Plus:amortization of intangible assets 10,798 9,650 1,328 21,638 19,300 2,656 EBITDA 594,927 669,666 92,151 1,115,228 1,177,091 161,974 Plus:share-based compensation expenses 41,628 41,188 5,668 87,813 89,495 12,315 Adjusted EBITDA 636,555 710,854 97,819 1,203,041 1,266,586 174,289 Net income attributable to Autohome 504,734 524,761 72,211 910,236 919,260 126,495 Plus:amortization of intangible assets resulting from business acquisition 10,722 9,583 1,319 21,444 19,166 2,637 Plus:share-based compensation expenses 41,628 41,188 5,668 87,813 89,495 12,315 Plus:investment loss arising from one financial products3 14,532 2,906 400 8,719 2,906 400 Plus:loss/(gain)on equity method investments,net 1,690 (4,640)(638)33,125 44,493 6,122 Plus:tax effects of the adjustments(3,840)(1,360)(187)(8,360)(8,954)(1,232)Adjusted net income attributable to Autohome 569,466 572,438 78,773 1,052,977 1,066,366 146,737 Net income attributable to Autohome 504,734 524,761 72,211 910,236 919,260 126,495 Net margin 27.5(.0(.0.0&.4&.4justed net income attributable to Autohome 569,466 572,438 78,773 1,052,977 1,066,366 146,737 Adjusted net margin 31.10.60.61.30.60.6%Non-GAAP earnings per share Basic 1.16 1.18 0.16 2.14 2.20 0.30 Diluted 1.15 1.18 0.16 2.13 2.19 0.30 Non-GAAP earnings per ADS(one ADS equals for four ordinary shares)Basic 4.62 4.72 0.65 8.54 8.80 1.21 Diluted 4.61 4.71 0.65 8.52 8.78 1.21 Weighted average shares used to compute non-GAAP earnings per share:Basic 492,534,428 484,860,625 484,860,625 492,927,049 484,569,763 484,569,763 Diluted 493,624,704 486,591,693 486,591,693 494,261,429 486,029,303 486,029,303 3 It represented the loss of an investment with fair value below its initial investment,which was recognized at“interest and investment income,net”.The impact was considered to be not directly related to the Companys operating activities.8 AUTOHOME INC.UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET(Amount in thousands,except as noted)As of December 31,As of June 30,2023 2024 RMB RMB US$ASSETS Current assets Cash and cash equivalents 4,996,353 3,881,952 534,174 Restricted cash 126,794 107,964 14,856 Short-term investments 18,552,354 19,593,011 2,696,088 Accounts receivable,net 1,472,489 1,350,567 185,844 Amounts due from related parties,current 16,439 30,233 4,160 Prepaid expenses and other current assets 360,559 423,411 58,263 Total current assets 25,524,988 25,387,138 3,493,385 Non-current assets Restricted cash,non-current 5,000 5,000 688 Property and equipment,net 200,860 194,067 26,705 Goodwill and intangible assets,net 4,143,968 4,106,799 565,114 Long-term investments 448,341 403,848 55,571 Deferred tax assets 295,598 295,598 40,676 Amounts due from related parties,non-current 16,048 13,839 1,904 Other non-current assets 200,928 157,102 21,619 Total non-current assets 5,310,743 5,176,253 712,277 Total assets 30,835,731 30,563,391 4,205,662 LIABILITIES AND EQUITY Current liabilities Accrued expenses and other payables 2,932,227 2,227,929 306,573 Advance from customers 105,379 102,623 14,121 Deferred revenue 801,581 1,156,160 159,093 Income tax payable 227,260 338,306 46,552 Amounts due to related parties 24,572 31,878 4,387 Dividends payable 984,332 493,881 67,960 Total current liabilities 5,075,351 4,350,777 598,686 Non-current liabilities Other liabilities 89,187 58,622 8,067 Deferred tax liabilities 497,955 472,481 65,016 Total non-current liabilities 587,142 531,103 73,083 Total liabilities 5,662,493 4,881,880 671,769 MEZZANINE EQUITY Convertible redeemable noncontrolling interests 1,758,933 1,843,291 253,645 EQUITY Total Autohome shareholders equity 23,928,187 24,443,437 3,363,529 Noncontrolling interests (513,882)(605,217)(83,281)Total equity 23,414,305 23,838,220 3,280,248 Total liabilities,mezzanine equity and equity 30,835,731 30,563,391 4,205,662 9 UNAUDITED RECONCILIATION BETWEEN U.S.GAAP AND IFRS The unaudited condensed consolidated statements of income for the six month ended June 30,2024 and the unaudited condensed consolidated balance sheets as of June 30,2024(collectively,the“Unaudited Interim Financial Statements”)of Autohome Inc.,its subsidiaries,the variable interest entities,and the subsidiaries of the variable interest entities(collectively,the“Company”)are prepared in accordance with the accounting principles generally accepted in the United States of America(the“U.S.GAAP”),and the differences between U.S.GAAP and the International Financial Reporting Standards(the“IFRS”)issued by the International Accounting Standards Board(together,the“Reconciliation Statement”)have been disclosed in the Appendix Unaudited Reconciliation Between U.S.GAAP and IFRS attached herein.PricewaterhouseCoopers,the auditor of the Company in Hong Kong,has performed a limited assurance engagement on the Reconciliation Statement in accordance with International Standards on Assurance Engagements 3000(Revised)“Assurance Engagements Other Than Audits or Reviews of Historical Financial Information”issued by the International Auditing and Assurance Standards Board.Appendix The Unaudited Interim Financial Statements of the Company are prepared in accordance with U.S.GAAP,which differ in certain respects from IFRS.The effects of material differences between the Unaudited Interim Financial Statements prepared under U.S.GAAP and IFRS are as follows:Reconciliation of unaudited condensed consolidated statements of income:For six months ended June 30,2023 2024 RMB RMB Reconciliation of net income in the consolidated statements of income (in thousands)Net income as reported under U.S.GAAP 908,900 882,440 IFRS adjustments:Preferred shares(Note a)(64,555)126,264 Leases(Note b)(521)(285)Share-based compensations(Note c)(36,304)(16,419)Net income as reported under IFRS 807,520 992,000 Reconciliation of unaudited condensed consolidated balance sheets:As of December 31,As of June 30,2023 2024 RMB RMB Reconciliation of total equity in the consolidated balance sheets (in thousands)Total equity as reported under U.S.GAAP 23,414,305 23,838,220 IFRS adjustments:Preferred shares(Note a)1,182,018 1,409,285 Leases(Note b)(9,536)(9,821)Total equity as reported under IFRS 24,586,787 25,237,684 10 Notes:Basis of Preparation The Directors of the Company are responsible for preparation of the Reconciliation Statement in accordance with the relevant requirements of the Hong Kong Listing Rules.The Reconciliation Statement was prepared based on the Companys unaudited interim condensed consolidated financial information for the six months ended June 30,2024 prepared under U.S.GAAP,with adjustments made(if any)thereto in arriving at the unaudited financial information of the Company prepared under IFRS.The adjustments reflect the differences between the Companys accounting policies under U.S.GAAP and IFRS.(a)Preferred Shares Under U.S.GAAP,the preferred shares of the Company are accounted for as mezzanine equity,which is subsequently accreted to the amount which equals to redemption value of each series of preferred shares.Under IFRS,the preferred shares,which are redeemable at the option of the holder,represent a financial liability.And the financial liability is measured at fair value and changes in the fair value are reflected in the consolidated statements of comprehensive income.The amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of the liability shall be presented in the consolidated balance sheets as accumulated other comprehensive income;the remaining amount of change in the fair value of the liability shall be presented in the consolidated statements of comprehensive income.Accordingly,the reconciliation includes a fair value profit change of RMB64.56 million(negative)and RMB126.26 million recognized in the consolidated statements of comprehensive income for each of the six months ended June 30,2023 and 2024,respectively.The reconciliation also includes the difference between mezzanine equity under U.S.GAAP and financial liabilities under IFRS of RMB1,182.02 million and RMB1,409.29 million as at December 31,2023 and June 30,2024,respectively.(b)Leases For operating leases under U.S.GAAP,the subsequent measurement of the lease liability is based on the present value of the remaining lease payments using the discount rate determined at lease commencement,while the right-of-use asset is remeasured at the amount of the lease liability,adjusted for the remaining balance of any lease incentives received,cumulative prepaid or accrued rents,unamortized initial direct costs and any impairment.This treatment under U.S.GAAP results in straight line expense being incurred over the lease term,as opposed to IFRS which generally yields a“front-loaded”expense with more expense recognized in earlier years of the lease.Accordingly,the reconciliation includes an expenses difference recognized in the consolidated statements of comprehensive income of RMB0.52 million and RMB0.29 million for each of the six months ended June 30,2023 and 2024,respectively.The reconciliation also includes a difference in total equity of RMB9.54 million and RMB9.82 million as at December 31,2023 and June 30,2024,respectively.(c)Share-based Compensation Under U.S.GAAP,the Company has elected to recognize compensation expense using the straight-line method for all share-based awards granted with service conditions that have a graded vesting schedule.For awards with performance condition and multiple service dates,if the performance conditions are all set at inception and independent for each year,each tranche is accounted for as a separate award with its own requisite service period.Compensation cost is recognized over the respective requisite service period separately for each separately-vesting tranche as though each tranche of the award is,in substance,a separate award.Under IFRS,the accelerated method is required to recognize compensation expense for all employee equity awards granted with graded vesting.Accordingly,the reconciliation includes an expense recognition difference in the consolidated statements of comprehensive income of RMB36.30 million and RMB16.42 million for each of the six months ended June 30,2023 and 2024,respectively.
2024-08-15
10页
5星级
Philips delivers strong order intake growth in the second quarter,marginimprovement and sales growth;reiterates full-year outlookAmsterdam,July 29,2024Second-quarter highlightsGroup sales amounted to EUR 4.5 billion,with comparable sales growth of 2%Comparable order intake increased by 9%Income from operations EUR 816 million,including EUR 538 million insurance income*)Adjusted EBITA margin increased to 11.1%of salesOperating cash inflow of EUR 89 million,with a free cash outflow of EUR 64 millionRoy Jakobs,CEO of Royal Philips:“I am encouraged by our return to order intake growth this quarter,primarily driven by North America.Within a challenging macroenvironment we achieved strong margin improvement,supported by our productivity program,solid operational cashflow due toimproved working capital management and comparable sales growth in line with our plan.Performance improvement was driven by progress on our execution priorities and industry-leading innovations.These included FDA-cleared AI tools within our next-generation cardiovascular ultrasound platform to increase automation and productivity.We continue to focus on enhancing execution,improving end-to-end supply chain resilience and increasing agility and productivitythrough simplifying our operating model.Patient safety and quality remains our number one priority.Group and segment performanceGroup comparable sales increased 2%,on the back of strong growth in Q2 2023.Growth in mature and growth geographies waspartly offset by the decline in China.Comparable order intake grew 9%in the quarter and 3%in the first half of 2024,reflectingquarterly unevenness in the order-intake pattern.China remains a fundamentally attractive growth market with strong underlyingdemand while the governments anti-corruption measures continued to impact short-term hospital order lead times.Adjusted EBITA margin for the group increased to 11.1%compared with 10.1%in Q2 2023,with improvement across all businesses.Free cash outflow was EUR 64 million and included payments of EUR 415 million in connection with the Respironics economic losssettlement in the US,partly offset by initial receipt from insurers of EUR 150 million.In the quarter S&P Global Ratings and Moodys Ratings upgraded their credit ratings outlook for Philips to stable.Philips now hasstable outlooks for its strong credit ratings across all main global credit rating agencies.The relevant reports and additional creditratings information can be found here.Diagnosis&Treatment comparable sales increased 4%,on the back of double-digit growth in Q2 2023,with growth across ImageGuided Therapy and Precision Diagnosis.Adjusted EBITA margin improved to 12.2%,mainly driven by improved sales,pricing andproductivity measures.Connected Care comparable sales increased 2%,driven by strong growth in Enterprise Informatics,while Monitoring comparablesales growth was flat on the back of strong double-digit growth in Q2 2023.Adjusted EBITA margin improved to 8.8%,mainly drivenby productivity measures and pricing.Personal Health comparable sales increased 2%globally,driven by sales growth outside of China.Adjusted EBITA margin improvedto 16.9%,mainly driven by operational improvements and productivity measures.Quarterly reportQ2 2024*)related to Respironics product liability claim.Quarterly Report 2024-Q21ProductivityTotal productivity savings of EUR 195 million in the quarter:operating model savings of EUR 57 million,procurement savings of EUR 71million,and other programs savings of EUR 67 million.OutlookPhilips reiterates its confidence in delivering the 2025 plan,acknowledging that uncertainties remain.For the full year 2024,Philipscontinues to expect 3-5%comparable sales growth,an Adjusted EBITA margin of 11-11.5%,and free cash flow of EUR 0.9-1.1 billion.The outlook excludes the potential impact of the ongoing Philips Respironics-related legal proceedings,including the investigationby the US Department of Justice.Customer,innovation and ESG highlightsPhilips signed multi-year partnerships for monitoring and image-guided therapy with several university hospitals in the Netherlands andwill provide patient monitors for the new Grand Hpital de Charleroi in Belgium,as well as roll out its ePatch and AI-driven analyticsplatform across 14 hospitals in Spain.Philips secured customer wins in the US including a major multi-year strategic partnership with Bon Secours Mercy Health,one of thecountrys largest health systems,standardizing innovative patient monitoring solutions across its 49 hospitals,driving better patientoutcomes and reducing burdens on staff.Reinforcing its#1 global position in cardiovascular ultrasound,Philips is launching its next-generation AI-enabled cardiovascularultrasound platform with new FDA-cleared AI tools integrated into the companys EPIQ CVx and Affiniti CVx ultrasound system to advancecardiovascular imaging and increase automation and productivity.Demonstrating its innovation leadership in minimally invasive treatments,Philips announced the first implant of the Duo Venous StentSystem following pre-market approval from the US FDA.The systems flexible design allows clinicians to better treat patients with deepvenous disease.Philips unveiled a series of consumer health innovations in the Greater China market,meeting key consumer needs across the region.Thisincludes the launch of the first medical-grade Philips Lumea 8000 Series IPL hair removal device with cooling technology,the limited-edition Transformers-themed 5000,7000 and 9000 series shavers,and the new Sonicare 5300 power toothbrush.S&P recognized Philips as a leader in ESG as one of the first Light green scores in their newly launched Climate Transition Assessment.Philips was also included in the FTSE4Good ESG index,and NGO Health Care Without Harm confirmed that Philips meets its ClimateExcellence Standard for Health Care Suppliers.Philips won 43 Red Dot design awards,including special recognition for LumiGuide,the companys 3D medical device guidance solutionthats paving the way for radiation-free minimally invasive surgery.Capital allocationIn the second quarter,Philips completed the EUR 1.5 billion share repurchase program for capital reduction purposes that wasannounced on July 26,2021,and canceled the 4,437,164 shares acquired this year.Philips also distributed a dividend of EUR 0.85 percommon share in the form of shares only,resulting in the issuance of 30,860,582 new common shares.Following the distribution ofdividend and the cancellation of shares,the total number of issued shares amounts to 939,939,384 common shares.Moreinformation is available via this link.Conference call and video webcastRoy Jakobs,CEO,and Abhijit Bhattacharya,CFO,will host a conference call for investors and analysts at 10:00 am CET today to discussthe results and Philips plan to create value with sustainable impact.A live webcast of the conference call will be available on thePhilips Investor Relations website and can be accessed here.About Royal PhilipsRoyal Philips(NYSE:PHG,AEX:PHIA)is a leading health technology company focused on improving peoples health and well-beingthrough meaningful innovation.Philips patient-and people-centric innovation leverages advanced technology and deep clinical andconsumer insights to deliver personal health solutions for consumers and professional health solutions for healthcare providers andtheir patients in the hospital and the home.Headquartered in the Netherlands,the company is a leader in diagnostic imaging,ultrasound,image-guided therapy,monitoringand enterprise informatics,as well as in personal health.Philips generated 2023 sales of EUR 18.2 billion and employs approximately68,700 employees with sales and services in more than 100 countries.News about Philips can be found at Report 2024-Q22Q2 2023Q2 2024Sales4,4704,462Nominal sales growth7%0%Comparable sales growth1)9%2%Comparable order intake2)(8)%9%Income from operations221816as a%of sales4.9.3%Financial income(expenses),net(68)(68)Investments in associates,net of income taxes(37)(93)Income tax(expense)benefit(42)(345)Income from continuing operations74311Discontinued operations,net of income taxes-141Net income74452Earnings per common share(EPS)Income from continuing operationsattributable to shareholders3)(in EUR)-diluted0.070.33Adjusted income from continuingoperations attributable to shareholders3)(inEUR)-diluted1)0.270.30Net income attributable to shareholders3)(in EUR)-diluted0.070.48EBITA1)292876as a%of sales6.5.6justed EBITA1)453495as a%of sales10.1.1justed EBITDA1)681733as a%of sales15.2.4%changeQ2 2023Q2 2024nominalcomparable2)Western Europe9139373%4%North America1,9241,9441%1%Other maturegeographies428376(12)%(6)%Maturegeographies3,2653,2570%1%Growthgeographies1,2051,2050%3%Philips Group4,4704,4620%2%Philips performance1)Non-IFRS financial measure.Refer to the Reconciliation of non-IFRS information2)Effective Q1 2024,Philips has revised the order intake policy for the software businesses.Refer to Forward-looking statements and other important information.3)Shareholders refers to shareholders of Koninklijke Philips N.V.Per share calculations havebeen adjusted retrospectively for all periods presented to reflect the issuance of shares forthe share dividend in respect of 2023.Comparable sales increased by 2%,driven by growth across allsegments.The Diagnosis&Treatment segment recorded mid-single-digit growth,whereas the Connected Care and thePersonal Health segments showed low-single-digit growth.Income from operations increased to EUR 816 million,mainlydriven by an increase in earnings and the EUR 538 millioninsurance income related to the Respironics product liabilityclaims.Adjusted EBITA increased to EUR 495 million and the marginimproved to 11.1%,with improvement across all segments.Restructuring,acquisition-related and other items amounted toa net gain of EUR 381 million,compared with a loss of EUR 161million in Q2 2023.Q2 2024 includes EUR 538 million ofinsurance income related to the Respironics product liabilityclaims,EUR 101 million of restructuring and acquisition-relatedcharges,EUR 30 million for Respironics field-action running costsand Quality actions,and EUR 26 million related to theRespironics consent decree.Investments in associates includes impairments and share ofresults of associates.Total income tax expense was a net EUR 202 million mainly dueto higher income.Continued operations reflected a EUR 345million tax expense due to higher income and de-recognition ofdeferred tax assets on the carryforward losses in the US.Discontinued operations included a tax benefit of EUR 143million relating to tax audit settlements of prior years.Net income increased,mainly driven by higher earnings andinsurance income related to the Respironics product liabilityclaims,partly offset by higher tax expenses.1)Sales per geographic area is reported based on country of destination.2)Non-IFRS financial measure.Refer to the Reconciliation of non-IFRS informationAmounts may not add up due to rounding.Comparable sales in Growth geographies increased by 3%,including the decline in China.Key data in millions of EUR unless otherwise statedSales per geographic area1)in millions of EUR unless otherwise statedQuarterly Report 2024-Q23Q2 2023Q2 2024Beginning cash balance1,1281,402Free cash flow1)5(64)Net cash flows from operating activities13589Net capital expenditures(131)(153)Other cash flows from investing activities(39)(10)Treasury shares transactions(89)(113)Changes in debt(54)587Dividend paid to shareholders(1)(1)Other cash flow items(17)5Net cash flows from discontinued operations27-Ending cash balance9601,807March 31,2024June 30,2024Long-term debt6,5977,137Short-term debt1,1401,129Total debt7,7378,265Cash and cash equivalents1,4021,807Net debt6,3356,458Shareholders equity11,35911,884Non-controlling interests3335Group equity11,39211,919Net debt:group equityratio1)36:6435:651)Non-IFRS financial measure.Refer to the Reconciliation of non-IFRS informationNet cash flows from operating activities decreased,mainly dueto the payments of EUR 415 million in connection with theRespironics economic loss settlement in the US,partly offset byinitial receipt from insurers of EUR 150 million.Treasury shares transactions includes share repurchases as partof the EUR 1.5 billion share repurchase program for capitalreduction purposes that was announced on July 26,2021,andwas completed on April 12,2024,and the related withholdingtax.Changes in debt in Q2 2024 mainly included the new bondissuance of EUR 700 million,partly offset by debt repayments.1)Non-IFRS financial measure.Refer to the Reconciliation of non-IFRS informationCash and cash equivalents balance in millions of EURComposition of net debt to group equity1)in millions of EUR unlessotherwise statedQuarterly Report 2024-Q24Q2 2023Q2 2024Sales2,1152,174Sales growthNominal sales growth9%3%Comparable sales growth1)12%4%Income from operations163211as a%of sales7.7%9.7ITA1)185234as a%of sales8.7.8justed EBITA1)225265as a%of sales10.6.2justed EBITDA1)280314as a%of sales13.2.4%Q2 2023Q2 2024Sales1,3271,332Sales growthNominal sales growth4%0%Comparable sales growth1)6%2%Income from operations(39)558as a%of sales(2.9)A.9ITA1)6589as a%of sales0.5D.2justed EBITA1)100117as a%of sales7.5%8.8justed EBITDA1)160190as a%of sales12.1.3%Q2 2023Q2 2024Sales836834Sales growthNominal sales growth1%0%Comparable sales growth1)3%2%Income from operations107120as a%of sales12.8.4ITA1)109124as a%of sales13.0.9justed EBITA1)112141as a%of sales13.4.9justed EBITDA1)135163as a%of sales16.1.5%Performance per segmentDiagnosis&Treatment1)Non-IFRS financial measure.Refer to the Reconciliation of non-IFRS informationComparable sales increased by 4%,on the back of strongdouble-digit growth in Q2 2023,with growth across ImageGuided Therapy and Precision Diagnosis.Mature geographies showed high-single-digit growth,driven byNorth America.This was partly offset by Growth geographies,mainly due to China.Adjusted EBITA increased to EUR 265 million and the marginimproved to 12.2%,mainly driven by sales growth,pricingactions and productivity measures.Restructuring,acquisition-related and other items amounted toEUR 31 million,compared with EUR 40 million in Q2 2023.In Q32024,restructuring,acquisition-related and other items areexpected to total approximately EUR 10 million.Connected Care1)Non-IFRS financial measure.Refer to the Reconciliation of non-IFRS informationComparable sales increased by 2%,driven by strong growth inEnterprise Informatics,while Monitoring comparable salesgrowth was flat on the back of strong double-digit growth in Q22023.Mature geographies showed low-single-digit growth,andGrowth geographies showed mid-single-digit growth.Adjusted EBITA increased to EUR 117 million and the marginimproved to 8.8%,driven by productivity measures and pricingactions.Restructuring,acquisition-related and other items amounted toa net gain of EUR 471 million,compared with a loss of EUR 95million in Q2 2023.Q2 2024 includes EUR 538 million ofinsurance income related to Respironics product liability claims,EUR 24 million for Respironics field-action running costs andQuality actions,and EUR 26 million related to the Respironicsconsent decree.In Q3 2024,restructuring,acquisition-relatedand other items are expected to total approximately EUR 95million.Personal Health1)Non-IFRS financial measure.Refer to the Reconciliation of non-IFRS informationComparable sales increased by 2%,driven by an increase inGrowth geographies despite a decline in China.Adjusted EBITA increased to EUR 141 million and the marginimproved to 16.9%,driven by operational improvements andproductivity measures.Restructuring,acquisition-related and other items amounted toEUR 17 million in Q2 2024.In Q3 2024,restructuring,acquisition-related and other items are expected to total approximately EUR5 million.Key data in millions of EUR unless otherwise statedKey data in millions of EUR unless otherwise statedKey data in millions of EUR unless otherwise statedQuarterly Report 2024-Q25Q2 2023Q2 2024Sales191121Income from operations(10)(73)EBITA1)(7)(70)Adjusted EBITA1)of:17(28)IP Royalties12056Innovation(41)(26)Central costs(59)(53)Other(4)(5)Adjusted EBITDA1)10567Other1)Non-IFRS financial measure.Refer to the Reconciliation of non-IFRS informationSales decreased by EUR 70 million,mainly due to phasing ofroyalty income within the year.Adjusted EBITA decreased by EUR 45 million,mainly due tolower royalty income,partly offset by cost savings.Restructuring,acquisition-related and other items amounted toEUR 42 million,compared with EUR 24 million in Q2 2023.In Q32024,restructuring and other items are expected to totalapproximately EUR 10 million.Key data in millions of EURQuarterly Report 2024-Q26Q2 2024January to Junenominalgrowthconsolidationchangescurrencyeffectscomparablegrowthnominalgrowthconsolidationchangescurrencyeffectscomparablegrowth2024 versus 2023Diagnosis&Treatment2.8%0.1%1.4%4.2%1.8%(0.4)%2.3%3.7%Connected Care0.4%1.0%0.7%2.0%(2.2)%1.0%1.6%0.4%Personal Health(0.2)%0.0%2.4%2.2%(0.6)%0.0%3.2%2.5%Philips Group(0.2)%0.4%1.3%1.5%(0.4)%0.2%2.1%1.9%Q2January to June2023202420232024Net income74452(591)(546)Discontinued operations,net of income taxes-(141)2(142)Income from continuing operations74311(589)(688)Income from continuing operations attributable to non-controlling interests(2)(2)(2)(2)Income from continuing operations attributable to shareholders1)72309(591)(690)Adjustments for:Amortization and impairment of acquired intangible assets7260145133Restructuring and acquisition-related charges66101290152Other items:95(483)739606Respironics litigation provision575982Respironics insurance income(538)(538)Respironics field-action running costs513110672Respironics consent decree charges2647Quality actions28(1)4733Remaining items16(1)1210Net finance expenses11101519Tax impact of adjusted items and tax-only adjusting items(51)289(142)303Adjusted income from continuing operations attributable to shareholders1)264287456522Earnings per common share:Income from continuing operations attributable to shareholders2)per commonshare(in EUR)-diluted0.070.33(0.62)(0.74)Adjusted income from continuing operations attributable to shareholders2)percommon share(EUR)-diluted0.270.300.480.56Reconciliation of non-IFRS informationCertain non-IFRS financial measures are presented when discussing the Philips Groups performance:Comparable sales growthAdjusted income from continuing operations attributable to shareholdersAdjusted income from continuing operations attributable to shareholders per common share(in EUR)-diluted(Adjusted EPS)EBITAAdjusted EBITAAdjusted EBITDAFree cash flowNet debt:group equity ratioFor the definitions of the non-IFRS financial measures listed above,refer to chapter 13.5,Reconciliation of non-IFRS information,ofthe Annual Report 2023 and to the Forward-looking statements and other important information.Comparable order intake is presented when discussing the Philips Groups performance.Effective Q1 2024,Philips has revised theorder intake policy for the software business.Refer to Forward-looking statements and other important information.1)Shareholders refers to shareholders of Koninklijke Philips N.V.2)Shareholders refers to shareholders of Koninklijke Philips N.V.Per share calculations have been adjusted retrospectively for all periods presented to reflect the issuance of shares for theshare dividend in respect of 2023.Sales growth composition injusted income from continuing operations attributable to shareholders1)in millions of EUR unless otherwise statedQuarterly Report 2024-Q27Philips GroupDiagnosis&TreatmentConnected CarePersonal HealthOtherQ2 2024Net income452Discontinued operations,net of income taxes(141)Income tax345Investments in associates,net of income taxes93Financial expenses88Financial income(20)Income from operations816211558120(73)Amortization and impairment of acquired intangible assets60233143EBITA876234589124(70)Restructuring and acquisition-related charges10125181741Other items:(483)6(489)1Respironics insurance income(538)(538)Respironics field-action running costs3131Respironics consent decree charges2626Quality actions(1)6(7)Remaining items(1)(2)1Adjusted EBITA495265117141(28)Depreciation,amortization and impairment of fixed assets andother intangible assets282527225132Adding back impairment of fixed assets included in Restructuringand acquisition-related charges and Other items(44)(3)-(4)(38)Adjusted EBITDA73331419016367January to June 2024Net income(546)Discontinued operations,net of income taxes(142)Income tax449Investments in associates,net of income taxes94Financial expenses182Financial income(45)Income from operations(8)357(507)236(94)Amortization and impairment of acquired intangible assets133457476EBITA125402(433)243(88)Restructuring and acquisition-related charges15244351855Other items:606658911Respironics litigation provision982982Respironics insurance income(538)(538)Respironics field-action running costs7272Respironics consent decree charges4747Quality actions33627Remaining items10(1)11Adjusted EBITA882452191261(21)Depreciation,amortization and impairment of fixed assets andother intangible assets50510013351221Adding back impairment of fixed assets included in Restructuringand acquisition-related charges and Other items(45)(3)-(4)(38)Adjusted EBITDA1,342549324308162Reconciliation of Net income to Adjusted EBITA and Adjusted EBITDA in millions of EURQuarterly Report 2024-Q28Philips GroupDiagnosis&TreatmentConnected CarePersonal HealthOtherQ2 2023Net income74Discontinued operations,net of income taxes-Income tax42Investments in associates,net of income taxes37Financial expenses84Financial income(16)Income from operations221163(39)107(10)Amortization and impairment of acquired intangible assets72224532EBITA2921856109(7)Restructuring and acquisition-related charges663010224Other items:951085-Respironics field-action running costs5151Quality actions2828Remaining items16106-Adjusted EBITA45322510011217Depreciation,amortization and impairment of fixed assets andother intangible assets23256642489Adding back impairment of fixed assets included in Restructuringand acquisition-related charges and Other items(4)-(3)-Adjusted EBITDA681280160135105January to June 2023Net income(591)Discontinued operations,net of income taxes2Income tax27Investments in associates,net of income taxes53Financial expenses177Financial income(31)Income from operations(362)336(756)203(145)Amortization and impairment of acquired intangible assets145449074EBITA(217)380(667)210(140)Restructuring and acquisition-related charges29095587129Other items:73911729(1)-Respironics litigation provision575575Respironics field-action running costs106106Quality actions4747Remaining items12112(1)-Adjusted EBITA812486121216(11)Depreciation,amortization and impairment of fixed assets andother intangible assets47010612047196Adding back impairment of fixed assets included in Restructuringand acquisition-related charges and Other items(25)(3)(3)(19)Adjusted EBITDA1,256589238264166Q2January to June2023202420232024Net cash flows from operating activities13589337(82)Net capital expenditures(131)(153)(216)(318)Purchase of intangible assets(9)(28)(52)(64)Expenditures on development assets(51)(55)(98)(108)Capital expenditures on property,plant and equipment(88)(76)(161)(158)Proceeds from disposals of property,plant and equipment1869512Free cash flow5(64)121(400)Composition of free cash flow in millions of EURQuarterly Report 2024-Q29Philips semi-annual report 2024IntroductionThis report contains the semi-annual report of KoninklijkePhilips N.V.(the Company or Philips),a company with limitedliability,headquartered in Amsterdam,the Netherlands.Theprincipal activities of the Company and its group companies(the Group)are described in the Annual Report 2023.Thesemi-annual report for the six months ended June 30,2024,consists of the semi-annual condensed consolidated financialstatements,the semi-annual management report and theresponsibility statement by the Companys Board ofManagement.The information in this semi-annual report isunaudited.Responsibility statementThe Board of Management of the Company hereby declaresthat to the best of their knowledge,the semi-annualcondensed consolidated financial statements for the six-monthperiod ended June 30,2024,which have been prepared inaccordance with IAS 34 Interim Financial Reporting as endorsedby the EU,give a true and fair view of the assets,liabilities,financial position and profit or loss of the Company and theundertakings included in the consolidation taken as a whole,and that the semi-annual management report for the six-month period ended June 30,2024,gives a fair view of theinformation required pursuant to article 5:25d paragraph 8 and9 of the Dutch Financial Markets Supervision Act(Wet op hetFinancieel toezicht).Amsterdam,July 29,2024Board of ManagementRoy JakobsAbhijit BhattacharyaMarnix van GinnekenSemi-annual report 202410January to June20232024Sales8,6368,600Nominal sales growth7%0%Comparable sales growth1)8%2%Comparable order intake2)(7)%3%Income from operations(362)(8)as a%of sales(4.2)%(0.1)%Financial income(expenses),net(147)(137)Investments in associates,net of income taxes(53)(94)Income tax benefit(expense)(27)(449)Income from continuing operations(589)(688)Discontinued operations,net of income taxes(2)142Net income(591)(546)Earnings per common share(EPS)Income from continuing operationsattributable to shareholders3)(in EUR)-diluted(0.62)(0.74)Adjusted income from continuing operationsattributable to shareholders3)(in EUR)-diluted1)0.480.56Net income attributable to shareholders3)(inEUR)-diluted(0.62)(0.59)EBITA1)(217)125as a%of sales(2.5)%1.5justed EBITA1)812882as a%of sales9.4.3justed EBITDA1)1,2561,342as a%of sales14.5.6%January to June20232024Beginning cash balance1,1721,869Free cash flow1)121(400)Net cash flows from operating activities337(82)Net capital expenditures(216)(318)Other cash flows from investing activities(143)(19)Treasury shares transactions(89)(208)Changes in debt(76)560Dividend paid to shareholders(1)(1)Other cash flow items(48)23Net cash flows from discontinued operations23(17)Ending cash balance9601,807Management report Philips performance1)Non-IFRS financial measure.Refer to the Reconciliation of non-IFRS information2)Effective Q1 2024,Philips has revised the order intake policy for the software businesses.Refer to Forward-looking statements and other important information.3)Shareholders refers to shareholders of Koninklijke Philips N.V.Per share calculations havebeen adjusted retrospectively for all periods presented to reflect the issuance of shares forthe share dividend in respect of 2023.Comparable sales increased by 2%,mainly driven by mid-single-digit growth in Diagnosis&Treatment and low-single-digitgrowth in Personal Health.Connected Care growth was flat.Income from operations increased by EUR 354 million,mainlydriven by higher earnings,lower restructuring costs and EUR 538million of insurance income related to the Respironics productliability claims,which was partly offset by a higher provision inrelation to the Respironics litigation.Adjusted EBITA increased to EUR 882 million and the marginimproved to 10.3%.Restructuring,acquisition-related and other items amounted toEUR 758 million,compared with EUR 1,029 million in the first halfof 2023.The first half of 2024 included EUR 982 million for theRespironics litigation provision,EUR 538 million of Respironicsinsurance income related to the product liability claims,EUR 105million for Respironics field-action running costs and Qualityactions,and EUR 47 million related to the Respironics consentdecree.The first half of 2023 included a Respironics litigationprovision of EUR 575 million.Investments in associates includes impairments and share ofresults of associates.Total income tax expense was a net EUR 307 million.Continuedoperations reflected a EUR 449 million tax expense due tohigher income and de-recognition of deferred tax assets in theUS.Discontinued operations included a tax benefit of EUR 142million relating to tax audit settlements of prior years.Net income increased in comparison with the first half of 2023,mainly driven by higher earnings,insurance income related tothe Respironics product liability claims and lower restructuringcosts,offset by higher tax expenses and higher provisions.1)Non-IFRS financial measure.Refer to the Reconciliation of non-IFRS informationAmounts may not add up due to rounding.Net cash flows from operating activities decreased,mainly dueto the payments of EUR 415 million in connection with theRespironics economic loss settlement in the US,partly offset byinitial receipt from insurers of EUR 150 million.Net capital expenditures were higher in the first half of 2024 ascash proceeds from the sale of real estate were favorablyimpacting the first half of 2023.Other cash flows from investing activities mainly includes cashpayments related to minority investments.The cash outflows inthe first half of 2024 were lower,as a result of a cash paymentwith respect to foreign exchange derivative contracts impactingthe first half of 2023.Treasury shares transactions includes share repurchases as partof the EUR 1.5 billion share repurchase program for capitalreduction purposes that was announced on July 26,2021,andwas completed on April 12,2024,and the related withholdingtax.Changes in debt in the first half of 2024 mainly included the newbond issuance of EUR 700 million,partly offset by debtrepayments.Key data in millions of EUR unless otherwise statedCash and cash equivalents balance in millions of EURSemi-annual report 202411December 31,2023June 30,2024Long-term debt7,0357,137Short-term debt6541,129Total debt7,6898,265Cash and cash equivalents1,8691,807Net debt5,8206,458Shareholders equity12,02811,884Non-controlling interests3335Group equity12,06111,919Net debt:group equity ratio1)33:6735:651)Non-IFRS financial measure.Refer to the Reconciliation of non-IFRS informationThe net debt-to-group equity ratio increased,mainly due to thenew bond issuance and net loss in the first half of 2024.Composition of net debt to group equity1)in millions of EUR unlessotherwise statedSemi-annual report 202412January to June20232024Sales4,1254,200Sales growthNominal sales growth12%2%Comparable sales growth1)14%4%Income from operations336357as a%of sales8.1%8.5ITA1)380402as a%of sales9.2%9.6justed EBITA1)486452as a%of sales11.8.8justed EBITDA1)589549as a%of sales14.3.1%January to June20232024Sales2,5532,497Sales growthNominal sales growth4%(2)%Comparable sales growth1)5%0%Income from operations(756)(507)as a%of sales(29.6)%(20.3)ITA1)(667)(433)as a%of sales(26.1)%(17.3)justed EBITA1)121191as a%of sales4.7%7.6justed EBITDA1)238324as a%of sales9.3.0%January to June20232024Sales1,6341,624Sales growthNominal sales growth(2)%(1)%Comparable sales growth1)(1)%3%Income from operations203236as a%of sales12.4.5ITA1)210243as a%of sales12.9.0justed EBITA1)216261as a%of sales13.2.1justed EBITDA1)264308as a%of sales16.2.0%Performance per segmentDiagnosis&Treatment1)Non-IFRS financial measure.Refer to the Reconciliation of non-IFRS informationComparable sales increased by 4%on the back of double-digitgrowth in the first half of 2023,with growth across ImageGuided Therapy and Precision Diagnosis.Comparable sales in Mature geographies showed mid-single-digit growth,with strong contributions from all regions.Growthgeographies showed low-single-digit growth,mainly driven byLatin America.Adjusted EBITA decreased to EUR 452 million and the margindecreased to 10.8%,as improvements due to sales growth,pricing actions and productivity measures were more than offsetby the normalization of the product mix and a value adjustmenton current assets.Restructuring,acquisition-related and other items amounted toEUR 50 million,compared with EUR 106 million in the first half of2023.Connected Care1)Non-IFRS financial measure.Refer to the Reconciliation of non-IFRS informationComparable sales were flat as the double-digit growth inEnterprise Informatics was offset by a decline in Monitoring onthe back of strong double-digit growth in the first half of 2023.Mature geographies showed low-single-digit growth,driven bydouble-digit growth in Western Europe,offset by a low-single-digit decline in North America.Comparable sales in Growthgeographies declined due to China.Adjusted EBITA increased to EUR 191 million and the marginimproved to 7.6%,driven by productivity measures,pricingactions and mix effects.Restructuring,acquisition-related and other items were EUR 624million,compared with EUR 787 million in the first half of 2023.The first half of 2024 includes EUR 982 million for the Respironicslitigation provision,EUR 538 million of insurance income relatedto the Respironics product liability claims,EUR 99 million forRespironics field-action running costs and Quality actions,andEUR 47 million related to the Respironics consent decree.Personal Health1)Non-IFRS financial measure.Refer to the Reconciliation of non-IFRS informationComparable sales increased by 3%,mainly driven by a mid-single-digit increase in Growth geographies and a low-single-digit increase in Mature geographies.Adjusted EBITA was EUR 261 million and the margin amountedto 16.1%,driven by operational improvements and productivitymeasures.Restructuring,acquisition-related and other items amounted toEUR 18 million.Key data in millions of EUR unless otherwise statedKey data in millions of EUR unless otherwise statedKey data in millions of EUR unless otherwise statedSemi-annual report 202413January to June20232024Sales323279Income from operations(145)(94)EBITA1)(140)(88)Adjusted EBITA1)of:(11)(21)IP Royalties179145Innovation(80)(47)Central costs(104)(114)Other(6)(4)Adjusted EBITDA1)166162Other1)Non-IFRS financial measure.Refer to the Reconciliation of non-IFRS informationSales decreased by EUR 44 million,mainly due to phasing ofroyalty income within the year.Adjusted EBITA decreased by EUR 10 million,mainly due tolower royalty income,partly offset by cost savings.Restructuring,acquisition-related and other items amounted toEUR 66 million,compared with EUR 129 million in the first half of2023.Key data in millions of EUR unless otherwise statedSemi-annual report 202414Q2January to June2023202420232024Sales4,4704,4628,6368,600Cost of sales(2,508)(2,473)(4,920)(4,796)Gross margin1,9611,9893,7173,804Selling expenses(1,112)(1,127)(2,191)(2,223)General and administrative expenses(157)(158)(315)(294)Research and development expenses(468)(424)(996)(843)Other business income953923549Other business expenses(12)(3)(600)(1,000)Income from operations221816(362)(8)Financial income16203145Financial expenses(84)(88)(177)(182)Investments in associates,net of income taxes(37)(93)(53)(94)Income before taxes116656(562)(239)Income tax(expense)benefit(42)(345)(27)(449)Income from continuing operations74311(589)(688)Discontinued operations,net of income taxes-141(2)142Net income74452(591)(546)Attribution of net incomeNet income attributable to shareholders1)72451(593)(548)Net income attributable to non-controlling interests2222Q2January to June2023202420232024Weighted average number of common shares outstanding(after deduction of treasury shares)during the period(in thousands)1):Basic951,028934,003951,374935,446Diluted977,401941,774951,374935,446Basic earnings per common share attributable to shareholders of Koninklijke Philips N.V(in EUR)1)Income from continuing operations0.080.33(0.62)(0.74)Income from discontinued operations0.000.150.000.15Net income0.080.48(0.62)(0.59)Diluted earnings per common share attributable to shareholders of Koninklijke Philips N.V.(in EUR)1)Income from continuing operations0.070.33(0.62)(0.74)Income from discontinued operations0.000.150.000.15Net income0.070.48(0.62)(0.59)Condensed consolidated statements of income1)Shareholders refers to shareholders of Koninklijke Philips N.V.1)Per share calculations have been adjusted retrospectively for all periods presented to reflect the issuance of shares for the share dividend in respect of 2023.In millions of EUR unless otherwise statedPhilips GroupEarnings per common share attributable to shareholders of Koninklijke Philips N.V.Amounts may not add up due to rounding.Semi-annual report 202415Q2January to June2023202420232024Net income for the period74452(591)(546)Pensions and other post-employment plans:Income tax effect on remeasurements-114Financial assets fair value through OCI:Net current-period change,before tax922(3)Income tax effect on net current-period change-4-4Total of items that will not be reclassified to Income statement8836Currency translation differences:Net current-period change,before tax(130)91(390)389Income tax effect on net current-period change-(5)-(5)Reclassification adjustment for(gain)loss realized(1)(1)Cash flow hedges:Net current-period change,before tax2162826Income tax effect on net current-period change(4)1(6)(2)Reclassification adjustment for(gain)loss realized(4)(11)(4)(19)Total of items that are or may be reclassified to Income Statement(117)82(372)389Other comprehensive income for the period(109)90(369)395Total comprehensive income for the period(35)542(960)(151)Total comprehensive income attributable to:Shareholders of Koninklijke Philips N.V.(36)540(961)(154)Non-controlling interests1213Condensed statements of comprehensive incomeIn millions of EURAmounts may not add up due to rounding.Semi-annual report 202416December 31,2023June 30,2024Non-current assets:Property,plant and equipment2,4832,466Goodwill9,87610,153Intangible assets excluding goodwill3,1903,173Non-current receivables193156Investments in associates381289Other non-current financial assets619622Non-current derivative financial assets310Deferred tax assets2,6272,375Other non-current assets9393Total non-current assets19,46619,337Current assets:Inventories3,4913,612Other current financial assets36Other current assets500648Current derivative financial assets4561Income tax receivable220105Current receivables3,7333,831Assets classified as held for sale7966Cash and cash equivalents1,8691,807Total current assets9,94010,138Total assets29,40629,474Equity:Shareholders equity12,02811,884Common shares183188Capital in excess of par value5,8276,597Reserves8791,580Other5,1393,519Non-controlling interests3335Group equity12,06111,919Non-current liabilities:Long-term debt7,0357,137Non-current derivative financial liabilities32Long-term provisions1,035961Deferred tax liabilities7173Non-current contract liabilities469446Non-current tax liabilities390132Other non-current liabilities5443Total non-current liabilities9,0588,795Current liabilities:Short-term debt6541,129Current derivative financial liabilities4042Income tax payable83163Accounts payable1,9171,850Accrued liabilities1,8871,485Current contract liabilities1,8091,816Short-term provisions1,4631,956Dividend payable11Liabilities directly associated with assets held for sale99Other current liabilities414312Total current liabilities8,2878,761Total liabilities and group equity29,40629,474Condensed consolidated balance sheetsIn millions of EURAmounts may not add up due to rounding.Semi-annual report 202417January to June20232024Cash flows from operating activities:Net income(loss)(591)(546)Results of discontinued operations-net of income tax2(142)Adjustments to reconcile net income to net cash provided by(used for)operating activities:Depreciation,amortization and impairment of assets615638Share-based compensation3438Net loss(gain)on sale of assets(11)(2)Interest income(19)(36)Interest expense on debt,borrowings and other liabilities122130Investments in associates,net of income taxes6294Income taxes28449Decrease(increase)in working capital:(148)(983)Decrease(increase)in receivables and other current assets330(241)Decrease(increase)in inventories(233)(141)Increase(decrease)in accounts payable,accrued and other current liabilities(245)(601)Decrease(increase)in non-current receivables and other assets2142Increase(decrease)in other liabilities(25)(34)Increase(decrease)in provisions379353Other items7857Interest received1535Interest paid(143)(138)Dividends received from investments in associates87Income taxes paid(89)(45)Net cash provided by(used for)operating activities337(82)Cash flows from investing activities:Net capital expenditures(216)(318)Purchase of intangible assets(52)(64)Expenditures on development assets(98)(108)Capital expenditures on property,plant and equipment(161)(158)Proceeds from sales of property,plant and equipment9512Net proceeds from(cash used for)derivatives and current financial assets(64)16Purchase of other non-current financial assets(56)(61)Proceeds from other non-current financial assets3323Purchase of businesses,net of cash acquired(64)(1)Net proceeds from sale of interests in businesses,net of cash disposed of83Net cash provided by(used for)investing activities(359)(338)Cash flows from financing activities:Proceeds from issuance of(payments on)short-term debt25(34)Principal payments on short-term portion of long-term debt(134)(105)Proceeds from issuance of long-term debt33699Re-issuance of treasury sharesPurchase of treasury shares(89)(208)Dividends paid to shareholders of Koninklijke Philips N.V.(1)(1)Dividends paid to shareholders of non-controlling interests(1)(1)Net cash provided by(used for)financing activities(168)350Net cash provided by(used for)continuing operations(189)(70)Net cash provided by(used for)discontinued operations23(17)Net cash provided by(used for)continuing and discontinued operations(166)(86)Effect of change in exchange rates on cash and cash equivalents(47)24Cash and cash equivalents at the beginning of the period1,1721,869Cash and cash equivalents at the end of the period9601,807Condensed consolidated statements of cash flowsIn millions of EURAmounts may not add up due to rounding.Semi-annual report 202418reservesotherBalance as of December 31,20221785,025(376)(2)1,8666,832(275)13,2493413,283Total comprehensive income(loss)318(390)(592)(961)1(960)Dividend distributed8741(816)(68)(1)(69)Transfer of reserve for equityinvestments at FVTOCI to retainedearnings4(4)-Re-issuance of treasury shares(26)(21)48-Forward contracts(51)(79)(130)(130)Cancellation of treasury shares-Share-based compensation plans343434Income tax share-basedcompensation plans111Balance as of June 30,20231865,776(370)161,4765,348(306)12,1263412,160Balance as of December 31,20231835,827(390)61,2635,402(262)12,0283312,061Total comprehensive income(loss)26382(544)(154)3(151)Dividend distributed6762(799)(31)(1)(32)Transfer of reserve for equityinvestments at FVTOCI to retainedearnings3111(311)-Re-issuance of treasury shares(32)(17)49-Forward contracts167(167)-Cancellation of treasury shares(1)(166)167Share-based compensation plans383838Income tax share-basedcompensation plans222Balance as of June 30,20241886,597(78)121,6463,732(213)11,8843511,919Condensed consolidated statements of changes in equityIn millions of EURCommon sharesCapital in excess of par valueFair value through OCICash flow hedgesCurrency translation differencesRetained earningsTreasury shares at costTotal shareholders equityNon-controlling interestsGroup equityAmounts may not add up due to rounding.Semi-annual report 202419Notes to the unaudited semi-annual condensed consolidated financialstatementsBasis of preparationThese condensed consolidated financial statements for thesix-month period ended June 30,2024,have been preparedin accordance with IAS 34 Interim Financial Reporting asendorsed by the EU.The condensed consolidated financial statements do notinclude all the notes of the type normally included in anannual financial report.Accordingly,these statements are tobe read in conjunction with the Annual Report for the yearended December 31,2023.The condensed financial statements are presented in euros,which is the presentation currency.Due to rounding,amounts may not add up precisely to the totals provided.Certain comparative-period amounts have been reclassifiedto conform to the current-period presentation.Significant accounting policiesThe significant accounting policies applied in thesecondensed consolidated financial statements are consistentwith those applied in the Annual Report 2023,except for theadoption of amendments to standards which are alsoexpected to be reflected in the companys consolidatedfinancial statements for the year ending December 31,2024.The amended standards did not have a material impact onthe companys condensed consolidated financial statements.The company has not early-adopted any standard,interpretation or amendment that has been issued but is notyet effective and endorsed.EstimatesThe preparation of the condensed consolidated financialstatements in conformity with IFRS requires management tomake judgments,estimates and assumptions that affect theapplication of accounting principles and the reportedamounts of assets and liabilities,income and expense.Actualresults may differ from these estimates under differentassumptions or conditions.In preparing these condensedfinancial statements,unless otherwise disclosed,thesignificant estimates and judgments made by managementin applying the companys accounting policies and the keysources of estimation uncertainty were the same as thoseapplied to the consolidated financial statements for the yearended December 31,2023.Risk managementThe Annual Report 2023 describes certain risk categories andrisks(including risk appetite)which could have a materialadverse effect on Philips financial position and results.Thosedescriptions remain valid and should be read in conjunctionwith this semi-annual report.Looking ahead to the second half of 2024,Philips continuesto expect global market conditions to remain highlyuncertain and volatile due to geopolitical andmacroeconomic factors,whether or not they are related to orcaused by the Russia-Ukraine war and/or the currentsituation in Israel and the larger Middle East region.Philipsobserves a trend of geopolitical tensions and de-globalization that intensifies protectionism.Examples ofprotectionism measures are trade policies,tariffs,sanctions,local value creation and production requirements to obtainmarket access,custom duties,taxation,technology and datarestrictions,cyberattacks,import or export controls,talentmobility restrictions,nationalization of assets,andrestrictions on repatriation of returns from foreigninvestments.In addition,there is general uncertainty on thedevelopment of local regulations and compliance thereto.Philips observes this trend in the major markets in which itoperates and has a particular concern on the development ofthe US-China relationship and Chinas drive to expand itsglobal political footprint and become self-sufficient in criticaltechnologies,including health-related ones.Examples ofgeneral factors are an overall modest economic growthoutlook and uncertainty around outlook on inflation,interestrates,government spending and consumer confidence andspending,and the emergence of economic impacts related tothe climate crisis.Examples of healthcare-specific potentialfactors include rising uncertainty over the future direction ofpublic healthcare policy and the risk of declining publicinvestment in healthcare ecosystems.Philips operates in a highly regulated product safety andquality environment and its products and services,includingparts or materials from suppliers,are subject to regulation byvarious government and regulatory agencies(e.g.,FDA(US),EMA(Europe),NMPA(China),MHRA(UK),ASNM(France),BfArM(Germany),IGZ(Netherlands).The relevant rules andregulations continue to evolve,which may impose significantadditional pre-market and post-market requirements.Philipsis undertaking considerable efforts to improve quality andmanagement systems in all of its operations,and to keepstrengthening the quality and continuous improvementculture we have built up.The improvement actions in theseareas will continue to affect the companys results.Furthermore,the scope of Environmental,Social andGovernance(ESG)disclosure requirements is significantlyincreasing in various jurisdictions,such as the EU CorporateSustainability Reporting Directive(CSRD)that will apply toPhilips as per the financial year 2024.Failure to(timely)meetthese requirements could also trigger the additional risk ofexposure to inquiries from supervisory bodies and adverselyaffect Philips reputation and brand or could adverselyimpact Philips financial condition or operating results.For more information on uncertain future events,factors andcircumstances see also Provisions and Contingencies.Additional risks not known to Philips,or currently believednot to be material,could later turn out to have a materialimpact on Philips business,objectives,revenues,income,assets,liquidity,or capital resources.SeasonalityUnder normal economic conditions,the Philips Groups salesare impacted by seasonal fluctuations,typically resulting inhigher revenues and earnings in the second half-year.For theDiagnosis&Treatment and Connected Care segments,salesare generally higher in the second half-year,largely due toSemi-annual report 202420January to June20232024salessales incl.intercompanyAdjusted EBITA1)salessales incl.intercompanyAdjusted EBITA1)as a%ofsalesas a%ofsalesDiagnosis&Treatment4,1254,38248611.8%4,2004,46545210.8%Connected Care2,5532,5591214.7%2,4972,5181917.6%Personal Health1,6341,67121613.2%1,6241,66026116.1%Other323370(11)27920(21)Inter-segment eliminations(346)(63)Philips Group8,6368,6368129.4%8,6008,60088210.3%January to June20232024Goods5,8095,768Services2,3992,450Royalties239212Total sales from contracts with customers8,4468,430Sales from other sources190170Total sales8,6368,600January to June 2024Sales at a point in timeSales over timeTotal sales fromcontracts withcustomersSales from othersourcesTotal salesDiagnosis&Treatment2,6861,4894,175254,200Connected Care1,4149382,3521452,497Personal Health1,61871,6241,624Other127152279279Philips Group5,8452,5868,4301708,600January to June 2023Sales at a point in timeSales over timeTotal sales fromcontracts withcustomersSales from othersourcesTotal salesDiagnosis&Treatment2,6491,4504,099274,125Connected Care1,4869032,3901632,553Personal Health1,63051,6341,634Other138186323323Philips Group5,9022,5448,4461908,636the timing of new product availability and customersattempting to spend their annual budgeted allowancesbefore the end of the year.For the Personal Health segment,sales are generally higher in the second half-year due toholiday sales and events.The segment Other is generally notmaterially affected by seasonality;however,the timing ofintellectual property transactions may cause variation overthe year.Segment informationPhilips operating segments are Diagnosis&Treatment,Connected Care and Personal Health,each being responsiblefor the management of its business worldwide.1)Non-IFRS financial measure.Refer to the Reconciliation of non-IFRS informationSales composition and disaggregationSales and Adjusted EBITA1)in millions of EUR unless otherwise statedSales composition in millions of EURDisaggregation of Sales per segment in millions of EURDisaggregation of Sales per segment in millions of EURSemi-annual report 202421sales1)tangible and intangible assets2)January to JuneDecember 31,June 30,2023202420232024Netherlands1,0931,1031,6241,663United States3,5203,47911,41011,628China715651234237Japan486465407373Germany280303348366Other countries2,5412,5991,5271,525Philips Group8,6368,60015,55015,792January to June20232024Balance as of January 1881,480,527906,403,156Dividend distributed39,334,93830,860,582Purchase of treasuryshares(2,100,000)(4,437,164)Delivery of treasuryshares1,369,1471,290,490Balance as of June 30920,084,612934,117,0641)Sales per country is reported based on country of origin.2)Consists of Property plant and equipment,Intangible assets excluding goodwill and Goodwill.More segment information can be found in the Informationby segment and main country in the Annual Report 2023.Investments in associatesInvestments in associates decreased from EUR 381 million asof December 31,2023,to EUR 289 million as of June 30,2024.The decrease is mainly due to the share of negative results(EUR 11 million)and impairment of associates(EUR 85million),recorded within Investments in associates,net ofincome taxes,in the condensed consolidated statements ofincome.Other business income and expensesIn Q1 2024 Philips recorded a provision of EUR 982 million aspart of other business expenses in connection with thesettlement of the Respironics personal injury litigation andthe medical monitoring class action in the US(refer toProvisions).In Q2 2024 Philips Respironics recorded insurance income ofEUR 538 million in connection with the agreement withinsurers to partially reimburse the Respironics recall-relatedproduct liability claims.This income was recognized in Q22024 as part of other business income.In Q2 2024,Philipsreceived EUR 150 million,and the remainder of the insurancereceivables of EUR 389 million is expected to be received inthe second half of 2024.In Q1 2023,Philips Respironics recorded a EUR 575 millionprovision as part of other business expenses in connectionwith the anticipated resolution of the economic loss-relatedclass action in the US.Income taxesFor the six months ended June 30,2024,income tax expenseincreased by EUR 422 million year-on-year,from EUR 27million to EUR 449 million.This increase is mainly due tohigher income for the group and higher de-recognition ofdeferred tax assets in the US.The income tax expense was not materially impacted by theGlobal Minimum Tax(Pillar Two)legislation.Discontinued operationsFor the six months ended June 30,2024,discontinuedoperations included a tax benefit of EUR 142 million relatingto tax audit settlements of prior years.GoodwillGoodwill increased by EUR 277 million due to positivecurrency translation in the six months ended June 30,2024.Goodwill is allocated to groups of cash-generating units(CGUs)and tested for impairment at the lowest level atwhich goodwill is monitored for internal managementpurposes.Goodwill is tested for impairment annually in thefourth quarter and whenever impairment indicatorsrequire.Following restructuring announced in Q2 2024,agoodwill impairment test was performed for S&RC,which didnot result in an impairment.EquityAs of June 30,2024,the issued and fully-paid share capitalconsists of 939,939,384 common shares,each share having apar value of EUR 0.20,and the total number of treasuryshares amounted to 5,822,320,which were purchased at anaverage price of EUR 36.65 per share.On May 7,2024,the General Meeting of Shareholdersapproved a dividend of EUR 0.85 per common share,incommon shares,against the retained earnings of thecompany.Subsequently,Philips issued and distributed a totalnumber of 30,860,582 new common shares in May 2024,representing a total value of EUR 768 million(includingcosts).Per share calculations have been adjustedretrospectively for all periods presented to reflect theissuance of shares for the share dividend in respect of 2023.The following table shows the movements in theoutstanding number of shares:In the first six months of 2024,the company delivered a totalof 1,290,490 treasury shares to satisfy certain obligationsunder its share-based remuneration plans.Philips acquired a total of 4,437,164 shares through thesettlement of forward contracts,resulting in EUR 167 millionadditional treasury shares.These forward contracts wereentered into in connection with the completed EUR 1.5 billionshare repurchase program for capital reduction purposesthat was announced on July 26,2021.In June 2024,all of theshares acquired during the first half-year were cancelled.Sales and tangible and intangible assets in millions of EURPhilips GroupOutstanding number of sharesSemi-annual report 202422The increase in the currency translation reserve by EUR 384million mainly relates to the movements of USD versus EUR inthe six months ended June 30,2024.EUR 311 million was transferred from the reserve for equityinvestments at fair value through OCI to retained earningsfollowing the final dissolution or sale of related investmentsin the first six months of 2024.DebtAs of June 30,2024,Philips had total debt of EUR 8,265million.The majority of the debt consisted of EUR 6,629million of public EUR and USD bonds with a weightedaverage interest rate of 3.1%,EUR 224 million of forwardcontracts for share repurchases,and EUR 1,113 million of leaseliabilities.The debt position includes the new bond issuanceof EUR 700 million in Q2 2024,which will be used forrepayment of debt in 2024 and 2025.Long-term debt was EUR 7,137 million,an increase of EUR 101million,and short-term debt was EUR 1,129 million,anincrease of EUR 475 million compared to December 31,2023.The increase in total debt of EUR 576 million is mainly due tothe new bond issuance in Q2 2024,partially offset byrepayments of forward contracts for share repurchases.ProvisionsLong-term provisions decreased by EUR 74 million and short-term provisions increased by EUR 493 million,respectively,during the six months ended June 30,2024.The increase inshort-term provisions was mainly due to the addition to thelegal provision in connection with the settlement of theRespironics personal injury litigation and the medicalmonitoring class action in the US of EUR 982 million,whichwas partially offset by utilizations of provisions,mainly EUR415 million from the economic loss-related class action in theUS and EUR 97 million from the Respironics field action,respectively.Respironics field action provisionOn June 14,2021,Philips subsidiary Philips Respironicsinitiated a voluntary recall notification in the United Statesand field safety notice outside the US for certain sleep andrespiratory care products related to the polyester-basedpolyurethane(PE-PUR)sound abatement foam in thesedevices.The remediation is progressing globally.Philips has recognized a provision based on Philips bestestimate of remediation costs.As of June 30,2024,theremaining provision amounted to EUR 226 million,reflectingutilizations during the year of EUR 104 million.The completion of the field action continues to be subject touncertainty,which requires management to make estimatesand assumptions about the costs of remediation activities.Further to the above,field-action running costs during theyear of EUR 72 million(2023:EUR 106 million),such as testing,external advisory and regulatory response and additionalright-of-return and warranty provisions,have been incurred.Legal provisionsPhilips is a defendant in a number of consumer class-actionlawsuits from users of the affected devices and a number ofindividual personal injury and other compensation claims.Inthe US,an economic loss class action,a medical monitoringclass action and personal injury claims have been filed.In thesix months ended June 30,2023,Philips Respironics recordeda EUR 575 million provision in connection with the economicloss class action in the US.In the first half of 2024 EUR 415million was paid.In 2024,Philips reached a settlement agreement to resolvethe personal injury litigation and the medical monitoringclass action in the US.Philips and Philips Respironics do notadmit any fault or liability,or that any injuries were caused byRespironics devices.Under the settlement,Philips Respironicshas agreed to pay a total of USD 1.1 billion.The relatedpayments are expected in 2025 and will be funded fromPhilips cash flow generation.For legal matters including claims refer to Contingencies.ContingenciesLegal proceedingsThe company and certain of its group companies and formergroup companies are involved as a party in legal proceedings,regulatory and other governmental proceedings,includingdiscussions on potential remedial actions,relating to suchmatters as competition issues,intellectual property,commercial transactions,product liability,participations andenvironmental pollution.While it is not feasible to predict or determine the ultimateoutcome of all pending or threatened legal proceedings,regulatory and governmental proceedings,Philips is of theopinion that the cases described below may have,or havehad in the recent past,a significant impact on itsconsolidated financial position,results of operations andcash flows.Significant developments regarding legal proceedings thathave occurred since the publication of the Annual Report2023 are described below.For more information on thesematters including the companys assessment of each matter,reference is made to the Annual Report 2023.Public investigationsIn February 2023,the company received a statement ofobjections from the French Competition Authority(FCA)initiating a formal investigation to verify whether thecompany and certain other manufacturers of small domesticappliances breached antitrust rules in France in the period2009-2014 through the alleged exchange of commerciallysensitive information.The company denies any allegations inthis regard and is defending itself against possibleenforcement actions.Philips presented its defense to the FCAduring the oral hearings in the first half of 2024 and is nowawaiting the final decision of the FCA.It is the companysassessment that it is possible but not probable that thismatter could lead to an outflow of economic resources.Thecompany is not able to reliably estimate the financial impact,if any,and no provision has been recognized as of June 30,2024.Respironics recallOn June 14,2021,Philips subsidiary Philips RS North AmericaLLC(Philips Respironics)issued a voluntary recall notificationin the United States and field safety notice outside theUnited States for specific Philips Respironics CPAP,Bi-LevelPAP,and mechanical ventilator devices(the“RespironicsRecall”).Semi-annual report 202423Consent decree and DoJ investigationIn the first half of 2024,Philips Respironics reached anagreement with the US Department of Justice(DoJ),actingon behalf of the US Food and Drug Administration(FDA),regarding the terms of a consent decree to resolve theidentified issues in relation to the Respironics Recall.Theconsent decree was entered by the court in April 2024.In April 2022,the DOJ issued a subpoena to PhilipsRespironics in relation to the events leading up to theRespironics Recall.Philips Respironics has continued torespond to the information requests in the subpoena.Thecompany is not able to reliably estimate the financial impact,if any.Product liability claimsFollowing the Respironics Recall,a number of civil complaintshave been filed in several jurisdictions against PhilipsRespironics and certain of its affiliates(including thecompany)generally alleging economic loss,personal injuryand/or the potential for personal injury allegedly caused bydevices subject to the recall.In 2023,Philips Respironics entered into a settlementagreement to resolve the US economic loss class action forwhich a EUR 575 million provision was recognized in the firstquarter of 2023.On April 25,2024,the settlement agreementreceived final approval from the US District Court for theWestern District of Pennsylvania.The settlement agreementhas now become final and non-appealable.In the first half of 2024,Philips Respironics entered intosettlement agreements to resolve the personal injurylitigation and medical monitoring class action in the US.Under the settlement agreements,Philips Respironics hasagreed to pay a total of USD 1,075 million to resolve thepersonal injury claims and USD 25 million to resolve themedical monitoring class action.Under the personal injury settlement agreement,PhilipsRespironics has the right to terminate this settlementagreement if less than 95%of eligible claimants withqualifying injuries participate in the settlement.The deadlinefor personal injury claimants to register for the settlement isDecember 10,2024.For any individuals who still wish topursue litigation,they will be the subject of casemanagement orders that set strict terms and deadlines,including for expert reports.Non-compliance by suchindividuals may result in dismissal of their claims.Thepersonal injury settlement agreement is not subject to courtapproval.The medical monitoring settlement received preliminaryapproval from the District Court for the Western District ofPennsylvania on June 27,2024,with a final approval hearingscheduled for October 30,2024.The effectiveness of themedical monitoring settlement is subject to court approval.In connection with the settlements,Philips and PhilipsRespironics do not admit any fault or liability,or that anyinjuries were caused by Respironics devices.On July 4,2024,a group of lawyers announced they filed aproduct liability lawsuit in Italy on behalf of users ofRespironics devices in Europe,allegedly claiming personalinjury related damages.Philips has not yet been served withthe complaint and is therefore not yet able to assess themerits of the alleged claim.In the first half of 2024,the company also reached anagreement with its product liability insurance carriersregarding their contribution to the Respironics recall-relatedproduct liability exposure.Q2 2024 includes EUR 538 millioninsurance income related to this agreement,of which EUR150 million had been received as of June 30,2024.Securities claimsIn August 2021,a securities class action was filed against thecompany in the US District Court for the Eastern District ofNew York alleging disclosure deficiencies in relation to theRespironics Recall.The court held a hearing on the companysmotion to dismiss in April 2024 and the court is nowexpected to decide on the motion to dismiss.Following earlier requests for information from the USSecurities and Exchange Commission(SEC),in March 2024,the company received a subpoena from the SEC relating tothe Respironics Recall and compliance with relevantsecurities laws.The investigation is not an indication that theSEC or its staff have determined that any violations of lawhave occurred.The company is fully cooperating with theinvestigation.Related-party transactionsOn August 14,2023,it was announced that Exor N.V.acquireda 15%minority stake in Philips shares and entered into arelationship agreement with the company.Pursuant to therelationship agreement with the company,Exor N.V.proposed one member to the Supervisory Board,which wasconfirmed at the 2024 Annual General Meeting ofShareholders on May 7,2024.From this date,Exor isconsidered a related party for reporting purposes.Exor hasagreed to maintain its shareholding of at least 15%up to20%for 3 years from August 13,2023.Exor increased itsshareholding to 17.5%as of June 30,2024.Fair value of financial assets and liabilitiesThe estimated fair value of financial instruments has beendetermined by the company using available marketinformation and appropriate valuation methods.Theestimates presented are not necessarily indicative of theamounts that will ultimately be realized by the companyupon maturity or disposal.The use of different marketassumptions and/or estimation methods may have a materialeffect on the estimated fair value amounts.The following table shows the carrying amounts and fairvalues of financial assets and financial liabilities,includingtheir levels in the fair value hierarchy.Fair value informationfor financial assets and financial liabilities not carried at fairvalue is not included if the carrying amount is a reasonableapproximation of fair value.Semi-annual report 202424carryingamountestimatedfair value1)Level 1Level 2Level 3Balance at June 30,2024Financial assetsCarried at fair value:Debt instruments223223223Equity instruments222Other financial assets53533617Financial assets carried at FVTPL27827836242Debt instruments272727Equity instruments2322325227Current financial assets666Receivables-currentFinancial assets carried at FVTOCI266266527233Derivative financial instruments71716110Financial assets carried at fair value6146145125485Carried at(amortized)cost:Cash and cash equivalents1,807Loans and receivables:Current loans receivables-Other non-current loans and receivables84Receivables-current3,831Receivables-non-current156Financial assets carried at(amortized)cost5,879Total financial assets6,493Financial liabilitiesCarried at fair value:Contingent consideration(119)(119)(119)Financial liabilities carried at FVTPL(119)(119)(119)Derivative financial instruments(44)(44)(44)Financial liabilities carried at fair value(164)(164)(44)(119)Carried at(amortized)cost:Accounts payable(1,850)Interest accrual(64)Debt(corporate bonds and leases)(7,743)(8,866)(7,753)(1,113)Debt(excluding corporate bonds and leases)(522)Financial liabilities carried at(amortized)cost(10,180)Total financial liabilities(10,343)1)For Cash and cash equivalents,Loans and receivables,Accounts payable,Interest accrual and Debt(excluding corporate bonds and leases),the carrying amounts approximate fair valuemainly because of the short maturity of these instruments,and therefore fair value information is not included in the table above.Fair value of financial assets and liabilities in millions of EURSemi-annual report 202425carryingamountestimatedfair value1)Level 1Level 2Level 3Balance as of December 31,2023Financial assetsCarried at fair value:Debt instruments226226226Equity instruments222Other financial assets56563422Financial assets carried at FVTPL28428434250Debt instruments272726Equity instruments23123114217Current financial assets333Receivables-current323232Financial assets carried at FVTOCI2932931426253Derivative financial instruments484848Financial assets carried at fair value62462414108503Carried at(amortized)cost:Cash and cash equivalents1,869Loans and receivables:Current loans receivables-Other non-current loans and receivables77Receivables-current3,701Receivables-non-current193Financial assets carried at(amortized)cost5,840Total financial assets6,465Financial liabilitiesCarried at fair value:Contingent consideration(115)(115)(115)Financial liabilities carried at FVTPL(115)(115)(115)Derivative financial instruments(43)(43)(43)Financial liabilities carried at fair value(158)(158)(43)(115)Carried at(amortized)cost:Accounts payable(1,917)Interest accrual(76)Debt(corporate bonds and finance leases)(6,969)(6,798)(5,724)(1,074)Debt(excluding corporate bonds and finance leases)(721)Financial liabilities carried at(amortized)cost(9,682)Total financial liabilities(9,840)FinancialassetsFinancialliabilitiesBalance as of December 31,2023503115AcquisitionsPurchase52Sales(32)UtilizationsRecognized in profit and loss:Other business income andexpenses2Financial income and expenses(16)1Recognized in other comprehensiveincome1)112Receivables held to collect and sell(32)ReclassificationBalance as of June 30,20244851191)For Cash and cash equivalents,Loans and receivables,Accounts payable,Interest accrual and Debt(excluding corporate bonds and leases),the carrying amounts approximate fair valuemainly because of the short maturity of these instruments,and therefore fair value information is not included in the table above.The following table shows the reconciliation from thebeginning balance to the ending balance for Level 3 fairvalue measurements.1)Includes translation differencesFair value of financial assets and liabilities in millions of EURReconciliation of Level 3 fair value measurements in millions of EURSemi-annual report 202426Forward-looking statements and other important informationForward-looking statementsThis document and the related oral presentation,includingresponses to questions following the presentation,containcertain forward-looking statements with respect to thefinancial condition,results of operations and business of Philipsand certain of the plans and objectives of Philips with respectto these items.Examples of forward-looking statements includestatements made about strategy,estimates of sales growth,future Adjusted EBITA*),future restructuring and acquisitionrelated charges and other costs,future developments in Philipsorganic business and the completion of acquisitions anddivestments.Forward-looking statements can be identifiedgenerally as those containing words such as“anticipates”,“assumes”,“believes”,“estimates”,“expects”,“should”,“will”,“will likely result”,“forecast”,“outlook”,“projects”,“may”orsimilar expressions.By their nature,these statements involverisk and uncertainty because they relate to future events andcircumstances and there are many factors that could causeactual results and developments to differ materially from thoseexpressed or implied by these statements.These factors include but are not limited to:Philips ability togain leadership in health informatics in response todevelopments in the health technology industry;Philips abilityto keep pace with the changing health technologyenvironment;macroeconomic and geopolitical changes;integration of acquisitions and their delivery on business plansand value creation expectations;securing and maintainingPhilips intellectual property rights,and unauthorized use ofthird-party intellectual property rights;Philips ability to meetexpectations with respect to ESG-related matters;failure ofproducts and services to meet quality or security standards,adversely affecting patient safety and customer operations;breaches of cybersecurity;challenges in simplifying ourorganization and our ways of working;the resilience of oursupply chain;attracting and retaining personnel;challenges indriving operational excellence and speed in bringinginnovations to market;compliance with regulations andstandards including quality,product safety and(cyber)security;compliance with business conduct rules and regulationsincluding privacy and upcoming ESG disclosure and duediligence requirements;treasury and financing risks;tax risks;reliability of internal controls,financial reporting andmanagement process;and global inflation.As a result,Philipsactual future results may differ materially from the plans,goalsand expectations set forth in such forward-looking statements.For a discussion of factors that could cause future results todiffer from such forward-looking statements,see also the Riskmanagement chapter included in the Annual Report 2023.Reference is also made to section Risk management in thePhilips semi-annual report 2024.Third-party market share dataStatements regarding market share contained in thisdocument,including those regarding Philips competitiveposition,are based on outside sources such as specializedresearch institutes,as well as industry and dealer panels,incombination with management estimates.Where informationis not yet available to Philips,market share statements may alsobe based on estimates and projections prepared bymanagement and/or based on outside sources of information.Managements estimates of rankings are based on order intakeor sales,depending on the business.Market Abuse RegulationThis press release contains inside information within themeaning of Article 7(1)of the EU Market Abuse Regulation.Use of non-IFRS informationIn presenting and discussing the Philips Groups financialposition,operating results and cash flows,management usescertain non-IFRS financial measures.These non-IFRS financialmeasures should not be viewed in isolation as alternatives tothe equivalent IFRS measure and should be used in conjunctionwith the most directly comparable IFRS measures.Non-IFRSfinancial measures do not have standardized meaning underIFRS and therefore may not be comparable to similar measurespresented by other issuers.A reconciliation of these non-IFRSmeasures to the most directly comparable IFRS measures iscontained in this document.Further information on non-IFRSmeasures can be found in the Annual Report 2023.PresentationAll amounts are in millions of euros unless otherwise stated.Due to rounding,amounts may not add up precisely to totalsprovided.All reported data is unaudited.Financial reporting isin accordance with the accounting policies as stated in theAnnual Report 2023.Prior-period amounts have beenreclassified to conform to the current-period presentation;thisincludes immaterial organizational changes.Effective Q1 2024,Philips has revised the order intake policy toreflect the full contract value for software contracts that startgenerating revenue within an 18-month horizon,instead ofonly the next 18-months-to-revenue horizon.This change hasbeen implemented to better align with the specific businessmodel of our software businesses,simplify the order intakeprocess,and better align with peers.Prior-period comparableorder intake percentages have been restated accordingly.Thisrevision has not resulted in any material changes to the orderintake percentages for the periods presented.Per share calculations have been adjusted retrospectively for allperiods presented to reflect the issuance of shares in thesecond quarter of 2024 in connection with the 2023 sharedividend.*)Non-IFRS financial measure.Refer to the Reconciliation ofnon-IFRS informationQuarterly Report 2024-Q22720232024Q1Q2Q3Q4Q1Q2Q3Q4Sales4,1674,4704,4715,0624,1384,462Nominal sales growth6%7%4%(7)%(1)%0%Comparable sales growth1)6%9%(1)%2%2%Comparable order intake2)(5)%(8)%(7)%(4)%(4)%9%Gross margin1,7551,9611,9331,7981,8151,989as a%of sales42.1C.9C.25.5C.9D.6%Selling expenses(1,079)(1,112)(1,114)(1,220)(1,096)(1,127)as a%of sales(25.9)%(24.9)%(24.9)%(24.1)%(26.5)%(25.3)%G&A expenses(158)(157)(150)(143)(136)(158)as a%of sales(3.8)%(3.5)%(3.4)%(2.8)%(3.3)%(3.5)%R&D expenses(528)(468)(445)(449)(419)(424)as a%of sales(12.7)%(10.5)%(10.0)%(8.9)%(10.1)%(9.5)%Income from operations(583)22122424(824)816as a%of sales(14.0)%4.9%5.0%0.5%(19.9).3%Net income(665)749038(998)452Income from continuingoperations attributable toshareholders3)per commonshare(in EUR)-diluted(0.70)0.070.100.04(1.07)0.33Adjusted income fromcontinuing operationsattributable to shareholders3)per common share(in EUR)-diluted1)0.200.270.320.400.250.30EBITA1)(510)292294106(751)876as a%of sales(12.2)%6.5%6.6%2.1%(18.1).6justed EBITA1)359453456653388495as a%of sales8.6.1.2.9%9.4.1justed EBITDA1)575681692896609733as a%of sales13.8.2.5.7.7.4%Philips statistics1)Non-IFRS financial measure.Refer to the Reconciliation of non-IFRS information2)Effective Q1 2024,Philips has revised the order intake policy for the software businesses.Refer to Forward-looking statements and other important information.3)Shareholders refers to shareholders of Koninklijke Philips N.V.Per share calculations have been adjusted retrospectively for all periods presented to reflect the issuance of shares for theshare dividend in respect of 2023.in millions of EUR unless otherwise statedQuarterly Report 2024-Q22820232024January-MarchJanuary-JuneJanuary-SeptemberJanuary-DecemberJanuary-MarchJanuary-JuneJanuary-SeptemberJanuary-DecemberSales4,1678,63613,10718,1694,1388,600Nominal sales growth6%7%6%2%(1)%0%Comparable sales growth1)6%8%9%6%2%2%Comparable order intake2)(5)%(7)%(7)%(6)%(4)%3%Gross margin1,7553,7175,6507,4481,8153,804as a%of sales42.1C.0C.1A.0C.9D.2%Selling expenses(1,079)(2,191)(3,304)(4,524)(1,096)(2,223)as a%of sales(25.9)%(25.4)%(25.2)%(24.9)%(26.5)%(25.8)%G&A expenses(158)(315)(465)(608)(136)(294)as a%of sales(3.8)%(3.6)%(3.5)%(3.3)%(3.3)%(3.4)%R&D expenses(528)(996)(1,441)(1,890)(419)(843)as a%of sales(12.7)%(11.5)%(11.0)%(10.4)%(10.1)%(9.8)%Income from operations(583)(362)(139)(115)(824)(8)as a%of sales(14.0)%(4.2)%(1.1)%(0.6)%(19.9)%(0.1)%Net income(665)(591)(501)(463)(998)(546)Income from continuingoperations attributable toshareholders3)per commonshare(in EUR)-diluted(0.70)(0.62)(0.52)(0.48)(1.07)(0.74)Adjusted income fromcontinuing operationsattributable to shareholders3)per common share(in EUR)-diluted1)0.200.480.811.210.250.56EBITA1)(510)(217)77183(751)125as a%of sales(12.2)%(2.5)%0.6%1.0%(18.1)%1.5justed EBITA1)3598121,2681,921388882as a%of sales8.6%9.4%9.7.6%9.4.3justed EBITDA1)5751,2561,9492,8456091,342as a%of sales13.8.5.9.7.7.6%Number of common sharesoutstanding(after deductionof treasury shares)at the endof period(in thousands)881,539920,085915,987906,403904,257934,117Shareholders equity percommon share in EUR13.9913.1813.8413.2712.5612.72Net debt:group equity ratio1)36:6437:6336:6433:6736:6435:65Total employees73,71271,51970,74169,65669,06268,7011)Non-IFRS financial measure.Refer to the Reconciliation of non-IFRS information2)Effective Q1 2024,Philips has revised the order intake policy for the software businesses.Refer to Forward-looking statements and other important information.3)Shareholders refers to shareholders of Koninklijke Philips N.V.Per share calculations have been adjusted retrospectively for all periods presented to reflect the issuance of shares for theshare dividend in respect of 2023.Philips statistics in millions of EUR unless otherwise statedQuarterly Report 2024-Q229 2024 Koninklijke Philips N.V.All rights reserved.https:/
2024-08-15
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