1 Uber Announces Results for First Quarter 2024 Trips grew 21%year-over-year;MAPCs and monthly trips per MAPC grew 15%and 6%year-over-year,respectively Gross Bookings grew 20%year-over-year and 21%year-over-year on a constant currency basis Income from operations of$172 million;Adjusted EBITDA of$1.4 billion,up 82%year-over-year Operating cash flow of$1.4 billion;Free cash flow of$1.4 billion SAN FRANCISCO May 8,2024 Uber Technologies,Inc.(NYSE:UBER)today announced financial results for the quarter ended March 31,2024.“Our results this quarter once again demonstrate our ability to deliver consistent,profitable growth at scale,”said Dara Khosrowshahi,CEO.“More than 7 million people now choose to earn flexibly on Uber every month,with driver earnings of$16.6 billion continuing to grow faster than our topline.”“Our multi-year growth framework is on track,with audience up 15%and frequency up 6%in Q1,”said Prashanth Mahendra-Rajah,CFO.“We reached a new quarterly record for Adjusted EBITDA,which grew 82%YoY,and we generated free cash flow of$4.2 billion over the trailing twelve months.”Financial Highlights for First Quarter 2024 Gross Bookings grew 20%year-over-year(“YoY”)to$37.7 billion,or 21%on a constant currency basis,with Mobility Gross Bookings of$18.7 billion( 25%YoY or 26%YoY constant currency)and Delivery Gross Bookings of$17.7 billion( 18%YoY or 17%YoY constant currency).Trips during the quarter grew 21%YoY to 2.6 billion,or approximately 28 million trips per day on average.Revenue grew 15%YoY to$10.1 billion,or 15%on a constant currency basis.Combined Mobility and Delivery revenue grew 19%YoY to$8.8 billion,or 19%on a constant currency basis.Business model changes negatively impacted total revenue YoY growth by 8 percentage points.Income from operations was$172 million,up$434 million YoY and down$480 million quarter-over-quarter(“QoQ”).Net loss attributable to Uber Technologies,Inc.was$654 million,which includes a$721 million net headwind(pre-tax)due to net unrealized losses related to the revaluation of Ubers equity investments.Adjusted EBITDA of$1.4 billion,up 82%YoY.Adjusted EBITDA margin as a percentage of Gross Bookings was 3.7%,up from 2.4%in Q1 2023.Net cash provided by operating activities was$1.4 billion and free cash flow,defined as net cash flows from operating activities less capital expenditures,was$1.4 billion.Unrestricted cash,cash equivalents,and short-term investments were$5.8 billion at the end of the first quarter.Outlook for Q2 2024 For Q2 2024,we anticipate:Gross Bookings of$38.75 billion to$40.25 billion,which represents 18%to 23%YoY growth on a constant currency basis.Our outlook assumes a roughly 3 percentage point currency headwind to total reported YoY growth,including a roughly 5 percentage point currency headwind to Mobilitys reported YoY growth.Adjusted EBITDA of$1.45 billion to$1.53 billion,which represents 58%to 67%YoY growth.2 Financial and Operational Highlights for First Quarter 2024 Three Months Ended March 31,(In millions,except percentages)2023 2024%Change%Change(Constant Currency(1)Monthly Active Platform Consumers(“MAPCs”)130 149 15%Trips 2,124 2,572 21%Gross Bookings$31,408$37,651 20!%Revenue$8,823$10,131 15%Income(loss)from operations$(262)$172 *Net loss attributable to Uber Technologies,Inc.(2)$(157)$(654)*Adjusted EBITDA(1)$761$1,382 82%Net cash provided by operating activities$606$1,416 134%Free cash flow(1)$549$1,359 148%(1)See“Definitions of Non-GAAP Measures”and“Reconciliations of Non-GAAP Measures”sections herein for an explanation and reconciliations of non-GAAP measures used throughout this release.(2)Q1 2023 net loss includes a$320 million net benefit(pre-tax)from revaluations of Ubers equity investments.Q1 2024 net loss includes a$721 million net headwind(pre-tax)from revaluations of Ubers equity investments.*Percentage not meaningful.Results by Offering and Segment Gross Bookings Three Months Ended March 31,(In millions,except percentages)2023 2024%Change%Change(Constant Currency)Gross Bookings:Mobility$14,981$18,670 25&livery 15,026 17,699 18%Freight 1,401 1,282 (8)%(9)%Total$31,408$37,651 20!%Revenue Three Months Ended March 31,(In millions,except percentages)2023 2024%Change%Change(Constant Currency)Revenue:Mobility(1)$4,330$5,633 30)livery(2)3,093 3,214 4%4%Freight 1,400 1,284 (8)%(8)%Total(3)$8,823$10,131 15%(1)Mobility Revenue in Q1 2024 was negatively impacted by business model changes in some countries that classified certain sales and marketing costs as contra revenue by$328 million.These changes negatively impacted Mobility revenue YoY growth by 8 percentage points.(2)Delivery Revenue in Q1 2024 was negatively impacted by business model changes that classified certain sales and marketing costs as contra revenue by$414 million.These changes negatively impacted Delivery revenue YoY growth by 13 percentage points.3(3)Total revenue in Q1 2024 was negatively impacted by business model changes in some countries that classified certain sales and marketing costs as contra revenue by$742 million.These changes negatively impacted total revenue YoY growth by 8 percentage points.Revenue Margin Three Months Ended March 31,2023 2024 Mobility(1)28.90.2livery(2)20.6.2%(1)Mobility Revenue Margin in Q1 2024 was negatively impacted by business model changes in some countries that classified certain sales and marketing costs as contra revenue by 180 bps.(2)Delivery Revenue Margin in Q1 2024 was negatively impacted by business model changes that classified certain sales and marketing costs as contra revenue by 230 bps.Adjusted EBITDA and Segment Adjusted EBITDA Three Months Ended March 31,(In millions,except percentages)2023 2024%Change Segment Adjusted EBITDA:Mobility$1,060$1,479 40livery 288 528 83%Freight (23)(21)9%Corporate G&A and Platform R&D(1)(564)(604)(7)justed EBITDA(2)$761$1,382 82%(1)Includes costs that are not directly attributable to our reportable segments.Corporate G&A also includes certain shared costs such as finance,accounting,tax,human resources,information technology and legal costs.Platform R&D also includes mapping and payment technologies and support and development of the internal technology infrastructure.Our allocation methodology is periodically evaluated and may change.(2)“Adjusted EBITDA”is a non-GAAP measure as defined by the SEC.See“Definitions of Non-GAAP Measures”and“Reconciliations of Non-GAAP Measures”sections herein for an explanation and reconciliations of non-GAAP measures used throughout this release.Financial Highlights for the First Quarter 2024(continued)Mobility Gross Bookings of$18.7 billion:Mobility Gross Bookings grew 25%YoY and declined 3%QoQ.Revenue of$5.6 billion:Mobility Revenue grew 30%YoY and 2%QoQ.The YoY increase was primarily attributable to an increase in Mobility Gross Bookings due to an increase in Trip volumes.Mobility Revenue Margin of 30.2%increased 130 bps YoY and 150 bps QoQ.Business model changes negatively impacted Mobility Revenue Margin by 180 bps in Q1 2024.Adjusted EBITDA of$1.5 billion:Mobility Adjusted EBITDA increased 40%YoY,and Mobility Adjusted EBITDA margin was 7.9%of Gross Bookings compared to 7.1%in Q1 2023 and 7.5%in Q4 2023.Mobility Adjusted EBITDA margin improvement YoY was primarily driven by better cost leverage from higher volume.Delivery Gross Bookings of$17.7 billion:Delivery Gross Bookings grew 18%YoY and 4%QoQ.Revenue of$3.2 billion:Delivery Revenue grew 4%YoY and 3%QoQ.Delivery Revenue Margin of 18.2creased 240 bps YoY and 10 bps QoQ.Business model changes negatively impacted Delivery Revenue Margin by 230 bps in Q1 2024.Adjusted EBITDA of$528 million:Delivery Adjusted EBITDA increased 83%YoY,and Delivery Adjusted EBITDA margin was 3.0%of Gross Bookings,compared to 1.9%in Q1 2023 and 2.8%in Q4 2023.Delivery Adjusted EBITDA margin improvement YoY was primarily driven by better cost leverage from higher volumes and increased Advertising 4 revenue.Freight Revenue of$1.3 billion:Freight Revenue declined 8%YoY and was flat QoQ.The YoY decrease was driven by lower revenue per load as a result of the challenging freight market cycle.Adjusted EBITDA loss of$21 million:Freight Adjusted EBITDA increased$2 million YoY.Freight Adjusted EBITDA margin as a percentage of Gross Bookings remained flat YoY.Corporate Corporate G&A and Platform R&D:Corporate G&A and Platform R&D expenses of$604 million,compared to$564 million in Q1 2023,and$625 million in Q4 2023.Corporate G&A and Platform R&D as a percentage of Gross Bookings decreased 20 bps YoY and 10 bps QoQ due to improved fixed cost leverage.GAAP and Non-GAAP Costs and Operating Expenses Cost of revenue excluding D&A:GAAP cost of revenue equaled Non-GAAP cost of revenue and was$6.2 billion,representing 16.4%of Gross Bookings,compared to 16.7%and 16.1%in Q1 2023 and Q4 2023,respectively.On a YoY basis,non-GAAP cost of revenue as a percentage of Gross Bookings decreased due to improved cost leverage with Gross Bookings growth outpacing cost of revenue growth.GAAP and Non-GAAP operating expenses(Non-GAAP operating expenses exclude certain amounts as further detailed in the“Reconciliations of Non-GAAP Measures”section):Operations and support:GAAP operations and support was$685 million.Non-GAAP operations and support was$616 million,representing 1.6%of Gross Bookings,compared to 1.9%and 1.7%in Q1 2023 and Q4 2023,respectively.On a YoY basis,non-GAAP operations and support as a percentage of Gross Bookings decreased due to a decrease in driver background check costs.Sales and marketing:GAAP sales and marketing was$917 million.Non-GAAP sales and marketing was$895 million,representing 2.4%of Gross Bookings,compared to 3.9%and 2.4%in Q1 2023 and Q4 2023,respectively.On a YoY basis,non-GAAP sales and marketing as a percentage of Gross Bookings decreased due to business model changes in some countries that classified certain sales and marketing costs as contra revenue.Additionally,Gross Bookings mix shifted towards Mobility,which carry lower associated sales and marketing costs.Research and development:GAAP research and development was$790 million.Non-GAAP research and development was$488 million,representing 1.3%of Gross Bookings,compared to 1.5%and 1.3%in Q1 2023 and Q4 2023,respectively.On a YoY basis,non-GAAP research and development as a percentage of Gross Bookings decreased due to improved fixed cost leverage.General and administrative:GAAP general and administrative was$1.2 billion.Non-GAAP general and administrative was$582 million,representing 1.5%of Gross Bookings,compared to 1.6%and 1.5%in Q1 2023 and Q4 2023,respectively.On a YoY basis,non-GAAP general and administrative as a percentage of Gross Bookings decreased due to a decrease in employee headcount costs.Operating Highlights for the First Quarter 2024 Platform Monthly Active Platform Consumers(“MAPCs”)reached 149 million:MAPCs grew 15%YoY to 149 million,driven by continued improvement in consumer activity for both our Mobility and Delivery offerings.Trips of 2.6 billion:Trips on our platform grew 21%YoY,driven by both Mobility and Delivery growth.Monthly trips per MAPC grew 6%YoY to 5.8.Supporting earners:Drivers and couriers earned an aggregate$16.6 billion(including tips)during the quarter,with earnings up 22%YoY,or 24%on a constant currency basis.Membership:Returned to the Super Bowl stage for the fourth year to launch our latest campaign“Dont forget to remember Uber Eats.”In addition,launched Game Day Deals for the second year,offering special savings for Uber One members during March Madness.Further,launched partnerships with brands including NOS in Portugal and Disney in the UK.Advertising:Expanded video Journey Ads to new markets including Australia,Brazil and Chile,with the ad format now available in 12 countries.In addition,expanded in-car tablets to more than 50 US cities including Austin,Denver,New York City suburbs,Salt Lake City and Seattle.Further,launched a custom creative hub for enterprise advertisers,allowing them to quickly launch ad campaigns with personalized creative.5 Autonomous updates:Building on the success of our autonomous mobility partnership,launched our autonomous delivery partnership in Phoenix with Waymo in April.In addition,expanded our partnership with Cartken and partnered with Mitsubishi Electric to include deliveries via automated robots in Japan,the first international market to have autonomous delivery available on Uber Eats.Family profiles with teen accounts:Completed the rollout of teen accounts to all 50 US states and to more cities in Brazil.Family profiles with teen accounts are now available in over 250 cities.In addition,launched additional safety features;announced spending limits on teen accounts,which allow parents to set a monthly budget for their teens rides and meals within their own app;and enabled more ride types for teen trips.Annual Environmental,Social,and Governance Report:Published our annual Environmental,Social,and Governance Report in April,which highlights our perspectives on the ESG issues that matter most to the people who earn on,move on,or invest in our platform,as well as our approach to People and Culture and our broader diversity,equity,and inclusion initiatives.Mobility Taxis:Brought the majority of Hong Kong taxi supply onto Uber by integrating HKTaxi onto the Uber app,and began scaling Los Angeles Yellow Cab trips.Launched Uber Taxi in several cities across markets including Colombia and Italy.Electric Vehicle(“EV”)updates:Expanded Comfort Electric to nearly 60 cities globally,with the latest launch in New York City.In addition,launched and expanded EV partnerships,including a multi-year strategic partnership with Revel to provide New York City drivers on Uber with exclusive charging discounts and access to up to 250 fast charging stations,and a new phase of our partnership with VEMO in Mexico.Emission Savings feature:In tandem with electrification product expansions to new markets,introduced the Emission Savings feature in the Uber app,allowing riders who take trips on Uber Green and Comfort Electric to track and learn more about their carbon emissions impact.Original equipment manufacturer(“OEM”)agreements:Began working with Tesla to help accelerate the transition to electric vehicles by sharing data that illustrate where drivers need charging infrastructure the most and offering incentives to US drivers on Uber for the purchase of certain Tesla vehicles.In addition,signed a Memorandum of Understanding(“MoU”)with Kia to work together on an electric purpose built vehicle(“PBV”)designed specifically for ridesharing drivers.Uber Car Seat:Launched Uber Car Seat,a product that eliminates the need for parents and caregivers to bring their own car seat,making travel simple and stress free,in partnership with premier car seat maker,Nuna.Uber Car Seat is now available in Los Angeles and New York City.Delivery Grocery merchant selection:Expanded our grocery merchant selection in the US and Canada,as we launched grocers including Weis Markets,Fresh Thyme Market,Carlie Cs and Bashas as partners in the US;and Rabba Fine Foods in Canada.Grocery loyalty:Began enabling consumers to benefit from grocery loyalty programs while shopping on Uber Eats by offering in-app access to member prices and discounts at grocery merchants including Co-op in the UK and Dia in Spain.The Co-op launch marks a UK supermarket first for a food delivery app.Live Location Sharing:After successfully launching the feature on Uber rides,introduced the ability for consumers to share their live location with their courier,making the drop-off process faster and more seamless across nearly all markets globally.Uber Direct expansion:Added new Uber Direct partnerships including medication delivery for Healthera in the UK and four partner companies in Japan;and white-label delivery for electronics retailer MediaMarkt in Germany,retail solutions company Inovretail in Spain,and supermarket chain Co-op in the UK.Reusable packaging:Expanded our partnership with DeliverZero to the West Coast,inclusive of more than 130 restaurants with a current focus on the greater Los Angeles and San Francisco regions.The partnership increases access to sustainable packaging through DeliverZeros network of returnable,reusable food containers.6 Freight Powerloop expansion:Announced the national expansion of Powerloop,Uber Freights drop-and-hook capacity solution,alongside new capabilities that further optimize freight networks including an expanded dedicated fleet offering,AI-powered bundling capabilities,and telematics-enhanced smart trailers,all aimed at providing greater value and flexibility to carriers and shippers alike.Ocean freight visibility solutions:Unveiled new Transportation Management System(“TMS”)features that provide accurate,real-time visibility for all shipments.These enhancements offer logistics teams comprehensive insights into 99%of ocean shipments,enabling proactive management of exceptions and potential disruptions for customers with global supply chains.Webcast and conference call information A live audio webcast of our first quarter ended March 31,2024 earnings release call will be available at https:/ with the earnings press release and slide presentation.The call begins on May 8,2024 at 5:00 AM(PT)/8:00 AM(ET).This press release,including the reconciliations of certain non-GAAP measures to their nearest comparable GAAP measures,is also available on that site.We also provide announcements regarding our financial performance and other matters,including SEC filings,investor events,press and earnings releases,on our investor relations website(https:/ our blogs(https:/ Twitter accounts(uber and dkhos),as a means of disclosing material information and complying with our disclosure obligations under Regulation FD.About Uber Ubers mission is to create opportunity through movement.We started in 2010 to solve a simple problem:how do you get access to a ride at the touch of a button?More than 49 billion trips later,were building products to get people closer to where they want to be.By changing how people,food,and things move through cities,Uber is a platform that opens up the world to new possibilities.Forward-Looking Statements This press release contains forward-looking statements regarding our future business expectations which involve risks and uncertainties.Actual results may differ materially from the results predicted,and reported results should not be considered as an indication of future performance.Forward-looking statements include all statements that are not historical facts and can be identified by terms such as“anticipate,”“believe,”“contemplate,”“continue,”“could,”“estimate,”“expect,”“hope,”“intend,”“may,”“might,”“objective,”“ongoing,”“plan,”“potential,”“predict,”“project,”“should,”“target,”“will,”or“would”or similar expressions and the negatives of those terms.Forward-looking statements involve known and unknown risks,uncertainties and other factors that may cause our actual results,performance or achievements to be materially different from any future results,performance or achievements expressed or implied by the forward-looking statements.These risks,uncertainties and other factors relate to,among others:competition,managing our growth and corporate culture,financial performance,investments in new products or offerings,our ability to attract drivers,consumers and other partners to our platform,our brand and reputation and other legal and regulatory developments,particularly with respect to our relationships with drivers and couriers and the impact of the global economy,including rising inflation and interest rates.For additional information on other potential risks and uncertainties that could cause actual results to differ from the results predicted,please see our annual report on Form 10-K for the year ended December 31,2023 and subsequent quarterly reports and other filings filed with the Securities and Exchange Commission from time to time.All information provided in this release and in the attachments is as of the date of this press release and any forward-looking statements contained herein are based on assumptions that we believe to be reasonable as of this date.Undue reliance should not be placed on the forward-looking statements in this press release,which are based on information available to us on the date hereof.We undertake no duty to update this information unless required by law.Non-GAAP Financial Measures To supplement our financial information,which is prepared and presented in accordance with generally accepted accounting principles in the United States of America(“GAAP”),we use the following non-GAAP financial measures:Adjusted EBITDA;Free cash flow;Non-GAAP Costs and Operating Expenses as well as,revenue growth rates in constant currency.The presentation of this financial information is not intended to be considered in isolation or as a substitute for,or superior to,the financial information prepared and presented in accordance with GAAP.We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons.We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our recurring core business operating results.We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning,forecasting,and analyzing future periods.These non-GAAP financial measures also facilitate managements internal comparisons to our historical performance.We believe these non-GAAP financial measures are useful to 7 investors both because(1)they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and(2)they are used by our institutional investors and the analyst community to help them analyze the health of our business.There are a number of limitations related to the use of non-GAAP financial measures.In light of these limitations,we provide specific information regarding the GAAP amounts excluded from these non-GAAP financial measures and evaluating these non-GAAP financial measures together with their relevant financial measures in accordance with GAAP.For more information on these non-GAAP financial measures,please see the sections titled“Key Terms for Our Key Metrics and Non-GAAP Financial Measures,”“Definitions of Non-GAAP Measures”and“Reconciliations of Non-GAAP Measures”included at the end of this release.In regards to forward looking non-GAAP guidance,we are not able to reconcile the forward-looking non-GAAP Adjusted EBITDA measure to the closest corresponding GAAP measure without unreasonable efforts because we are unable to predict the ultimate outcome of certain significant items.These items include,but are not limited to,significant legal settlements,unrealized gains and losses on equity investments,tax and regulatory reserve changes,restructuring costs and acquisition and financing related impacts.Contacts Investors and analysts: Media: 8 UBER TECHNOLOGIES,INC.CONDENSED CONSOLIDATED BALANCE SHEETS(In millions)(Unaudited)As of December 31,2023 As of March 31,2024 Assets Cash and cash equivalents$4,680$5,019 Short-term investments 727 744 Restricted cash and cash equivalents 805 808 Accounts receivable,net 3,404 3,708 Prepaid expenses and other current assets 1,681 1,795 Total current assets 11,297 12,074 Restricted cash and cash equivalents 1,519 2,157 Restricted investments 4,779 4,812 Investments 6,101 5,587 Equity method investments 353 354 Property and equipment,net 2,073 2,033 Operating lease right-of-use assets 1,241 1,216 Intangible assets,net 1,425 1,335 Goodwill 8,151 8,089 Other assets 1,760 1,942 Total assets$38,699$39,599 Liabilities,redeemable non-controlling interests and equity Accounts payable$790$833 Short-term insurance reserves 2,016 2,082 Operating lease liabilities,current 190 184 Accrued and other current liabilities 6,458 6,894 Total current liabilities 9,454 9,993 Long-term insurance reserves 4,722 5,346 Long-term debt,net of current portion 9,459 9,457 Operating lease liabilities,non-current 1,550 1,520 Other long-term liabilities 832 784 Total liabilities 26,017 27,100 Redeemable non-controlling interests 654 651 Equity Common stock Additional paid-in capital 42,264 42,743 Accumulated other comprehensive loss (421)(437)Accumulated deficit (30,594)(31,248)Total Uber Technologies,Inc.stockholders equity 11,249 11,058 Non-redeemable non-controlling interests 779 790 Total equity 12,028 11,848 Total liabilities,redeemable non-controlling interests and equity$38,699$39,599 9 UBER TECHNOLOGIES,INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(In millions,except share amounts which are reflected in thousands,and per share amounts)(Unaudited)Three Months Ended March 31,2023 2024 Revenue$8,823$10,131 Costs and expenses Cost of revenue,exclusive of depreciation and amortization shown separately below 5,259 6,168 Operations and support 640 685 Sales and marketing 1,262 917 Research and development 775 790 General and administrative 942 1,209 Depreciation and amortization 207 190 Total costs and expenses 9,085 9,959 Income(loss)from operations (262)172 Interest expense (168)(124)Other income(expense),net 292 (678)Loss before income taxes and income(loss)from equity method investments (138)(630)Provision for income taxes 55 29 Income(loss)from equity method investments 36 (4)Net loss including non-controlling interests (157)(663)Less:net loss attributable to non-controlling interests,net of tax (9)Net loss attributable to Uber Technologies,Inc.$(157)$(654)Net loss per share attributable to Uber Technologies,Imon stockholders:Basic$(0.08)$(0.31)Diluted$(0.08)$(0.32)Weighted-average shares used to compute net loss per share attributable to common stockholders:Basic 2,009,557 2,078,467 Diluted 2,009,557 2,080,168 10 UBER TECHNOLOGIES,INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In millions)(Unaudited)Three Months Ended March 31,2023 2024 Cash flows from operating activities Net loss including non-controlling interests$(157)$(663)Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization 207 194 Bad debt expense 20 26 Stock-based compensation 470 484 Deferred income taxes 10 (16)Loss(income)from equity method investments,net (36)4 Unrealized(gain)loss on debt and equity securities,net (320)721 Impairments of goodwill,long-lived assets and other assets 67 Unrealized foreign currency transactions 83 150 Other 4 (59)Change in assets and liabilities,net of impact of business acquisitions and disposals:Accounts receivable 168 (422)Prepaid expenses and other assets (119)(322)Operating lease right-of-use assets 52 46 Accounts payable (7)46 Accrued insurance reserves 350 693 Accrued expenses and other liabilities (142)590 Operating lease liabilities (44)(56)Net cash provided by operating activities 606 1,416 Cash flows from investing activities Purchases of property and equipment (57)(57)Purchases of non-marketable equity securities (174)Purchases of marketable securities (846)(2,029)Proceeds from maturities and sales of marketable securities 500 2,030 Proceeds from sale of equity method investment 9 Other investing activities 4 (21)Net cash used in investing activities (399)(242)Cash flows from financing activities Issuance of term loans and notes,net of issuance costs 1,121 Principal repayment on term loan and notes (1,137)(6)Principal payments on finance leases (40)(42)Other financing activities (51)(52)Net cash used in financing activities (107)(100)Effect of exchange rate changes on cash and cash equivalents,and restricted cash and cash equivalents 16 (94)Net increase in cash and cash equivalents,and restricted cash and cash equivalents 116 980 Cash and cash equivalents,and restricted cash and cash equivalents Beginning of period 6,677 7,004 End of period$6,793$7,984 11 Other Income(Expense),Net The following table presents other income(expense),net(in millions):Three Months Ended March 31,2023 2024 (Unaudited)Interest income$87$159 Foreign currency exchange losses,net (94)(164)Unrealized gain(loss)on debt and equity securities,net(1)320 (721)Other,net (21)48 Other income(expense),net$292$(678)(1)During the three months ended March 31,2023,unrealized gain on debt and equity securities,net primarily represents changes in the fair value of our equity securities,primarily including:a$357 million unrealized gain on our Didi investment and a$54 million unrealized gain on our Aurora investment,partially offset by a$113 million unrealized loss on our Grab investment.During the three months ended March 31,2024,unrealized loss on debt and equity securities,net primarily represents changes in the fair value of our equity securities,primarily including:a$505 million unrealized loss on our Aurora investment,a$123 million unrealized loss on our Grab investment,and a$69 million unrealized loss on our Didi investment.Stock-Based Compensation Expense The following table summarizes total stock-based compensation expense by function(in millions):Three Months Ended March 31,2023 2024 (Unaudited)Operations and support$38$67 Sales and marketing 24 21 Research and development 290 299 General and administrative 118 97 Total$470$484 Key Terms for Our Key Metrics and Non-GAAP Financial Measures Adjusted EBITDA.Adjusted EBITDA is a Non-GAAP measure.We define Adjusted EBITDA as net income(loss),excluding(i)income(loss)from discontinued operations,net of income taxes,(ii)net income(loss)attributable to non-controlling interests,net of tax,(iii)provision for(benefit from)income taxes,(iv)income(loss)from equity method investments,(v)interest expense,(vi)other income(expense),net,(vii)depreciation and amortization,(viii)stock-based compensation expense,(ix)certain legal,tax,and regulatory reserve changes and settlements,(x)goodwill and asset impairments/loss on sale of assets,(xi)acquisition,financing and divestitures related expenses,(xii)restructuring and related charges and(xiii)other items not indicative of our ongoing operating performance.Adjusted EBITDA margin.We define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of Gross Bookings.We define incremental margin as the change in Adjusted EBITDA between periods divided by the change in Gross Bookings between periods.Aggregate Driver and Courier Earnings.Aggregate Driver and Courier Earnings refers to fares(net of Uber service fee,taxes and tolls),tips,Driver incentives and Driver benefits.Driver(s).The term Driver collectively refers to independent providers of ride or delivery services who use our platform to provide Mobility or Delivery services,or both.Driver or restaurant earnings.Driver or restaurant earnings refer to the net portion of the fare or the net portion of the order value that a Driver or a restaurant retains,respectively.These are generally included in aggregate Drivers and Couriers earnings.Driver incentives.Driver incentives refer to payments that we make to Drivers,which are separate from and in addition to the Drivers portion of the fare paid by the consumer after we retain our service fee to Drivers.For example,Driver incentives could 12 include payments we make to Drivers should they choose to take advantage of an incentive offer and complete a consecutive number of trips or a cumulative number of trips on the platform over a defined period of time.Driver incentives are recorded as a reduction of revenue or cost of revenue,exclusive of depreciation and amortization.These incentives are generally included in aggregate Drivers and Couriers earnings.Free cash flow.Free cash flow is a Non-GAAP measure.We define free cash flow as net cash flows from operating activities less capital expenditures.Gross Bookings.We define Gross Bookings as the total dollar value,including any applicable taxes,tolls,and fees,of:Mobility rides;Delivery orders(in each case without any adjustment for consumer discounts and refunds);Driver and Merchant earnings;Driver incentives and Freight Revenue.Gross Bookings do not include tips earned by Drivers.Gross Bookings are an indication of the scale of our current platform,which ultimately impacts revenue.Monthly Active Platform Consumers(“MAPCs”).We define MAPCs as the number of unique consumers who completed a Mobility ride or received a Delivery order on our platform at least once in a given month,averaged over each month in the quarter.While a unique consumer can use multiple product offerings on our platform in a given month,that unique consumer is counted as only one MAPC.Revenue Margin.We define Revenue Margin as revenue as a percentage of Gross Bookings.Segment Adjusted EBITDA.We define each segments Adjusted EBITDA as segment revenue less the following direct costs and expenses of that segment:(i)cost of revenue,exclusive of depreciation and amortization;(ii)operations and support;(iii)sales and marketing;(iv)research and development;and(v)general and administrative.Segment Adjusted EBITDA also reflects any applicable exclusions from Adjusted EBITDA.Segment Adjusted EBITDA margin.We define each segments Adjusted EBITDA margin as the segment Adjusted EBITDA as a percentage of segment Gross Bookings.Trips.We define Trips as the number of completed consumer Mobility rides and Delivery orders in a given period.For example,an UberX Share ride with three paying consumers represents three unique Trips,whereas an UberX ride with three passengers represents one Trip.We believe that Trips are a useful metric to measure the scale and usage of our platform.Definitions of Non-GAAP Measures We collect and analyze operating and financial data to evaluate the health of our business and assess our performance.In addition to revenue,net income(loss),income(loss)from operations,and other results under GAAP,we use:Adjusted EBITDA;Free cash flow;Non-GAAP Costs and Operating Expenses;as well as,revenue growth rates in constant currency,which are described below,to evaluate our business.We have included these non-GAAP financial measures because they are key measures used by our management to evaluate our operating performance.Accordingly,we believe that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and board of directors.Our calculation of these non-GAAP financial measures may differ from similarly-titled non-GAAP measures,if any,reported by our peer companies.These non-GAAP financial measures should not be considered in isolation from,or as substitutes for,financial information prepared in accordance with GAAP.Adjusted EBITDA We define Adjusted EBITDA as net income(loss),excluding(i)income(loss)from discontinued operations,net of income taxes,(ii)net income(loss)attributable to non-controlling interests,net of tax,(iii)provision for(benefit from)income taxes,(iv)income(loss)from equity method investments,(v)interest expense,(vi)other income(expense),net,(vii)depreciation and amortization,(viii)stock-based compensation expense,(ix)certain legal,tax,and regulatory reserve changes and settlements,(x)goodwill and asset impairments/loss on sale of assets,(xi)acquisition,financing and divestitures related expenses,(xii)restructuring and related charges and(xiii)other items not indicative of our ongoing operating performance.We have included Adjusted EBITDA because it is a key measure used by our management team to evaluate our operating performance,generate future operating plans,and make strategic decisions,including those relating to operating expenses.Accordingly,we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and board of directors.In addition,it provides a useful measure for period-to-period comparisons of our business,as it removes the effect of certain non-cash expenses and certain variable charges.Legal,tax,and regulatory reserve changes and settlements Legal,tax,and regulatory reserve changes and settlements are primarily related to certain significant legal proceedings or governmental investigations related to worker classification definitions,or tax agencies challenging our non-income tax positions.These matters have limited precedent,cover extended historical periods and are unpredictable in both magnitude and timing,therefore are distinct from normal,recurring legal,tax and regulatory matters and related expenses incurred in our ongoing operating performance.13 Limitations of Non-GAAP Financial Measures and Adjusted EBITDA Reconciliation Adjusted EBITDA has limitations as a financial measure,should be considered as supplemental in nature,and is not meant as a substitute for the related financial information prepared in accordance with GAAP.These limitations include the following:Adjusted EBITDA excludes certain recurring,non-cash charges,such as depreciation of property and equipment and amortization of intangible assets,and although these are non-cash charges,the assets being depreciated and amortized may have to be replaced in the future,and Adjusted EBITDA does not reflect all cash capital expenditure requirements for such replacements or for new capital expenditure requirements;Adjusted EBITDA excludes stock-based compensation expense,which has been,and will continue to be for the foreseeable future,a significant recurring expense in our business and an important part of our compensation strategy;Adjusted EBITDA excludes certain restructuring and related charges,part of which may be settled in cash;Adjusted EBITDA excludes other items not indicative of our ongoing operating performance;Adjusted EBITDA does not reflect period to period changes in taxes,income tax expense or the cash necessary to pay income taxes;Adjusted EBITDA does not reflect the components of other income(expense),net,which primarily includes:interest income;foreign currency exchange gains(losses),net;and unrealized gain(loss)on debt and equity securities,net;and Adjusted EBITDA excludes certain legal,tax,and regulatory reserve changes and settlements that may reduce cash available to us.Constant Currency We compare the percent change in our current period results from the corresponding prior period using constant currency disclosure.We present constant currency growth rate information to provide a framework for assessing how our underlying revenue performed excluding the effect of foreign currency rate fluctuations.We calculate constant currency by translating our current period financial results using the corresponding prior periods monthly exchange rates for our transacted currencies other than the U.S.dollar.Free Cash Flow We define free cash flow as net cash flows from operating activities less capital expenditures.Non-GAAP Costs and Operating Expenses Costs and operating expenses are defined as:cost of revenue,exclusive of depreciation and amortization;operations and support;sales and marketing;research and development;and general and administrative expenses.We define Non-GAAP costs and operating expenses as costs and operating expenses excluding:(i)stock-based compensation expense,(ii)certain legal,tax,and regulatory reserve changes and settlements,(iii)goodwill and asset impairments/loss on sale of assets,(iv)acquisition,financing and divestiture related expenses,(v)restructuring and related charges and(vi)other items not indicative of our ongoing operating performance.14 Reconciliations of Non-GAAP Measures Adjusted EBITDA The following table presents reconciliations of Adjusted EBITDA to the most directly comparable GAAP financial measure for each of the periods indicated:Three Months Ended March 31,(In millions)2023 2024 Adjusted EBITDA reconciliation:Net loss attributable to Uber Technologies,Inc.$(157)$(654)Add(deduct):Net loss attributable to non-controlling interests,net of tax (9)Provision for income taxes 55 29 (Income)loss from equity method investments (36)4 Interest expense 168 124 Other(income)expense,net (292)678 Income(loss)from operations (262)172 Add(deduct):Depreciation and amortization 207 190 Stock-based compensation expense 470 484 Legal,tax,and regulatory reserve changes and settlements 250 527 Goodwill and asset impairments/loss on sale of assets 67 (3)Acquisition,financing and divestitures related expenses 8 5 Gain on lease arrangement,net (1)Restructuring and related charges,net 22 7 Adjusted EBITDA$761$1,382 Free Cash Flow The following table presents reconciliations of free cash flow to the most directly comparable GAAP financial measure for each of the periods indicated:Three Months Ended March 31,(In millions)2023 2024 Free cash flow reconciliation:Net cash provided by operating activities$606$1,416 Purchases of property and equipment (57)(57)Free cash flow$549$1,359 Non-GAAP Costs and Operating Expenses The following tables present reconciliations of Non-GAAP costs and operating expenses to the most directly comparable GAAP financial measure for each of the periods indicated:Three Months Ended(In millions)March 31,2023 December 31,2023 March 31,2024 Non-GAAP Cost of revenue exclusive of depreciation and amortization reconciliation:GAAP Cost of revenue exclusive of depreciation and amortization$5,259$6,057$6,168 Restructuring and related charges (9)Non-GAAP Cost of revenue exclusive of depreciation and amortization$5,259$6,048$6,168 15 Three Months Ended(In millions)March 31,2023 December 31,2023 March 31,2024 Non-GAAP Operating Expenses Non-GAAP Operations and support reconciliation:GAAP Operations and support$640$702$685 Restructuring and related charges (8)(3)(2)Acquisition,financing and divestitures related expenses (3)(1)Stock-based compensation expense (38)(52)(67)Non-GAAP Operations and support$591$646$616 Non-GAAP Sales and marketing reconciliation:GAAP Sales and marketing$1,262$935$917 Restructuring and related charges (1)(1)(1)Stock-based compensation expense (24)(22)(21)Non-GAAP Sales and marketing$1,237$912$895 Non-GAAP Research and development reconciliation:GAAP Research and development$775$784$790 Restructuring and related charges (11)(3)(3)Stock-based compensation expense (290)(298)(299)Non-GAAP Research and development$474$483$488 Non-GAAP General and administrative reconciliation:GAAP General and administrative$942$603$1,209 Legal,tax,and regulatory reserve changes and settlements (250)73 (527)Goodwill and asset impairments/loss on sale of assets (67)1 3 Restructuring and related charges (2)(1)Acquisition,financing and divestitures related expenses (5)(8)(5)Gain(loss)on lease arrangements,net 1 (8)Stock-based compensation expense (118)(97)(97)Non-GAAP General and administrative$501$564$582
2024-08-04
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1Press Release Media relations:Victoire Grux Tel.:+33 6 04 52 16 55 Investor relations:Vincent Bira.
2024-08-02
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Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549 FORM 10-QQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF1934For the quarterly period ended May 12,2024orTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF1934Commission file number 0-20355Costco Wholesale Corporation(Exact name of registrant as specified in its charter)Washington 91-1223280(State or other jurisdiction ofincorporation or organization)(I.R.S.Employer Identification No.)999 Lake Drive,Issaquah,WA 98027(Address of principal executive offices)(Zip Code)(Registrants telephone number,including area code):(425)313-8100Securities registered pursuant to Section 12(b)of the Act:Title of each classTrading symbol(s)Name of each exchange on which registeredCommon Stock,$.005 Par ValueCOSTThe Nasdaq Global Select MarketIndicate 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 of1934 during the preceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject tosuch 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 Rule405 of Regulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required tosubmit 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 reportingcompany,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 withany new 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 The number of shares outstanding of the issuers common stock as of May 29,2024 was 443,335,024.1Table of ContentsCOSTCO WHOLESALE CORPORATIONINDEX TO FORM 10-Q PagePART IFINANCIAL INFORMATIONItem 1.Financial Statements3Condensed Consolidated Statements of Income3Condensed Consolidated Statements of Comprehensive Income4Condensed Consolidated Balance Sheets5Condensed Consolidated Statements of Equity6Condensed Consolidated Statements of Cash Flows8Notes to Condensed Consolidated Financial Statements9Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations18Item 3.Quantitative and Qualitative Disclosures About Market Risk26Item 4.Controls and Procedures26PART IIOTHER INFORMATIONItem 1.Legal Proceedings27Item 1A.Risk Factors27Item 2.Unregistered Sales of Equity Securities and Use of Proceeds27Item 3.Defaults Upon Senior Securities27Item 4.Mine Safety Disclosures28Item 5.Other Information28Item 6.Exhibits28Signatures292Table of ContentsPART IFINANCIAL INFORMATIONItem 1Financial StatementsCOSTCO WHOLESALE CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF INCOME(amounts in millions,except per share data)(unaudited)12 Weeks Ended36 Weeks EndedMay 12,2024May 7,2023May 12,2024May 7,2023REVENUENet sales$57,392$52,604$171,440$160,280 Membership fees1,123 1,044 3,316 3,071 Total revenue58,515 53,648 174,756 163,351 OPERATING EXPENSESMerchandise costs51,173 47,175 152,770 143,367 Selling,general and administrative5,145 4,794 15,743 14,651 Operating income2,197 1,679 6,243 5,333 OTHER INCOME(EXPENSE)Interest expense(41)(36)(120)(104)Interest income and other,net128 128 504 295 INCOME BEFORE INCOME TAXES2,284 1,771 6,627 5,524 Provision for income taxes603 469 1,614 1,392 NET INCOME$1,681$1,302$5,013$4,132 NET INCOME PER COMMON SHARE:Basic$3.79$2.94$11.29$9.31 Diluted$3.78$2.93$11.27$9.30 Shares used in calculation(000s):Basic443,892 443,814 443,870 443,843 Diluted444,828 444,360 444,662 444,455 The accompanying notes are an integral part of these condensed consolidated financial statements.3Table of ContentsCOSTCO WHOLESALE CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(amounts in millions)(unaudited)12 Weeks Ended36 Weeks Ended May 12,2024May 7,2023May 12,2024May 7,2023NET INCOME$1,681$1,302$5,013$4,132 Foreign-currency translation adjustment and other,net(80)(8)(117)149 COMPREHENSIVE INCOME$1,601$1,294$4,896$4,281 The accompanying notes are an integral part of these condensed consolidated financial statements.4Table of ContentsCOSTCO WHOLESALE CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETS(amounts in millions,except par value and share data)(unaudited)May 12,2024September 3,2023ASSETSCURRENT ASSETSCash and cash equivalents$10,404$13,700 Short-term investments1,095 1,534 Receivables,net2,583 2,285 Merchandise inventories17,430 16,651 Other current assets1,776 1,709 Total current assets33,288 35,879 OTHER ASSETSProperty and equipment,net28,062 26,684 Operating lease right-of-use assets2,643 2,713 Other long-term assets3,918 3,718 TOTAL ASSETS$67,911$68,994 LIABILITIES AND EQUITYCURRENT LIABILITIESAccounts payable$18,844$17,483 Accrued salaries and benefits4,365 4,278 Accrued member rewards2,339 2,150 Deferred membership fees2,553 2,337 Current portion of long-term debt1,077 1,081 Other current liabilities6,183 6,254 Total current liabilities35,361 33,583 OTHER LIABILITIESLong-term debt,excluding current portion5,834 5,377 Long-term operating lease liabilities2,386 2,426 Other long-term liabilities2,559 2,550 TOTAL LIABILITIES46,140 43,936 COMMITMENTS AND CONTINGENCIESEQUITYPreferred stock$0.005 par value;100,000,000 shares authorized;no shares issued andoutstanding Common stock$0.005 par value;900,000,000 shares authorized;443,374,000 and442,793,000 shares issued and outstanding2 2 Additional paid-in capital7,702 7,340 Accumulated other comprehensive loss(1,922)(1,805)Retained earnings15,989 19,521 TOTAL EQUITY21,771 25,058 TOTAL LIABILITIES AND EQUITY$67,911$68,994 The accompanying notes are an integral part of these condensed consolidated financial statements.5Table of ContentsCOSTCO WHOLESALE CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF EQUITY(amounts in millions)(unaudited)12 Weeks Ended May 12,2024 Common StockAdditionalPaid-inCapitalAccumulatedOtherComprehensiveIncome(Loss)RetainedEarningsTotal CostcoStockholdersEquityNoncontrollingInterestsTotalEquity Shares(000s)AmountBALANCE ATFEBRUARY 18,2024443,549$2$7,620$(1,842)$14,980$20,760$20,760 Net income 1,681 1,681 1,681 Foreign-currencytranslation adjustmentand other,net (80)(80)(80)Stock-basedcompensation 107 107 107 Release of vestedrestricted stock units(RSUs),including taxeffects46 (21)(21)(21)Repurchases ofcommon stock(221)(4)(158)(162)(162)Cash dividend declaredand other (514)(514)(514)BALANCE AT MAY 12,2024443,374$2$7,702$(1,922)$15,989$21,771$21,771 12 Weeks Ended May 7,2023 Common StockAdditionalPaid-inCapitalAccumulatedOtherComprehensiveIncome(Loss)RetainedEarningsTotal CostcoStockholdersEquityNoncontrollingInterestsTotalEquity Shares(000s)AmountBALANCE ATFEBRUARY 12,2023443,550$2$7,123$(1,672)$17,341$22,794$5$22,799 Net income 1,302 1,302 1,302 Foreign-currencytranslation adjustmentand other,net (8)(8)(8)Stock-basedcompensation 94 94 94 Release of vestedRSUs,including taxeffects1 Repurchases ofcommon stock(329)(6)(156)(162)(162)Cash dividend declared (452)(452)(452)BALANCE AT MAY 7,2023443,222$2$7,211$(1,680)$18,035$23,568$5$23,573 The accompanying notes are an integral part of these condensed consolidated financial statements.6Table of ContentsCOSTCO WHOLESALE CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF EQUITY(amounts in millions)(unaudited)36 Weeks Ended May 12,2024 Common StockAdditionalPaid-inCapitalAccumulatedOtherComprehensiveIncome(Loss)RetainedEarningsTotal CostcoStockholdersEquityNoncontrollingInterestsTotalEquity Shares(000s)AmountBALANCE ATSEPTEMBER 3,2023442,793$2$7,340$(1,805)$19,521$25,058$25,058 Net income 5,013 5,013 5,013 Foreign-currencytranslation adjustmentand other,net (117)(117)(117)Stock-basedcompensation 689 689 689 Release of vestedRSUs,including taxeffects1,330 (313)(313)(313)Repurchases ofcommon stock(749)(14)(470)(484)(484)Cash dividendsdeclared and other (8,075)(8,075)(8,075)BALANCE AT MAY 12,2024443,374$2$7,702$(1,922)$15,989$21,771$21,771 36 Weeks Ended May 7,2023 Common StockAdditionalPaid-inCapitalAccumulatedOtherComprehensiveIncome(Loss)RetainedEarningsTotal CostcoStockholdersEquityNoncontrollingInterestsTotalEquity Shares(000s)AmountBALANCE AT AUGUST28,2022442,664$2$6,884$(1,829)$15,585$20,642$5$20,647 Net income 4,132 4,132 4,132 Foreign-currencytranslation adjustmentand other,net 149 149 149 Stock-basedcompensation 645 645 645 Release of vestedRSUs,including taxeffects1,466 (302)(302)(302)Repurchases ofcommon stock(908)(16)(431)(447)(447)Cash dividendsdeclared (1,251)(1,251)(1,251)BALANCE AT MAY 7,2023443,222$2$7,211$(1,680)$18,035$23,568$5$23,573 The accompanying notes are an integral part of these condensed consolidated financial statements.7Table of ContentsCOSTCO WHOLESALE CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(amounts in millions)(unaudited)36 Weeks EndedMay 12,2024May 7,2023CASH FLOWS FROM OPERATING ACTIVITIESNet income$5,013$4,132 Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization1,531 1,389 Non-cash lease expense220 300 Stock-based compensation686 643 Impairment of assets and other non-cash operating activities,net(35)441 Changes in operating assets and liabilities:Merchandise inventories(831)1,596 Accounts payable1,380(872)Other operating assets and liabilities,net417(286)Net cash provided by operating activities8,381 7,343 CASH FLOWS FROM INVESTING ACTIVITIESPurchases of short-term investments(1,007)(947)Maturities of short-term investments1,441 594 Additions to property and equipment(3,133)(2,767)Other investing activities,net(7)(27)Net cash used in investing activities(2,706)(3,147)CASH FLOWS FROM FINANCING ACTIVITIESRepayments of short-term borrowings(637)(698)Proceeds from short-term borrowings628 667 Repayments of long-term debt(75)Proceeds from issuance of long-term debt498 Tax withholdings on stock-based awards(313)(302)Repurchases of common stock(484)(446)Cash dividend payments(8,527)(799)Financing lease payments(112)(204)Other financing activities,net(1)(93)Net cash used in financing activities(8,948)(1,950)EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS(23)44 Net change in cash and cash equivalents(3,296)2,290 CASH AND CASH EQUIVALENTS BEGINNING OF YEAR13,700 10,203 CASH AND CASH EQUIVALENTS END OF PERIOD$10,404$12,493 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the first thirty-six weeks of the year for:Interest$90$86 Income taxes,net$1,449$1,443 SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:Cash dividend declared,but not yet paid$452 Financing lease assets obtained in exchange for new or modified leases$173$101 Operating lease assets obtained in exchange for new or modified leases$117$160 Capital expenditures included in liabilities$181$114 The accompanying notes are an integral part of these condensed consolidated financial statements.8Table of ContentsCOSTCO WHOLESALE CORPORATIONNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(amounts in millions,except share,per share,and warehouse count data)(unaudited)Note 1Summary of Significant Accounting PoliciesDescription of BusinessCostco Wholesale Corporation(Costco or the Company),a Washington corporation,and its subsidiaries operate membership warehousesbased on the concept that offering members low prices on a limited selection of nationally-branded and private-label products in a wide range ofmerchandise categories will produce high sales volumes and rapid inventory turnover.At May 12,2024,Costco operated 876 warehousesworldwide:604 in the United States(U.S.)located in 47 states,Washington,D.C.,and Puerto Rico,108 in Canada,40 in Mexico,33 inJapan,29 in the United Kingdom(U.K.),18 in Korea,15 in Australia,14 in Taiwan,six in China,four in Spain,two in France,and one eachin Iceland,New Zealand,and Sweden.The Company operates e-commerce sites in the U.S.,Canada,the U.K.,Mexico,Korea,Taiwan,Japan,and Australia.Basis of PresentationThe condensed consolidated financial statements include the accounts of Costco and its wholly-owned subsidiaries.All material inter-companytransactions among the Company and its consolidated subsidiaries have been eliminated in consolidation.These unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q for interimfinancial reporting pursuant to the rules and regulations of the Securities and Exchange Commission(SEC).While these statements reflect allnormal recurring adjustments that are,in the opinion of management,necessary for fair presentation of the results of the interim period,they donot include all of the information and footnotes required by U.S.generally accepted accounting principles(U.S.GAAP)for complete financialstatements.Therefore,the interim condensed consolidated financial statements should be read in conjunction with the consolidated financialstatements and notes included in the Companys Annual Report on Form 10-K for the fiscal year ended September 3,2023.Fiscal Year EndThe Company operates on a 52/53 week fiscal year basis,with the fiscal year ending on the Sunday closest to August 31.Fiscal 2024 is a 52-week year ending on September 1,2024.References to the third quarter of 2024 and 2023 relate to the 12-week fiscal quarters ended May 12,2024,and May 7,2023.References to the first thirty-six weeks of 2024 and 2023 relate to the 36 weeks ended May 12,2024,and May 7,2023.Use of EstimatesThe preparation of financial statements in conformity with U.S.GAAP requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and thereported amounts of revenues and expenses during the reporting period.These estimates and assumptions take into account historical andforward-looking factors that the Company believes are reasonable.Actual results could differ from those estimates and assumptions.ReclassificationReclassifications were made to the condensed consolidated statement of cash flows for the first thirty-six weeks of fiscal 2023 to conform withcurrent year presentation.9Table of ContentsRecent Accounting Pronouncements Not Yet AdoptedIn November 2023,the Financial Accounting Standards Board(FASB)issued Accounting Standards Update(ASU)2023-07,which is intended toimprove reportable segment disclosure requirements,primarily about significant segment expenses.The standard is effective for fiscal yearsbeginning after December 15,2023,and interim periods within fiscal years beginning after December 15,2024,with early adoption permitted.The amendments should be applied retrospectively to all prior periods presented in the financial statements.In December 2023,the FASB issued ASU 2023-09,which focuses on income tax disclosures by requiring public business entities,on an annualbasis,to disclose specific categories in the rate reconciliation,provide information for reconciling items that meet a quantitative threshold,andcertain information about income taxes paid.The standard is effective for annual periods beginning after December 15,2024,with early adoptionpermitted.The amendments should be applied on a prospective basis.Retrospective application is permitted.The Company is evaluating both standards.Note 2InvestmentsThe Companys investments were as follows:May 12,2024:CostBasisUnrealizedLosses,NetRecordedBasisAvailable-for-sale:Government and agency securities$687$(17)$670 Held-to-maturity:Certificates of deposit425 425 Total short-term investments$1,112$(17)$1,095 September 3,2023:CostBasisUnrealizedLosses,NetRecordedBasisAvailable-for-sale:Government and agency securities$650$(17)$633 Held-to-maturity:Certificates of deposit901 901 Total short-term investments$1,551$(17)$1,534 Gross unrealized holding gains and losses on available-for-sale securities were not material for the periods ended May 12,2024,orSeptember 3,2023.At those dates,there were no available-for-sale securities in a material continuous unrealized-loss position.There were nosales of available-for-sale securities during the first thirty-six weeks of 2024 or 2023.The maturities of available-for-sale and held-to-maturity securities at May 12,2024,are as follows:Available-For-SaleHeld-To-Maturity Cost BasisFair ValueDue in one year or less$134$133$425 Due after one year through five years389 381 Due after five years164 156 Total$687$670$425 10Table of ContentsNote 3Fair Value MeasurementAssets and Liabilities Measured at Fair Value on a Recurring BasisThe table below presents information regarding the Companys financial assets and financial liabilities that are measured at fair value on arecurring basis and indicates the level within the hierarchy reflecting the valuation techniques utilized.Level 2May 12,2024September 3,2023Investment in government and agency securities$670$633 Forward foreign-exchange contracts,in asset position15 18 Forward foreign-exchange contracts,in(liability)position(3)(7)Total$682$644 _(1)The asset and liability values are included in other current assets and other current liabilities,respectively,in the accompanying condensed consolidated balance sheets.At May 12,2024,and September 3,2023,the Company did not hold any Level 1 or 3 financial assets or liabilities that were measured at fairvalue on a recurring basis.There were no transfers between levels during the first thirty-six weeks of 2024 or 2023.Assets and Liabilities Measured at Fair Value on a Nonrecurring BasisAssets and liabilities recognized and disclosed at fair value on a nonrecurring basis include items such as financial assets measured atamortized cost and long-lived nonfinancial assets.These assets are measured at fair value if determined to be impaired.There were no materialfair value adjustments to these items during the first thirty-six weeks of 2024.During the first and third quarter of 2023,the Company recognizedin merchandise costs charges of$93 and$298,primarily related to the impairment of certain leased assets associated with charter shippingactivities,now discontinued.Note 4DebtThe carrying value of the Companys long-term debt consisted of the following:May 12,2024September 3,20232.750%Senior Notes due May 2024$1,000$1,000 3.000%Senior Notes due May 20271,000 1,000 1.375%Senior Notes due June 20271,250 1,250 1.600%Senior Notes due April 20301,750 1,750 1.750%Senior Notes due April 20321,000 1,000 Other long-term debt933 484 Total long-term debt6,933 6,484 Less unamortized debt discounts and issuance costs22 26 Less current portion1,077 1,081 Long-term debt,excluding current portion$5,834$5,377 _(1)Net of unamortized debt discounts and issuance costs.(1)(1)(1)11Table of ContentsThe fair value of the Senior Notes is estimated using Level 2 inputs.Other long-term debt consists of Guaranteed Senior Notes issued by theCompanys Japan subsidiary,valued using Level 3 inputs.In November 2023,the Companys Japan subsidiary issued four Guaranteed SeniorNotes,totaling approximately$500,at fixed interest rates ranging from 1.400%to 2.120%.Interest is payable semi-annually,and maturity datesrange from November 7,2033,to November 7,2043.The fair value of the Companys long-term debt,including the current portion,wasapproximately$6,252 and$5,738 at May 12,2024,and September 3,2023.Subsequent to the end of the quarter on May 18,2024,the Company paid the outstanding principal balance and interest on the 2.750%SeniorNotes using cash and cash equivalents and short-term investments.Note 5EquityDividendsA quarterly cash dividend of$1.16 per share was declared on April 10,2024,and paid on May 10,2024.The dividend was$1.02 per share in thethird quarter of 2023.On January 12,2024,an aggregate payment of approximately$6,655 was made in connection with a special dividend of$15.00 per share,declared on December 13,2023.Stock Repurchase ProgramsThe Companys stock repurchase program is conducted under a$4,000 authorization by the Board of Directors,which expires in January 2027.At May 12,2024,the remaining amount available under the program was$3,079.The following table summarizes the repurchase activity:Shares Repurchased(000s)Average Price per ShareTotal CostThird quarter of 2024221$733.23$162 First thirty-six weeks of 2024749$646.07$484 Third quarter of 2023329$492.71$162 First thirty-six weeks of 2023908$492.30$447 These amounts may differ from the accompanying condensed consolidated statements of cash flows due to changes in unsettled stockrepurchases at the end of each quarter.Purchases are made from time to time,as conditions warrant,in the open market or in block purchasesand pursuant to plans under SEC Rule 10b5-1.Note 6Stock-Based CompensationThe 2019 Incentive Plan authorized the issuance of up to a maximum of 15,885,000 RSUs.To preserve the value of outstanding awards,thenumber of RSUs that may be granted under this Plan is subject to adjustments from changes in capital structure.The Company issues newshares of common stock upon vesting of RSUs.Shares for vested RSUs are generally delivered to participants annually,net of shares withheldfor taxes.As required by the 2019 Incentive Plan,in conjunction with the 2024 special dividend,the number of shares subject to outstanding RSUs wasincreased on the dividend record date to preserve their value.They were adjusted by multiplying the number of outstanding shares by a factor of1.018,representing the ratio of the Nasdaq closing price of$674.62 on December 26,2023,which was the last trading day immediately prior tothe ex-dividend date,to the Nasdaq opening price of$662.70 on the ex-dividend date,December 27,2023.The outstanding RSUs increased byapproximately 52,000.The adjustment did not result in additional stock-based compensation expense,as the fair value of the awards did not12Table of Contentschange.As further required by the 2019 Incentive Plan,the maximum number of shares issuable under the plan was proportionally adjusted,which resulted in an additional 128,000 RSU shares available to be granted.Summary of Restricted Stock Unit ActivityAt May 12,2024,7,255,000 shares were available to be granted as RSUs,and the following awards,adjusted for the effects of the specialdividend,were outstanding:2,665,000 time-based RSUs,which vest upon continued employment over specified periods and accelerate upon achievement of a long-service term;70,000 performance-based RSUs granted to executive officers of the Company,for which the performance targets have been met.Theawards vest upon continued employment over specified periods of time and upon achievement of a long-service term;and95,000 performance-based RSUs granted to executive officers of the Company,subject to achievement of performance targets for 2024,as determined by the Compensation Committee of the Board of Directors after the end of the fiscal year.These awards are included inthe table below.The Company recognized compensation expense for these awards in the third quarter of 2024,as it is currently deemedprobable that the targets will be achieved.The following table summarizes RSU transactions during the first thirty-six weeks of 2024:Number ofUnits(in 000s)Weighted-AverageGrant Date Fair ValueOutstanding at September 3,20233,045$405.63 Granted1,677 547.26 Vested and delivered(1,887)431.68 Forfeited(57)456.30 Special dividend52 N/AOutstanding at May 12,20242,830$463.09 The remaining unrecognized compensation cost related to RSUs unvested at May 12,2024,was$990,and the weighted-average period overwhich this cost will be recognized is 1.7 years.Summary of Stock-Based CompensationThe following table summarizes stock-based compensation expense and the related tax benefits:12 Weeks Ended36 Weeks EndedMay 12,2024May 7,2023May 12,2024May 7,2023Stock-based compensation expense$106$94$686$643 Less recognized income tax benefits24 21 144 134 Stock-based compensation expense,net$82$73$542$509 13Table of ContentsNote 7Net Income per Common and Common Equivalent ShareThe following table shows the amounts used in computing net income per share and the weighted average number of shares of basic and ofpotentially dilutive common shares outstanding(shares in 000s):12 Weeks Ended36 Weeks EndedMay 12,2024May 7,2023May 12,2024May 7,2023Net income$1,681$1,302$5,013$4,132 Weighted average basic shares443,892 443,814 443,870 443,843 RSUs936 546 792 612 Weighted average diluted shares444,828 444,360 444,662 444,455 Basic earnings per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding duringthe period.Diluted earnings per share is calculated based on the dilutive effect of RSUs using the treasury stock method.Note 8Commitments and ContingenciesLegal ProceedingsThe Company is involved in many claims,proceedings and litigations arising from its business and property ownership.In accordance withapplicable accounting guidance,the Company establishes an accrual for legal proceedings if and when those matters present loss contingenciesthat are both probable and reasonably estimable.There may be losses in excess of amounts accrued.The Company monitors those matters fordevelopments that would affect the likelihood of a loss(taking into account where applicable indemnification arrangements concerning suppliersand insurers)and the accrued amount,if any,thereof,and adjusts the amount as appropriate.The Company has recorded immaterial accrualswith respect to certain matters described below,in addition to other immaterial accruals for matters not described below.If the loss contingencyat issue is not both probable and reasonably estimable,the Company does not establish an accrual,but monitors for developments that makethe contingency both probable and reasonably estimable.In each case,there is a reasonable possibility that a loss may be incurred,including aloss in excess of the applicable accrual.For matters where no accrual has been recorded,the possible loss or range of loss(including any lossin excess of the accrual)cannot,in the Companys view,be reasonably estimated because,among other things:the remedies or penaltiessought are indeterminate or unspecified;the legal and/or factual theories are not well developed;and/or the matters involve complex or novellegal theories or a large number of parties.In November 2023,a former employee filed a class action against the Company alleging claims under California law for failure to pay minimumwage,failure to pay overtime,failure to provide meal and rest breaks,failure to provide accurate wage statements,failure to reimburseexpenses,failure to pay wages when due,and failure to pay sick pay.Martin Reyes v.Costco Wholesale Corporation,Sacramento CountySuperior Court(Case No.23cv011351),removed to federal court,Case No.2:24-cv-00300(E.D.Cal.).An amended complaint was filed,whichthe Company has moved to dismiss.In January 2024,the same plaintiff filed a related Private Attorneys General Act(PAGA)representativeaction,seeking civil penalties and asserting the same alleged underlying Labor Code violations and an additional suitable seating claim.In May2024,the plaintiff filed an amended PAGA complaint,as to which the Company has not responded.In October 2023,current and former employees filed suit against the Company asserting collective and class claims on behalf of all“JuniorManagers”under the Fair Labor Standards Act and New York Labor Law,for failure to pay overtime compensation and for inaccurate wagestatements under New York law.Lock et al.v.Costco Wholesale Corp.(Case No.2:23-cv-07904;E.D.N.Y.).On February 1,2024,the14Table of ContentsCompany served a motion to dismiss the inaccurate wage-statement claim.On April 5,2024,plaintiffs filed a motion for conditional certificationunder the Act,which the Company has opposed.In October 2023,a current employee filed suit against the Company asserting collective and class claims on behalf of all“supervisors”employedin New Jersey,under the Fair Labor Standards Act and New Jersey Wage and Hour Law for failure to pay all hours worked.Shah v.CostcoWholesale Corp.(Case No.2:23-cv-21286;D.N.J.).On December 26,2023,the Company filed its answer,denying all claims.In July 2021,a former temporary staffing employee filed a class action against the Company and a staffing company,alleging violations of theCalifornia Labor Code regarding payment of wages,meal and rest periods,wage statements,the timeliness of wages and final wages,and forunfair business practices.Dimas v.Costco Wholesale Corp.(Case No.STK-CV-UOE-2021-0006024;San Joaquin Superior Court).TheCompany has moved to compel arbitration of the plaintiffs individual claims and to dismiss the class action complaint.On September 7,2021,the same plaintiff filed a separate representative action under the California Private Attorneys General Act,asserting the same Labor Codeviolations and seeking civil penalties and attorneys fees.The case has been stayed pending arbitration of the plaintiffs individual claims.In May 2022,an employee filed an action under the California Private Attorneys General Act against the Company,alleging claims under theCalifornia Labor Code regarding the payment of wages,meal and rest periods,the timeliness of wages and final wages,wage statements,accurate records and business expenses.Gonzalez v.Costco Wholesale Corp.(Case No.22AHCV00255;Los Angeles Superior Court).TheCompany filed an answer denying the allegations.On October 31,2023,a settlement was reached for an immaterial amount.A hearing onpreliminary approval of the settlement is scheduled for June 2024.Beginning in December 2017,the United States Judicial Panel on Multidistrict Litigation consolidated numerous cases concerning the impacts ofopioid abuses filed against various defendants by counties,cities,hospitals,Native American tribes,third-party payors,and others.In re NationalPrescription Opiate Litigation(MDL No.2804)(N.D.Ohio).Included are cases filed against the Company by counties and cities in Michigan,New Jersey,Oregon,Virginia and South Carolina,a third-party payor in Ohio,and a hospital in Texas,class actions filed on behalf of infants bornwith opioid-related medical conditions in 40 states,and class actions and individual actions filed on behalf of individuals seeking to recoveralleged increased insurance costs associated with opioid abuse in 43 states and American Samoa.Claims against the Company filed in federalcourt outside the MDL have been asserted by certain counties and cities in Florida and Georgia;claims filed by certain cities and counties inNew York are pending in state court.Claims against the Company in state courts in New Jersey,Oklahoma,Utah,and Arizona have beendismissed.The Company is defending all of the pending matters.Members of the Board of Directors,six corporate officers and the Company were defendants in a shareholder derivative action filed in June 2022related to chicken welfare and alleged breaches of fiduciary duties.Smith,et ano.v.Vachris,et al.,Superior Court of the State of Washington,County of King,No,22-2-08937-7SEA.The complaint sought from the individual defendants damages,injunctive relief,costs,and attorneysfees.On March 28,2023,the court granted the defendants motion to dismiss the action.The plaintiffs subsequently made a demand that theBoard of Directors take various actions,including among other things,pursuing claims against directors and officers of the type asserted in thelitigation.A demand review committee of the Board was appointed to make a recommendation to the Board as to the demand.On April 10,2024,the committee recommended to the Board that the demand be refused.The Board accepted the recommendation and unanimously determinedto refuse the demand.In October 2021 the Company received a notice that the Quebec Health Insurance Board had commenced an inquiry to determine whether theCompany had given or received improper payments for drugs that are covered by the provinces prescription drug program from drugwholesalers,generic drug manufacturers or the independent pharmacist who owns and operates the pharmacies located in the CompanysQuebec locations.The inquiry covers a period beginning January 1,2017.15Table of ContentsThe Company is a named defendant in four bodily injury actions relating to its sale of Real Water,an alkalized water previously sold at theCompany and other retailers.Kaveh et al.v.Costco Wholesale Corp.et al.,Case No.A23-864391-B,District Court,Clark County,NV Wei,et al.v.Costco Wholesale Corp.et al.Case No.A-22-856147-B,District Court,Clark County,NV Henry et al.v.Costco Wholesale Corp.et al.,CaseNo.A21844176-B,District Court,Clark County,NV Lampman et al.vs.Costco Wholesale Corp.et al.Case No.A-23-868638-C,District Court,Clark County,NV.The plaintiffs allegedly sustained liver or other bodily damage as a result of consuming the product,and seek compensatoryand punitive damages from all defendants,which include the manufacturer,distributors,testing equipment makers and retailers.The case is setfor trial March 17,2025.Wei and Henry have been consolidated with Brown et al.vs.AffinityL,Inc.,et al.,Case No.A-21-831776-B,District Court,Clark County,NV.The Company is not a named defendant in Brown.Wei/Henry/Brown is set for trial starting October 7,2024.Lampman does not have a trial date.In February 2023,Go Green Norcal,LLC filed an arbitration demand against the Company.The demand alleged a breach of a supply agreementand sought unspecified damages and cancellation of a loan from the Company.In March 2023,the Company filed its answer,denying anybreach by the Company,along with counterclaims against Go Green and an affiliate for breach of contract,negligent misrepresentation,and anaccounting.An award to the plaintiffs of an immaterial amount was paid in February 2024.Between September 25,2023,and October 31,2023,five class action suits were filed against the Company alleging various privacy lawviolations stemming from pixel trackers on C:Birdwell v.Costco Wholesale Corp.,Case No.T23-1405,Contra Costa County SuperiorCourt;and Scott v.Costco Wholesale Corp.,Case No.2:23-cv-08808(C.D.Cal.),now consolidated with R.S.v.Costco Wholesale Corp.,CaseNo.2:23-cv-01628(W.D.Wash.);Groves,et ano.v.Costco Wholesale Corp.,Case No.2:23-cv-01662(W.D.Wash.),and Castillo v.CostcoWholesale Corp.,under Case No.2:34-cv-01548(W.D.Wash.).The Castillo plaintiffs filed a consolidated complaint on January 26,2024,whichseeks damages,equitable relief and attorneys fees under various statutes,including the Washington Consumer Protection Act,WashingtonPrivacy Act,Washington Uniform Health Care Information Act,Electronic Communications Privacy Act,California Invasion of Privacy Act,andCalifornia Confidentiality of Medical Information Act.The consolidated complaint also alleges breach of implied contract,invasion of privacy,conversion,and unjust enrichment.The Company filed a motion to dismiss the Castillo complaint on March 11,2024.In Birdwell,the Companyfiled a motion to dismiss and demurrer on January 22,2024.On May 5,2024,the Birdwell Court granted the demurrer with leave to amend andrequested additional briefing on whether the case should be stayed in favor of Castillo.On May 16,2024,the parties stipulated to stay Birdwellpending resolution of Castillo.On January 2,2024,the Company received a related civil investigative demand from the Washington AttorneyGenerals Office.On January 3,2024,the Company received a related pre-litigation letter from the Los Angeles Office of the County Counsel.The Company is in the process of responding to both.In January 2023 the Company received a Civil Investigative Demand from the U.S.Attorneys Office,Western District of Washington,requestingdocuments.The government is conducting a False Claims Act investigation concerning whether the Company presented or caused to bepresented to the federal government for payment false claims relating to prescription medications.In May 2024 the Company received a Notice of Intent to File Administrative Complaint for Violations of the Federal Insecticide,Fungicide andRodenticide Act(FIFRA)from the U.S.Environmental Protection Agency.The EPA is seeking administrative fines for importation,sale anddistribution of misbranded devices and unregistered products the government asserts are pesticides under FIFRA.The Company does not believe that any pending claim,proceeding or litigation,either alone or in the aggregate,will have a material adverseeffect on the Companys financial position,results of operations or cash flows;it is possible that an unfavorable outcome of some or all of thematters,however unlikely,could result in a charge that might be material to the results of an individual fiscal quarter or year.16Table of ContentsNote 9Segment ReportingThe Company is principally engaged in the operation of membership warehouses through wholly owned subsidiaries in the U.S.,Canada,Mexico,Japan,the U.K.,Korea,Australia,Taiwan,China,Spain,France,Iceland,New Zealand,and Sweden.Reportable segments are largelybased on managements organization of the operating segments for operational decisions and assessments of financial performance,whichconsider geographic locations.The material accounting policies of the segments are as described in the notes to the consolidated financialstatements included in the Companys Annual Report filed on Form 10-K for the fiscal year ended September 3,2023,and Note 1 above.Inter-segment net sales and expenses have been eliminated in calculating total revenue and operating income.The following table provides information for the Companys reportable segments:United StatesCanadaOtherInternationalTotal12 Weeks Ended May 12,2024Total revenue$42,449$8,014$8,052$58,515 Operating income1,476 394 327 2,197 12 Weeks Ended May 7,2023Total revenue$39,049$7,268$7,331$53,648 Operating income1,027 327 325 1,679 36 Weeks Ended May 12,2024Total revenue$126,234$23,789$24,733$174,756 Operating income4,128 1,109 1,006 6,243 36 Weeks Ended May 7,2023Total revenue$119,339$21,923$22,089$163,351 Operating income3,558 899 876 5,333 53 Weeks Ended September 3,2023Total revenue$176,630$33,056$32,604$242,290 Operating income5,392 1,448 1,274 8,114 Disaggregated RevenueThe following table summarizes net sales by merchandise category;sales from e-commerce sites and business centers have been allocated tothe applicable merchandise categories:12 Weeks Ended36 Weeks EndedMay 12,2024May 7,2023May 12,2024May 7,2023Foods and Sundries$23,065$21,298$69,764$64,672 Non-Foods14,518 13,087 44,301 41,860 Fresh Foods7,888 7,194 23,212 21,287 Warehouse Ancillary and Other Businesses11,921 11,025 34,163 32,461 Total net sales$57,392$52,604$171,440$160,280 17Table of ContentsItem 2Managements Discussion and Analysis of Financial Condition and Results of Operations(amounts in millions,except per share,share,percentages and warehouse count data)FORWARD-LOOKING STATEMENTSCertain statements contained in this document constitute forward-looking statements within the meaning of the Private Securities LitigationReform Act of 1995.For these purposes,forward-looking statements are statements that address activities,events,conditions or developmentsthat the Company expects or anticipates may occur in the future and may relate to such matters as net sales growth,changes in comparablesales,cannibalization of existing locations by new openings,price or fee changes,earnings performance,earnings per share,stock-basedcompensation expense,warehouse openings and closures,capital spending,the effect of adopting certain accounting standards,future financialreporting,financing,margins,return on invested capital,strategic direction,expense controls,membership renewal rates,shopping frequency,litigation,and the demand for our products and services.In some cases,forward-looking statements can be identified because they containwords such as“anticipate,”“believe,”“continue,”“could,”“estimate,”“expect,”“intend,”“likely,”“may,”“might,”“plan,”“potential,”“predict,”“project,”“seek,”“should,”“target,”“will,”“would,”or similar expressions and the negatives of those terms.Such forward-looking statementsinvolve risks and uncertainties that may cause actual events,results or performance to differ materially from those indicated by such statements.These risks and uncertainties include,but are not limited to,domestic and international economic conditions,including exchange rates,inflationor deflation,the effects of competition and regulation,uncertainties in the financial markets,consumer and small business spending patterns anddebt levels,breaches of security or privacy of member or business information,conditions affecting the acquisition,development,ownership oruse of real estate,capital spending,actions of vendors,rising costs associated with employees(generally including health-care costs andwages),energy and certain commodities,geopolitical conditions(including tariffs),the ability to maintain effective internal control over financialreporting,regulatory and other impacts related to climate change,public-health related factors,and other risks identified from time to time in theCompanys public statements and reports filed with the Securities and Exchange Commission.Forward-looking statements speak only as of thedate they are made,and the Company does not undertake to update these statements,except as required by law.OVERVIEWManagements Discussion and Analysis of Financial Condition and Results of Operations(MD&A)is intended to promote understanding of theresults of operations and financial condition.MD&A is provided as a supplement to,and should be read in conjunction with,our condensedconsolidated financial statements and the accompanying Notes to Financial Statements(Part I,Item 1 of this Form 10-Q),as well as ourconsolidated financial statements,the accompanying Notes to Financial Statements,and the related Managements Discussion and Analysis ofFinancial Condition and Results of Operations in our fiscal year 2023 Form 10-K,filed with the United States Securities and ExchangeCommission on October 11,2023.We operate membership warehouses and e-commerce sites based on the concept that offering members low prices on a limited selection ofquality nationally-branded and private-label products in a wide range of categories will produce high sales volumes and rapid inventory turnover.When combined with the operating efficiencies achieved by volume purchasing,efficient distribution and reduced handling of merchandise in no-frills,self-service warehouse facilities,these volumes and turnover enable us to operate profitably at significantly lower gross margins(net salesless merchandise costs)than most other retailers.We often sell inventory before we are required to pay for it,even while taking advantage ofearly payment discounts.We believe that the most important driver of our profitability is increasing net sales,particularly comparable sales.Net sales includes our coremerchandise categories(foods and sundries,non-foods,and fresh foods),warehouse ancillary(gasoline,pharmacy,optical,food court,hearingaids,and tire installation)and other businesses(e-commerce,business centers,travel,and other).Comparable sales is18Table of Contentsdefined as net sales from warehouses open for more than one year,including remodels,relocations and expansions,and sales related to e-commerce sites operating for more than one year.The measure is intended as supplemental information and is not a substitute for net salespresented in accordance with U.S.GAAP and should be reviewed in conjunction with results reported in accordance with U.S.GAAP.Comparable sales growth is achieved through increasing shopping frequency from new and existing members and the amount they spend oneach visit(average ticket).Sales comparisons can also be particularly influenced by certain factors that are beyond our control:fluctuations incurrency exchange rates(with respect to our international operations);and inflation or deflation and changes in the cost of gasoline andassociated competitive conditions.The higher our comparable sales exclusive of these items,the more we can leverage our selling general andadministrative(SG&A)expenses,reducing them as a percentage of sales and enhancing profitability.Generating comparable sales growth isforemost a question of making available the right merchandise at the right prices,a skill that we believe we have repeatedly demonstrated overthe long-term.Another substantial factor in net sales growth is the health of the economies in which we do business,including the effects ofinflation or deflation,especially the United States.Net sales growth and gross margins are also impacted by our competition,which is vigorousand widespread,across a wide range of global,national and regional wholesalers and retailers,including those with e-commerce operations.While we cannot control or reliably predict general economic health or changes in competition,we believe that we have been successfulhistorically in adapting our business to these changes,such as through adjustments to our pricing and merchandise mix,including increasing thepenetration of our private-label items,and through online offerings.Our philosophy is to provide our members with quality goods and services at competitive prices.We do not focus in the short-term onmaximizing prices charged,but instead seek to maintain what we believe is a perception among our members of our“pricing authority”consistently providing the most competitive values.Our investments in merchandise pricing may include reducing prices on merchandise to drivesales or meet competition and holding prices steady despite cost increases instead of passing the increases on to our members,negativelyimpacting gross margin and gross margin in the near term as a percentage of net sales(gross margin percentage).We believe our gasoline business enhances traffic in our warehouses;it generally has a lower gross margin percentage and lower SG&Aexpense relative to our non-gasoline businesses.A higher penetration of gasoline sales will generally lower our gross margin percentage.Generally,rising gasoline prices benefit net sales growth which,given the higher sales base,negatively impacts our gross margin percentagebut decreases our SG&A expenses as a percentage of net sales.A decline in gasoline prices has the inverse effect.Government actions in various countries relating to tariffs,particularly China and the United States,have affected the costs of some of ourmerchandise.The degree of our exposure is dependent on(among other things)the type of goods,rates imposed,and timing of the tariffs.Higher tariffs could adversely impact our results.We also achieve net sales growth by opening new warehouses.As our warehouse base grows,available and desirable sites become moredifficult to secure,and square footage growth becomes a comparatively less substantial component of growth.Negative aspects of such growthinclude lower initial operating profitability relative to existing warehouses and cannibalization of sales at existing warehouses when openingsoccur in existing markets.Our rate of square footage growth is generally higher in foreign markets,due to the smaller base in those markets,andwe expect that to continue.Our e-commerce business,domestically and internationally,has a lower gross-margin percentage than ourwarehouse operations.The membership format is an integral part of our business and our profitability.This format is designed to reinforce member loyalty and providecontinuing fee revenue.The extent to which we achieve growth in our membership base,increase the penetration of Executive memberships,and sustain high renewal rates materially influences our profitability.Our paid-membership growth rate may be adversely impacted whenwarehouse openings occur in existing markets as compared to new markets.Our worldwide19Table of Contentsrenewal rate may be adversely impacted by lower renewal rates in newer markets,which historically have been less than rates in maturemarkets.Our financial performance depends heavily on controlling costs.While we believe that we have achieved successes in this area,some significantcosts are partially outside our control,particularly health care and utility expenses.With respect to the compensation of our employees,ourphilosophy is not to seek to minimize their wages and benefits.Rather,we believe that achieving our longer-term objectives of reducingemployee turnover,increasing productivity and enhancing employee satisfaction requires maintaining compensation levels that are better thanthe industry average for much of our workforce.This may cause us,for example,to absorb costs that other employers might seek to passthrough to their workforces.Because our business operates on very low margins,modest changes in various items in the consolidatedstatements of income,particularly merchandise costs and SG&A expenses,can have substantial impacts on net income.Our operating model is generally the same across our U.S.,Canadian,and Other International operating segments(see Note 9 to theconsolidated financial statements included in Part I,Item 1,of this Report).Certain operations in the Other International segment have relativelyhigher rates of square footage growth,lower wage and benefit costs as a percentage of sales,less or no direct membership warehousecompetition,or lack e-commerce or business delivery.In discussions of our consolidated operating results,we refer to the impact of changes in foreign currencies relative to the U.S.dollar,which aredifferences between the foreign-exchange rates we use to convert the financial results of our international operations from local currencies intoU.S.dollars.This impact is calculated based on the difference between the current and prior periods exchange rates.The impact of changes ingasoline prices on net sales is calculated based on the difference between the current and prior periods average price per gallon sold.Resultsexpressed excluding the impacts of foreign exchange and gasoline prices are intended as supplemental information and are not a substitute fornet sales presented in accordance with U.S.GAAP and should be reviewed in conjunction with results reported in accordance with U.S.GAAP.Our fiscal year ends on the Sunday closest to August 31.References to the third quarter of 2024 and 2023 relate to the 12-week fiscal quartersended May 12,2024,and May 7,2023.References to the first thirty-six weeks of 2024 and 2023 relate to the 36 weeks ended May 12,2024,and May 7,2023.Certain percentages presented are calculated using actual results prior to rounding.Highlights for the third quarter of 2024 versus 2023 include:Net sales increased 9%to$57,392,driven by an increase in comparable sales and sales at 24 net new warehouses opened since theend of the third quarter of 2023;Membership fee revenue increased 8%to$1,123,driven by new member sign-ups and upgrades to Executive Membership;Gross margin percentage increased 52 basis points,driven primarily by the absence of a charge of$298,$0.50 per diluted share,recorded in the third quarter of 2023 predominantly related to the discontinuation of our charter shipping activities;SG&A expenses as a percentage of net sales decreased 15 basis points,primarily due to warehouse operations and other businesses,largely attributable to improved productivity;A quarterly cash dividend of$1.16 per share was declared on April 10,2024,and paid on May 10,2024;andNet income was$1,681,$3.78 per diluted share,compared to$1,302,$2.93 per diluted share in 2023.20Table of ContentsRESULTS OF OPERATIONSNet Sales12 Weeks Ended36 Weeks EndedMay 12,2024May 7,2023May 12,2024May 7,2023Net Sales$57,392$52,604$171,440$160,280 Changes in net sales:U.S.9%1%6%6nada10%9%2%Other International10%8%5%Total Company9%2%7%5%Changes in comparable sales:U.S.6%4%5nada8%(1)%8%2%Other International8%4%9%2%Total Company7%5%4%E-commerce21%(10)%(8)%Changes in comparable sales excluding the impact of changesin foreign-currency and gasoline prices:U.S.6%2%4%5nada7%7%8%8%Other International8%8%8%9%Total Company7%3%5%6%E-commerce21%(9)%(7)%_(1)Comparable sales for the third quarter and first thirty-six weeks of 2024 were calculated using comparable retail weeks.Net SalesThe improvement in net sales for the third quarter and first thirty-six weeks of 2024 was attributable to an increase in comparable sales andsales at the 24 net new warehouses opened since the end of the third quarter of 2023.Sales increased$3,892 or 9%and$9,458 or 7%in coremerchandise categories during the third quarter and first thirty-six weeks of 2024,due to increases in all categories.Sales in warehouse ancillaryand other businesses increased$896 or 8%during the third quarter of 2024,led by gasoline,and$1,702 or 5%during the first thirty-six weeksof 2024,led by pharmacy.During the third quarter of 2024,higher gasoline prices positively impacted net sales by$149,28 basis points,compared to 2023,with a 2%increase in the average price per gallon.Changes in foreign currencies relative to the U.S.dollar negatively impacted net sales by approximately$108,21 basis points,compared to the third quarter of 2023,primarily attributable to our Other International operations.During the first thirty-six weeks of 2024,lower gasoline prices negatively impacted net sales by$423,26 basis points,compared to 2023,with a2crease in the average price per gallon.Changes in foreign currencies relative to the U.S.dollar positively impacted net sales byapproximately$180,11 basis points,compared to the first thirty-six weeks of 2023,attributable to our Other International operations,partiallyoffset by our Canadian operations.(1)(1)21Table of ContentsComparable SalesComparable sales increased 7%in the third quarter of 2024 and were positively impacted by increased shopping frequency and a slightly higheraverage ticket.Comparable sales increased 5%in the first thirty-six weeks of 2024 and were positively impacted by increased shoppingfrequency,partially offset by a slight decrease in average ticket.Membership Fees12 Weeks Ended36 Weeks EndedMay 12,2024May 7,2023May 12,2024May 7,2023Membership fees$1,123$1,044$3,316$3,071 Membership fees increase8%6%8%6%Total paid members(000s)74,500 69,100 Total cardholders(000s)133,900 124,700 Membership fee revenue increased 8%in both the third quarter and first thirty-six weeks of 2024,driven by new member sign-ups and upgradesto Executive Membership.At the end of the third quarter of 2024,our renewal rates were 93.0%in the U.S.and Canada and 90.5%worldwide.Renewal rates benefited from higher penetration of Executive members.Our renewal rate,which excludes affiliates of Business members,is atrailing calculation that captures renewals during the period seven to eighteen months prior to the reporting date.We account for membership fee revenue on a deferred basis,recognized ratably over the one-year membership period.Gross Margin12 Weeks Ended36 Weeks EndedMay 12,2024May 7,2023May 12,2024May 7,2023Net sales$57,392$52,604$171,440$160,280 Less merchandise costs51,173 47,175 152,770 143,367 Gross margin$6,219$5,429$18,670$16,913 Gross margin percentage10.84.32.89.55%Quarterly ResultsGross margin percentage increased 52 basis points.Excluding the impact of gasoline price inflation on net sales,gross margin percentage was10.86%,an increase of 54 basis points.The 54 basis-point increase was positively impacted by:56 basis points due to the absence of a chargerelated to the discontinuation of our charter shipping activities that was recorded in the third quarter of 2023;two basis points due to coremerchandise categories,and two basis points due to a LIFO benefit.This increase was partially offset by five basis points due to warehouseancillary and other businesses,predominantly gasoline,partially offset by e-commerce,and one basis point due to increased 2%rewards.The gross margin in core merchandise categories,when expressed as a percentage of core merchandise sales(rather than total net sales),increased 10 basis points.The increase was primarily due to non-foods,partially offset by fresh foods.This measure eliminates the impact ofchanges in sales penetration and gross margin from our warehouse ancillary and other businesses.Gross margin percentage on a segment basis,when expressed as a percentage of the segments own sales and excluding the impact ofchanges in gasoline prices on net sales(segment gross margin percentage),increased in our U.S.and Canadian segments.Our U.S.segmentperformed similarly to the consolidated results above.Our Canadian segment gross margin increased primarily due to increases in22Table of Contentscore merchandise categories,partially offset by increased 2%rewards.Gross margin decreased in our Other International segment,due todecreases in core merchandise categories and increased 2%rewards.Year-to-date ResultsGross margin percentage increased 34 basis points.Excluding the impact of gasoline price deflation on net sales,gross margin percentage was10.86%,an increase of 31 basis points.The 31 basis-point increase was positively impacted by:24 basis points due to the absence of chargesrelated to the discontinuation of our charter shipping activities that were recorded in the first and third quarters of 2023;nine basis points due towarehouse ancillary and other business,primarily e-commerce;and two basis points due to a LIFO benefit.This increase was partially offset byfour basis points due to increased 2%rewards.Our core merchandise categories were flat.The gross margin in core merchandise categories,when expressed as a percentage of core merchandise sales(rather than total net sales),increased 13 basis points.The increase was primarily due to non-foods,partially offset by fresh foods.Segment gross margin percentage increased in our U.S.and Canadian segments.Our U.S.segment performed similarly to the consolidatedresults above.Our Canadian segment gross margin increased,primarily due to increases in core merchandise categories and warehouseancillary and other businesses,partially offset by increased 2%rewards.Gross margin percentage decreased in our Other Internationalsegment,primarily due to decreases in core merchandise categories and increased 2%rewards.Selling,General and Administrative Expenses12 Weeks Ended36 Weeks EndedMay 12,2024May 7,2023May 12,2024May 7,2023SG&A expenses$5,145$4,794$15,743$14,651 SG&A expenses as a percentage of net sales8.96%9.11%9.18%9.14%Quarterly ResultsSG&A expenses as a percentage of net sales decreased 15 basis points.SG&A expenses as a percentage of net sales excluding the impact ofgasoline price inflation was 8.99%,a decrease of 12 basis points.The comparison to last year was favorably impacted by 12 basis points due towarehouse operations and other businesses,largely attributable to improved productivity.Year-to-date ResultsSG&A expenses as a percentage of net sales increased four basis points.SG&A expenses as a percentage of net sales excluding the impact ofgasoline price deflation was 9.16%,an increase of two basis points.The comparison to last year was negatively impacted by three basis pointsin warehouse operations and other businesses,driven by our U.S.operations,which included the impact of wage increases in March andSeptember 2023,partially offset by one basis point due to central operating costs.SG&A expenses as a percentage of net sales were lower inour Canadian and Other International operations.Interest Expense12 Weeks Ended36 Weeks EndedMay 12,2024May 7,2023May 12,2024May 7,2023Interest expense$41$36$120$104 Interest expense is primarily related to Senior Notes and financing leases.23Table of ContentsInterest Income and Other,Net12 Weeks Ended36 Weeks EndedMay 12,2024May 7,2023May 12,2024May 7,2023Interest income$94$110$395$269 Foreign-currency transaction gains,net20 9 54 3 Other,net14 9 55 23 Interest income and other,net$128$128$504$295 The decrease in interest income in the third quarter was due to lower average cash and investment balances,caused by the payment of thespecial dividend.The increase in interest income in the first thirty-six weeks of 2024 was primarily due to higher global interest rates and higheraverage cash and investment balances,prior to the payment of the special dividend.Foreign-currency transaction gains,net,include revaluationor settlement of monetary assets and liabilities by our Canadian and Other International operations and mark-to-market adjustments for forwardforeign-exchange contracts.See Derivatives and Foreign Currency sections in Item 8,Note 1 of our Annual Report on Form 10-K,for the fiscalyear ended September 3,2023.Provision for Income Taxes 12 Weeks Ended36 Weeks Ended May 12,2024May 7,2023May 12,2024May 7,2023Provision for income taxes$603$469$1,614$1,392 Effective tax rate26.4&.5$.4%.2%The effective tax rate for the first thirty-six weeks of 2024 was favorably impacted by net discrete tax benefits of$146.This included$94 relatedto the portion of the special dividend payable through our 401(k)plan in the second quarter and$44 of excess tax benefits related to stockcompensation in the first quarter.Excluding discrete net tax benefits,the tax rate was 26.6%.The effective tax rate for the first thirty-six weeks of 2023 was impacted by net discrete tax benefits of$57,primarily due to excess tax benefitsrelated to stock compensation in the first quarter.Excluding discrete net tax benefits,the tax rate was 26.2%.LIQUIDITY AND CAPITAL RESOURCESThe following table summarizes our significant sources and uses of cash and cash equivalents:36 Weeks EndedMay 12,2024May 7,2023Net cash provided by operating activities$8,381$7,343 Net cash used in investing activities(2,706)(3,147)Net cash used in financing activities(8,948)(1,950)Our primary sources of liquidity are cash flows from operations,cash and cash equivalents,and short-term investments.Cash and cashequivalents and short-term investments were$11,499 and$15,234 at May 12,2024,and September 3,2023.Of these balances,unsettled creditand debit card receivables represented approximately$2,391 and$2,282 at May 12,2024,and September 3,2023.These receivables generallysettle within four days.24Table of ContentsMaterial contractual obligations arising in the normal course of business primarily consist of purchase obligations,long-term debt and relatedinterest payments,leases,and construction and land purchase obligations.Purchase obligations consist of contracts primarily related to merchandise,equipment,and third-party services,the majority of which are due inthe next 12 months.Construction and land-purchase obligations consist of contracts primarily related to the development and opening of newand relocated warehouses,the majority of which(other than leases)are due in the next 12 months.Management believes that our cash and investment position and operating cash flows,with capacity under existing and available creditagreements,will be sufficient to meet our liquidity and capital requirements for the foreseeable future.We believe that our U.S.current andprojected asset position is sufficient to meet our U.S.liquidity requirements.Cash Flows from Operating ActivitiesNet cash provided by operating activities totaled$8,381 in the first thirty-six weeks of 2024,compared to$7,343 in the first thirty-six weeksof 2023.Our cash flow provided by operations is primarily from net sales and membership fees.Cash flow used in operations generally consistsof payments to merchandise suppliers,warehouse operating costs,including wages and employee benefits,utilities,credit and debit cardprocessing fees,and operating leases.Cash used in operations also includes payments for income taxes.Changes in our net investment inmerchandise inventories(the difference between merchandise inventories and accounts payable)is impacted by several factors,includinginventory levels and turnover,payment terms with suppliers,and early payments to obtain discounts.Cash Flows from Investing ActivitiesNet cash used in investing activities totaled$2,706 in the first thirty-six weeks of 2024,compared to$3,147 in the first thirty-six weeks of 2023,and is primarily related to capital expenditures.Net cash from investing activities also includes purchases and maturities of short-terminvestments.Capital Expenditure PlansOur primary requirements for capital are acquiring land,buildings,and equipment for new and remodeled warehouses.Capital is also requiredfor information systems,manufacturing and distribution facilities,initial warehouse operations,and working capital.In the first thirty-six weeks of2024,we spent$3,133 on capital expenditures,and it is our current intention to spend a total of approximately$4,300 to$4,500 during fiscal2024.These expenditures are expected to be financed with cash from operations,existing cash and cash equivalents,and short-terminvestments.We opened 16 new warehouses,including one relocation,in the first thirty-six weeks of 2024 and plan to open 14 additional newwarehouses in the remainder of fiscal 2024.There can be no assurance that current expectations will be realized,and plans are subject tochange upon further review of our capital expenditure needs and the economic environment.Cash Flows from Financing ActivitiesNet cash used in financing activities totaled$8,948 in the first thirty-six weeks of 2024,compared to$1,950 in the first thirty-six weeks of 2023.Cash flow used in financing activities during the first thirty-six weeks of 2024 was primarily related to the payment of dividends,repayments ofshort-term borrowings,repurchases of common stock,and withholding taxes on stock-based awards.Cash flow provided by financing activitiesincluded proceeds from short-term borrowings and four Guaranteed Senior Notes totaling approximately$500,at fixed interest rates rangingfrom 1.400%to 2.120%issued by our Japan subsidiary.Subsequent to the end of the quarter on May 18,2024,we paid the outstandingprincipal balance and interest on the 2.750%Senior Notes using cash and cash equivalents and short-term investments.25Table of ContentsDividendsA quarterly cash dividend of$1.16 per share was declared on April 10,2024,payable to shareholders of record on April 26,2024,which waspaid on May 10,2024.On January 12,2024,an aggregate payment of approximately$6,655 was made in connection with a special dividend of$15.00 per share,declared on December 13,2023.Share Repurchase ProgramOn January 19,2023,the Board of Directors authorized a share repurchase program in the amount of$4,000,which expires in January 2027.During the first thirty-six weeks of 2024 and 2023,we repurchased 749,000 and 908,000 shares of common stock,at an average price per shareof$646.07 and$492.30,totaling approximately$484 and$447.These amounts may differ from the accompanying condensed consolidatedstatements of cash flows due to changes in unsettled repurchases at the end of a quarter.Purchases are made from time to time,as conditionswarrant,in the open market or in block purchases,pursuant to plans under SEC Rule 10b5-1.Repurchased shares are retired,in accordancewith the Washington Business Corporation Act.The remaining amount available to be purchased under our approved plan was$3,079 at the endof the third quarter.Bank Credit Facilities and Commercial Paper ProgramsWe maintain bank credit facilities for working capital and general corporate purposes.At May 12,2024,we had borrowing capacity under thesefacilities of$1,145.Our international operations maintain$656 of this capacity under bank credit facilities,of which$160 is guaranteed by theCompany.Short-term borrowings outstanding under the bank credit facilities,which are included in other current liabilities on the consolidatedbalance sheets,were immaterial at the end of the third quarter of 2024 and at the end of fiscal 2023.The Company has letter of credit facilities,for commercial and standby letters of credit,totaling$204.The outstanding commitments under thesefacilities at the end of the third quarter of 2024 totaled$187,most of which were standby letters of credit that do not expire or have expirationdates within one year.The bank credit facilities have various expiration dates,most within one year,and we generally intend to renew thesefacilities.The amount of borrowings available at any time under our bank credit facilities is reduced by the amount of standby and commercialletters of credit outstanding.Critical Accounting EstimatesThe preparation of our consolidated financial statements in accordance with U.S.GAAP requires that we make estimates and judgments.Webase these on historical experience and on assumptions that we believe to be reasonable.Our critical accounting policies are discussed in PartII,Item 7,“Managements Discussion and Analysis of Financial Condition and Results of Operations”section of our Annual Report on Form 10-K,for the fiscal year ended September 3,2023.There have been no material changes to the critical accounting estimates previously disclosed inthat Report.Recent Accounting PronouncementsSee discussion of Recent Accounting Pronouncements in Note 1 to the condensed consolidated financial statements included in Part I,Item 1 ofthis Report.Item 3Quantitative and Qualitative Disclosures about Market RiskOur direct exposure to financial market risk results from fluctuations in foreign-currency exchange rates and interest rates.There have been nomaterial changes to our market risks as disclosed in our Annual Report on Form 10-K,for the fiscal year ended September 3,2023.Item 4Controls and Procedures26Table of ContentsEvaluation of Disclosure Controls and ProceduresOur disclosure controls and procedures(as defined in Rules 13a-15(e)or 15d-15(e)under the Securities Exchange Act of 1934,as amended)are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded,processed,summarized,and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission andto ensure that information required to be disclosed is accumulated and communicated to management,including our principal executive andfinancial officers,to allow timely decisions regarding disclosure.The Chief Executive Officer and the Chief Financial Officer,with assistance fromother members of management,have reviewed the effectiveness of our disclosure controls and procedures as of May 12,2024,and,based ontheir evaluation,have concluded the disclosure controls and procedures were effective as of such date.Changes in Internal Control over Financial ReportingThere have been no changes in our internal control over financial reporting(as defined in Rules 13a-15(f)or 15d-15(f)of the Exchange Act)thatoccurred during the third quarter of fiscal 2024 that have materially affected,or are reasonably likely to materially affect,the Companys internalcontrol over financial reporting.PART IIOTHER INFORMATIONItem 1Legal ProceedingsSee discussion of Legal Proceedings in Note 8 to the condensed consolidated financial statements included in Part I,Item 1 of this Report.Item 1ARisk FactorsIn addition to the other information set forth in the Quarterly Report on Form 10-Q,you should carefully consider the factors discussed in Part I,Item 1A,“Risk Factors”in our Annual Report on Form 10-K,for the fiscal year ended September 3,2023.There have been no material changesin our risk factors from those disclosed in our Annual Report on Form 10-K.Item 2Unregistered Sales of Equity Securities and Use of ProceedsThe following table sets forth information on our common stock repurchase program activity for the third quarter of 2024(amounts in millions,except share and per share data):PeriodTotal Number ofSharesPurchasedAverage PricePaid Per ShareTotal Number of SharesPurchased as Part ofPublicly AnnouncedProgramsMaximum Dollar Value ofShares that May Yet bePurchased Under theProgramsFebruary 19,2024 March 17,202472,000$742.12 72,000$3,188 March 18,2024 April 14,202473,000 724.97 73,000 3,135 April 15,2024 May 12,202476,000 732.82 76,000 3,079 Total third quarter221,000$733.23 221,000 _(1)Our share repurchase program is conducted under a$4,000 authorization approved by our Board of Directors in January 2023,which expires in January 2027.Item 3Defaults Upon Senior SecuritiesNone.(1)(1)27Table of ContentsItem 4Mine Safety DisclosuresNot applicable.Item 5Other InformationNone.Item 6ExhibitsThe following exhibits are filed as part of this Quarterly Report on Form 10-Q or are incorporated herein by reference.Incorporated by ReferenceExhibitNumberExhibit DescriptionFiledHerewithFormPeriod EndingFiling Date3.1Articles of Incorporation as amended of CostcoWholesale Corporation10-K8/28/202210/5/20223.2Bylaws as amended of Costco Wholesale Corporation8-K8/10/202331.1Rule 13(a)14(a)Certificationsx32.1Section 1350 Certificationsx101.INSInline XBRL Instance Documentx101.SCHInline XBRL Taxonomy Extension Schema Documentx101.CALInline XBRL Taxonomy Extension Calculation LinkbaseDocumentx101.DEFInline XBRL Taxonomy Extension Definition LinkbaseDocumentx101.LABInline XBRL Taxonomy Extension Label LinkbaseDocumentx101.PREInline XBRL Taxonomy Extension Presentation LinkbaseDocumentx104Cover Page Interactive Data File(formatted as inlineXBRL and contained in Exhibit 101)x28Table of ContentsSIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this Report to be signed on its behalf by theundersigned,thereunto duly authorized.COSTCO WHOLESALE CORPORATION(Registrant)June 5,2024By/s/RON M.VACHRISDateRon M.VachrisChief Executive Officer,President and DirectorJune 5,2024By/s/GARY MILLERCHIPDateGary MillerchipExecutive Vice President and Chief Financial Officer29Exhibit 31.1CERTIFICATIONSI,Ron M.Vachris,certify that:1)I have reviewed this Quarterly Report on Form 10-Q of Costco Wholesale Corporation(“the registrant”);2)Based on my knowledge,this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made,in light of the circumstances under which such statements were made,not misleading with respect to theperiod covered by this report;3)Based on my knowledge,the financial statements,and other financial information included in this report,fairly present in all materialrespects the financial condition,results of operations and cash flows of the registrant as of,and for,the periods presented in this report;4)The registrants other certifying officer(s)and I are responsible for establishing and maintaining disclosure controls and procedures(asdefined in Exchange Act Rules 13a-15(e)and 15d-15(e)and internal control over financial reporting(as defined in Exchange Act Rules13a-15(f)and 15d-15(f)for the registrant and have:a)Designed such disclosure controls and procedures,or caused such disclosure controls and procedures to be designed underour supervision,to ensure that material information relating to the registrant,including its consolidated subsidiaries,is madeknown to us by others within those entities,particularly during the period in which this report is being prepared;b)Designed such internal control over financial reporting,or caused such internal control over financial reporting to be designedunder our supervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles;c)Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures,as of the end of the period covered by this report based onsuch evaluation;andd)Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrantsmost recent fiscal quarter(the registrants fourth fiscal quarter in the case of an annual report)that has materially affected,or isreasonably likely to materially affect,the registrants internal control over financial reporting;and5)The registrants other certifying officer(s)and I have disclosed,based on our most recent evaluation of internal control over financialreporting,to the registrants auditors and the audit committee of the registrants board of directors(or persons performing the equivalentfunctions):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting whichare reasonably likely to adversely affect the registrants ability to record,process,summarize and report financial information;andb)Any fraud,whether or not material,that involves management or other employees who have a significant role in the registrantsinternal control over financial reporting.June 5,2024/s/RON M.VACHRISRon M.VachrisChief Executive Officer,President and DirectorCERTIFICATIONSI,Gary Millerchip,certify that:1)I have reviewed this Quarterly Report on Form 10-Q of Costco Wholesale Corporation(“the registrant”);2)Based on my knowledge,this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made,in light of the circumstances under which such statements were made,not misleading with respect to theperiod covered by this report;3)Based on my knowledge,the financial statements,and other financial information included in this report,fairly present in all materialrespects the financial condition,results of operations and cash flows of the registrant as of,and for,the periods presented in this report;4)The registrants other certifying officer(s)and I are responsible for establishing and maintaining disclosure controls and procedures(asdefined in Exchange Act Rules 13a-15(e)and 15d-15(e)and internal control over financial reporting(as defined in Exchange Act Rules13a-15(f)and 15d-15(f)for the registrant and have:a)Designed such disclosure controls and procedures,or caused such disclosure controls and procedures to be designed underour supervision,to ensure that material information relating to the registrant,including its consolidated subsidiaries,is madeknown to us by others within those entities,particularly during the period in which this report is being prepared;b)Designed such internal control over financial reporting,or caused such internal control over financial reporting to be designedunder our supervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles;c)Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures,as of the end of the period covered by this report based onsuch evaluation;andd)Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrantsmost recent fiscal quarter(the registrants fourth fiscal quarter in the case of an annual report)that has materially affected,or isreasonably likely to materially affect,the registrants internal control over financial reporting;and5)The registrants other certifying officer(s)and I have disclosed,based on our most recent evaluation of internal control over financialreporting,to the registrants auditors and the audit committee of the registrants board of directors(or persons performing the equivalentfunctions):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting whichare reasonably likely to adversely affect the registrants ability to record,process,summarize and report financial information;andb)Any fraud,whether or not material,that involves management or other employees who have a significant role in the registrantsinternal control over financial reporting.June 5,2024/s/GARY MILLERCHIPGary MillerchipExecutive Vice President and Chief Financial OfficerExhibit 32.1CERTIFICATION PURSUANT TO18 U.S.C.SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Quarterly Report of Costco Wholesale Corporation(the Company)on Form 10-Q for the quarter ended May 12,2024,asfiled with the Securities and Exchange Commission(the Report),I,Ron M.Vachris,Chief Executive Officer,President and Director of theCompany,certify,pursuant to 18 U.S.C.Section 1350,as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,that:(1)The Report fully complies with the requirements of Section 13(a)or 15(d)of the Securities Exchange Act of 1934;and(2)The information contained in the Report fairly presents,in all material respects,the financial condition and results of operations of theCompany./s/RON M.VACHRIS Date:June 5,2024Ron M.Vachris Chief Executive Officer,President and Director A signed original of this written statement has been provided to and will be retained by Costco Wholesale Corporation and furnished to theSecurities and Exchange Commission or its staff upon request.CERTIFICATION PURSUANT TO18 U.S.C.SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Quarterly Report of Costco Wholesale Corporation(the Company)on Form 10-Q for the quarter ended May 12,2024,asfiled with the Securities and Exchange Commission(the Report),I,Gary Millerchip,Executive Vice President and Chief Financial Officer of theCompany,certify,pursuant to 18 U.S.C.Section 1350,as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,that:(1)The Report fully complies with the requirements of Section 13(a)or 15(d)of the Securities Exchange Act of 1934;and(2)The information contained in the Report fairly presents,in all material respects,the financial condition and results of operations of theCompany./s/GARY MILLERCHIP Date:June 5,2024Gary Millerchip Executive Vice President and Chief Financial Officer A signed original of this written statement has been provided to and will be retained by Costco Wholesale Corporation and furnished to theSecurities and Exchange Commission or its staff upon request.
2024-08-02
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1Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no respon.
2024-08-02
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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-Q(Mark One)QUARTERLY REPO.
2024-08-02
168页
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Strong cash generation,growing distributionsFinancial summarySecondFirstSecondFirstFirstquarterquart.
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2023Interim ReportChina Life Insurance Company LimitedInterim Report 2023Office Address：16 Financial Street,Xicheng District,Beijing,P.R.ChinaTelephone：86-10-63633333 Website：www.e-E-mail：ire- Stock Code:2628The Company is a life insurance company established in Beijing,China on 30 June 2003 according to the Company Law and the Insurance Law of the Peoples Republic of China.The Company was successfully listed overseas in December 2003 and returned to the domestic market as an A-share listed company in January 2007.The Companys registered capital is RMB28,264,705,000.The Company is a leading life insurance company in China and possesses an extensive distribution network comprising exclusive agents,direct sales representatives,and dedicated and non-dedicated agencies.The Company is one of the largest institutional investors in China,and becomes one of the largest insurance asset management companies in China through its controlling shareholding in China Life Asset Management Company Limited.The Company also has controlling shareholding in China Life Pension Company Limited.Our products and services include individual life insurance,group life insurance,and accident and health insurance.The Company is a leading provider of individual and group life insurance,annuity products and accident and health insurance in China.As at 30 June 2023,the Company had approximately 326 million long-term individual and group life insurance policies,annuity contracts,and long-term health insurance policies in force.We also provide both individual and group accident and short-term health insurance policies and services.0102030405060708CONTENTSPrelude 2Business Highlights 2Financial Summary 3Corporate Governance 42Corporate Governance 42Implementation of Profit 43 Distribution Plan During the Reporting PeriodChanges in Ordinary Shares and 44 Shareholders InformationDirectors,Supervisors and 46 Senior ManagementBranches and Employees of 48 the CompanyChairmans Statement 7Management Discussion 10and AnalysisReview of Business Operations 10 in the First Half of 2023Business Analysis 13Analysis of Specific Items 21Technology Capabilities,24 Operations and Services,Risk Management and ControlPerformance of the Corporate 26 Social ResponsibilityFuture Prospect 27Embedded Value 28Significant Events 34Information on Delisting of 34 American Depositary SharesMaterial Litigations or Arbitrations 34Major Connected Transactions 34Purchase,Sale or Redemption 39 of the Companys SecuritiesMaterial Contracts and Their 39 PerformancePension Plan 40H Share Stock Appreciation Rights 40Undertakings 40Auditors 41Alleged Violation of Laws and 41 Regulations,Penalties Imposed and RectificationRestriction on Major Assets 41Other Information 49Basic Information of the Company 49Index of Information Disclosure 51 Announcements Definitions and Material Risk Alert 53Financial Report 54Auditors Independent Review 55 ReportInterim Condensed Consolidated 56 Statement of Financial PositionInterim Condensed Consolidated 58 Statement of Comprehensive IncomeInterim Condensed Consolidated 60 Statement of Changes in EquityInterim Condensed Consolidated 61 Statement of Cash FlowsNotes to the Interim Condensed 62 Consolidated Financial Statements470,1151,311,669millionmillion5,507,19330,864millionmillion171,213millionPremiums from new policiesEmbedded valueValue of half years salesTotal assetsGross written premiums3.26hundred millionNumber of long-term in-force policies204.23%Comprehensive solvency ratio5,386,667millionInvestment assetsBUSINESS HIGHLIGHTSInterim Report 2023|Prelude02Interim Report 2023|PreludeThe Company has prepared the Interim Report in accordance with International Financial Reporting Standards(“IFRSs”),amendments to IFRSs and interpretations issued by the International Accounting Standards Board.Since 1 January 2023,the Company has adopted IFRS 9 Financial Instruments and IFRS 17 Insurance Contracts.The Company FINANCIAL SUMMARYhas restated and presented the comparative information associated with insurance contracts in accordance with IFRS 17 Insurance Contracts,and there is no need to restate and present any comparative information associated with financial instruments in accordance with IFRS 9 Financial Instruments.The interim financial data are unaudited.MAJOR FINANCIAL DATA AND INDICATORSRMB million As at 30 June 2023As at 31 December 2022Increase/Decrease from the end of 2022 Total assets5,507,1935,010,0689.9%Including:Investment assets15,386,6674,811,89311.9%Equity holders equity477,935366,02130.6%Equity per share2(RMB per share)16.9112.9530.6%Gearing ratio3(%)91.1592.52A decrease of 1.37 percentage points January to June 2023January to June 20224Increase/Decrease from the corresponding period in 2022 Total revenue186,324188,744-1.3%Profit before income tax37,53843,537-13.8%Net profit attributable to equity holders of the Company36,15139,305-8.0rnings per share(basic and diluted)2(RMB per share)1.281.39-8.0%Weighted average ROE(%)7.559.72A decrease of 2.17 percentage pointsNet cash inflow/(outflow)from operating activities249,424233,4636.8%Net cash inflow/(outflow)from operating activities per share2(RMB per share)8.828.266.8%Notes:1.As at 30 June 2023,Investment assets=Cash and cash equivalents Financial assets at fair value through profit or loss Financial assets at fair value through other comprehensive income Financial assets at amortised cost Term deposits Financial assets purchased under agreements to resell Statutory deposits-restricted Investment properties Investments in associates and joint ventures.As at 31 December 2022,Investment assets=Cash and cash equivalents Securities at fair value through profit or loss Available-for-sale securities Held-to-maturity securities Term deposits Financial assets purchased under agreements to resell Loans(excluding policy loans) Statutory deposits-restricted Investment properties Investments in associates and joint ventures2.In calculating the percentage changes of the“Equity per share”,“Earnings per share(basic and diluted)”and“Net cash inflow/(outflow)from operating activities per share”,the tail differences of the basic figures have been taken into account.3.Gearing ratio=Total liabilities/Total assets4.The financial data from January to June 2022 as set out in this Interim Report have taken into account the restatement made with respect to a business combination under common control.03Interim Report 2023|PreludeINFORMATION ON THE DIFFERENCE BETWEEN THE FINANCIAL STATEMENTS PREPARED UNDER ACCOUNTING STANDARDS FOR BUSINESS ENTERPRISES AND INTERNATIONAL FINANCIAL REPORTING STANDARDSUnder Accounting Standards for Business Enterprises(“ASBE”),the Company adopts the transition plan for the new accounting standards for insurance contracts,namely:From 1 January 2023 to 31 December 2025,the Company will continue to apply ASBE No.25 Direct Insurance Contracts(Caikuai 2006 No.3),ASBE No.26 Reinsurance Contracts(Caikuai 2006 No.3),Regulations regarding the Accounting Treatment of Insurance Contracts(Caikuai 2009 No.15),ASBE No.22 Recognition and Measurement of Financial Instruments(Caikuai 2006 No.3),ASBE No.23 Transfer of Financial Assets(Caikuai 2006 No.3),ASBE No.24 Hedging(Caikuai 2006 No.3),ASBE No.37 Presentation of Financial Instruments(Caikuai 2014 No.23)and other relevant accounting standards.The reconciliations of net profit attributable to equity holders of the Company from January to June 2023 and the corresponding period of 2022 and equity holders equity as at 30 June 2023 and 31 December 2022 from the consolidated financial statements prepared under ASBE to those under IFRSs are as follows:RMB million January to June 2023January to June 2022 Net profit attributable to equity holders of the Company under ASBE16,15625,356Reconciling items:Adjustment related to IFRS 99,815N/AAdjustment related to IFRS 1716,57318,606Deferred tax effects(6,393)(4,657)Net profit attributable to equity holders of the Company under IFRSs36,15139,305 RMB million As at 30 June 2023As at 31 December 2022 Equity holders equity under ASBE449,362436,169Reconciling items:Adjustment related to IFRS 9177,538N/AAdjustment related to IFRS 17(140,431)(93,967)Deferred tax effects(8,534)23,819Equity holders equity under IFRSs477,935366,021 For the first half of 2023,the net profit attributable to equity holders of the Company under IFRSs was RMB36,151 million,an increase of RMB19,995 million comparing with the data under ASBE.As at the end of the Reporting Period,the equity holders equity under IFRSs was RMB477,935 million,an increase of RMB28,573 million comparing with the data under ASBE.04Interim Report 2023|PreludeMAJOR ITEMS OF THE CONSOLIDATED FINANCIAL STATEMENTS AND THE REASONS FOR CHANGE1RMB million Major items of the Consolidated Statement of Financial PositionAs at 30 June 2023As at 31 December 2022ChangeMain reasons for change Term deposits445,780485,567-8.2%The maturity of term depositsHeld-to-maturity securitiesN/A1,574,204N/AAvailable-for-sale securitiesN/A1,738,108N/ASecurities at fair value through profit or lossN/A223,790N/AFinancial assets at amortised cost208,914N/AN/AFinancial assets at fair value through other comprehensive income2,687,231N/AN/AFinancial assets at fair value through profit or loss1,516,000N/AN/AFinancial assets purchased under agreements to resell54,55138,53341.6%The needs for liquidity managementCash and cash equivalents195,232127,59453.0%The needs for liquidity managementLoansN/A342,083N/AInsurance contract liabilities4,696,0864,266,94710.1%The accumulation of insurance liabilities from new policies and renewalsFinancial assets sold under agreements to repurchase127,962148,958-14.1%The needs for liquidity managementInterest-bearing loans and other borrowingsNote12,93712,7741.3%Financial liabilities at fair value through profit or loss6,7143,344100.8%An increase in equity owned by third parties of consolidated structured entitiesEquity holders equity477,935366,02130.6%Due to the combined impact of changes of accounting standards,total comprehensive income and profit distribution during the Reporting Period Note:Interest-bearing loans and other borrowings include a three-year bank loan of EUR330 million with a maturity date on 8 September 2023,and a five-year bank loan of GBP275 million with a maturity date on 25 June 2024,both of which are fixed rate bank loans.Interest-bearing loans and other borrowings also include a five-year bank loan of USD970 million with a maturity date on 27 September 2024,and an eighteen-month bank loan of EUR100 million with a maturity date on 8 September 2023,both of which are floating rate bank loans.1 In accordance with IFRS 9 Financial Instruments,there is no need for the Company to restate and present any comparative information associated with financial instruments.Therefore,relevant items are not applicable.05Interim Report 2023|PreludeRMB million Major items of the Consolidated Statement of Comprehensive IncomeJanuary to June 2023January to June 2022ChangeMain reasons for change Insurance revenue91,94191,7250.2%Investment income23,60685,454N/AThe corresponding data is not comparable due to changes in accounting standardsNet realised gains on financial assetsN/A6,662N/ANet fair value gains through profit or lossN/A(5,129)N/AInterest income61,246N/AN/AInvestment income from associates and joint ventures5,6645,737-1.3%Other income3,8674,295-10.0%The fluctuation of exchange rate for the valuation of foreign currency assets and liabilitiesInsurance service expenses64,84663,2342.5%Insurance finance income/(expenses)from insurance contracts issued73,79372,4581.8%Finance costs2,3412,610-10.3%A decrease in interest paid for financial assets sold under agreements to repurchaseExpected credit losses(797)N/AN/AIncome tax6643,474-80.9%Due to the combined effect of changes in profit before income tax and non-taxable incomeNet profit attributable to equity holders of the Company36,15139,305-8.0%Due to the combined impact of changes of accounting standards and sustained volatilities in the equity market 06Interim Report 2023|Chairmans Statement072023 is the opening year for fully implementing the guidelines of the 20th CPC National Congress and also the 20th anniversary for China Lifes shareholding reform and public listing.Looking back to the first half of the year,as Chinas economy and society have fully returned to normal,and domestic demands were gradually recovering,the life insurance industry saw visible rebound in growth.Centering on serving the overall interests of national development,and steadfastly pushing forward its development in finance with Chinese characteristics,China Life took initiatives on strengthening Party building,benefitting peoples livelihood,driving business development,promoting reforms and guarding against risks to pursue high-quality development.As a result,the Company achieved a steady progress with sound momentum,and further enhanced its comprehensive strengths with its market leading position remaining solidified,making new achievements in its journey towards building a world-class life insurance company.We pursued the original aspiration of providing insurance services for the people and continued to enhance our efficiency in serving the overall national development.Keeping the“National Priorities”in mind,we gave full play to our function as a“safety net”for protection of peoples livelihood,a“shock absorber”for economic operation and a“stabiliser”for social development,vigorously strengthened the protection of consumers rights and interests,and deeply applied the concept of“providing insurance services for the people”.With a focus on implementing the“national strategy of proactively responding to population aging”,the“Healthy China Initiative”and other major national deployments,we made consistent efforts to enhance the affordability and accessibility of insurance.As our business scale of third-pillar private pension and exclusive commercial pension leading the industry,and our long-term care insurance programs offering services to over 33 million people,we contributed to the development of the multi-tiered social security system CHAIRMANSSTATEMENTInterim Report 2023|Chairmans Statement08in greater breadth and depth.We steadfastly served the real economy,and consistently increased our support to the construction of a modern industrial system,green and low-carbon development and regional development strategy by various means.Our accumulated investments in real economy and in green investments have surpassed RMB3.8 trillion and RMB440 billion,respectively.Furthermore,we consistently promoted rural revitalisation,in which we strived to open up new horizons through various means.We prioritised business value creation and further solidified our leading position in the industry.By firmly pursuing high-quality development,we focused on business value creation and seized market opportunities,and accelerated the pace of our business development.Our insurance business saw a strong growth,the overall business performance remained stable,and a steady progress with good momentum was achieved for high-quality development.In the first half of 2023,we hit a record high in terms of gross written premiums as compared to the same period in history,with the value of half years sales increasing by 19.9%,and our industry leading position in terms of the gross written premiums,value of half years sales and embedded value were further consolidated.With our insurance business realising a strong growth,our business structure was continuously optimised.We stepped up researches on the allocation to major asset categories,seized opportunities in capital markets at particular phases,strengthened the management and control of credit risks,and adopted multiple measures to stabilise investment returns,with a view to navigating through the macro-economic cycle.Our solvency ratios remained at relatively high levels,which provided solid capital foundation for the development of insurance and investment businesses.We focused on integrity and innovation and made unremitting efforts in advancing reforms in greater depth.Aligning with the changes in time,the changes in client base,as well as the changes in demands,we consistently improved the adaptability and flexibility of our supply-side structure,and strived to bring together the new driving forces for development and cultivate new competitive edges.The implementation of the“Eight Reform Programs”was accelerated,and the reforms on key business areas and aspects,such as the sales system reforms,construction of an ecological chain and digital transformation,moved forward steadily as planned.Having our eyes on the future,the sales system reforms proceeded smoothly,aiming at upgrading the mode of business development for the life insurance business,with the enhancement of professional competence of our sales force and the exploration of new sales model as the key focuses,and the upgrading of the“product services”model and precise technology empowerment as the guarantee and support.The construction of the healthcare and senior-care service ecosystem was also accelerated.With the residential senior-care services in“city center”as the main model and the residential senior-care services in“suburb”,home-based senior-care services and community-based senior-care services as the complementary model,the promotion of our integrated senior-care business achieved remarkable results.We kept on pushing forward the deep integration of digital technologies with insurance business.With a focus on ecology,contact points and client base,we continued to promote the digital,intelligent and ecological development towards both ends of the value chain of the life insurance business,exerting the effects of digital technology empowerment.With advancement in such aspects as talent development,integrated sales and customer relationship management,the construction of the sustainable high-quality development system and mechanism was further accelerated.Interim Report 2023|Chairmans Statement09We strengthened bottom-line thinking and further improved the risk prevention and control mechanism.We coordinated business development and risk control,pursued sound and prudent business operations,and optimised asset-liability management.By deeply advancing the construction of an enterprise-wide risk management system,we continuously strengthened efforts to prevent and mitigate risks in key business areas,and firmly held onto the bottom line that no systemic risks arose.As the informatisation and intellectualisation of risk prevention and control were deeply integrated,and the rigid constraints on the front end of systems were further intensified,we steadily launched the transformation towards a source-based intelligent risk control system.The Company has maintained the rating of Class A for 20 consecutive quarters in the integrated risk rating for insurance companies,and was among the top-ranked life insurance companies as evaluated by the first Solvency Aligned Risk Management Requirements and Assessment(“SARMRA”)under the C-ROSS(Phase II)Regulation.Our capabilities of risk management and control for safeguarding high-quality development were steadily enhanced.At present,China is at a crucial stage for economic recovery as well as transformation and upgrading,and the foundation for recovery of the life insurance industry is not solid yet.In the long run,since China has the advantages of a hyperscale market and domestic demands potentials,and its economy is resilient and promising with ample leeway for growth,the long-term positive fundamentals remain unchanged.The strong driving forces brought about by high-quality economic development,together with the external forces arising from the strengthening of the social security system,have offered broader space for the long-term positive development of the industry,and Chinas life insurance industry is still at an important stage full of strategic opportunities.Meanwhile,the profound changes in internal and external environments,including new sci-tech revolution and new supply-side reforms in the life insurance industry driven by new demands,are imperceptibly shaping the future development landscape of the industry.The life insurance industry has entered a stage that a new pattern is being fostered,new track of development is being navigated and new areas are being explored.Setting the sail high,we are well prepared to lead in the wave of the times.The insurance industry embodies the concept of love and sharing at the most in itself.As a leading company in the industry,China Life will apply new development concepts completely,accurately and consistently.We will deeply promote the upgrading of business modes towards ecological chain operation and collaborative development of integrated finance,and speed up the progress of the sales system reforms and digital transformation.Being customer-centric,we will firmly stick to the principle of utmost good faith and safeguard peoples wellbeing,with an aim to make insurance become a caring and trusted partner of our clients.By Order of the BoardBai TaoChairman23 August 20232 The data regarding premiums(including gross written premiums,premiums from new policies,first-year regular premiums,first-year regular premiums with a payment duration of ten years or longer,renewal premiums,single premiums and short-term insurance business premiums,etc.)in this Interim Report are relevant data under ASBE.Interim Report 2023|Management Discussion and AnalysisMANAGEMENT DISCUSSIONAND ANALYSIS2REVIEW OF BUSINESS OPERATIONS IN THE FIRST HALF OF 2023In the first half of 2023,as Chinas economic and social development has fully returned to normal,the market demands have gradually recovered,and the overall economy showed a good momentum of recovery.However,the external environment was complicated,and the foundation for sustained recovery of domestic economy was not solid yet.The good momentum of the macro economy drove steady recovery and growth of the life insurance industry.The industry regulator,concentrating on the areas of social concern with far-reaching impacts,including promoting the development of industry in a regulated manner,and serving peoples livelihood and the real economy,further optimised financial regulatory policy system to strengthen compliant operations,so as to firmly pursue the high-quality development of the industry.The Company firmly implemented the business strategy of“achieving stable growth,prioritising business value,optimising structure,strengthening sales force,promoting reforms and guarding against risks”,adhered to the original role of insurance,and pursued high-quality development.It proactively seized development opportunities arising from the recovery of the industry and made breakthroughs for business expansion through innovation,thus achieving a steady progress while maintaining stability in its overall operations with its market leading position remaining solidified.As at the end of the Reporting Period,the Companys total assets reached RMB5.51 trillion,investment assets reached RMB5.39 trillion,and embedded value reached RMB1,311,669 million,all of which remained the industry leadership position.The comprehensive solvency ratio and core solvency ratio continued to maintain at relatively high levels,which were 204.23%and 140.43%,respectively.The number of long-term in-force policies held by the Company reached 326 million.The Company maintained its strategic consistency,continued to strengthen its asset-liability interaction,consistently implemented its medium-to long-term strategy asset allocation,and adopted multiple measures to stabilise investment returns.In the first half of 2023,the gross investment income of the Company was RMB91,372 million,and the net profit attributable to equity holders of the Company was RMB36,151 million.10Interim Report 2023|Management Discussion and AnalysisFrom left to right:Mr.Zhao Guodong,Mr.Ruan Qi,Mr.Li Mingguang,Ms.Liu Hui,Ms.Yang Hong,Mr.Bai KaiKey Performance Indicators for the First Half of 2023RMB million January to June 2023January to June 2022 Gross written premiums470,115439,969Premiums from new policies171,213139,358Including:First-year regular premiums97,41879,838First-year regular premiums with a payment duration of ten years or longer38,95730,226Renewal premiums298,902300,611Value of half years sales30,86425,745Including:Individual agent business sector27,40424,185Policy persistency rate(14 months)1(%)89.2085.10Policy persistency rate(26 months)1(%)79.3076.50Surrender rate2(%)0.650.51 As at 30 June 2023As at 31 December 2022 Embedded value1,311,6691,230,519Number of long-term in-force policies(hundred million)3.263.25 January to June 2023January to June 2022 Gross investment income91,372N/ANet profit attributable to equity holders of the Company36,15139,305 Notes:1.The persistency rate for long-term individual life insurance policy is an important operating performance indicator for life insurance companies.It measures the ratio of in-force policies in a pool of policies after a certain period of time.It refers to the proportion of policies that are still effective during the designated month in the pool of policies whose issue date was 14 or 26 months ago.2.Surrender rate,which is for long-term insurance business,is the proportion of the surrender payment to the sum of the reserves at the beginning of the period and the premiums.Items such as surrender payment,reserves and premiums are relevant data under ASBE.11Interim Report 2023|Management Discussion and AnalysisEmbedded value(RMB million)Value of half years sales(RMB million)As at 30 June 2023First half of 2023First half of 2022As at 31 December 2022Gross written premiums breakdown(RMB million)30,86425,7451,311,6696.6%1,230,51919.9S,99097,418298,90219,80552,867300,61179,8386,653Single premiumsSingle premiumsRenewal premiumsRenewal premiumsFirst-year regular premiumsShort-term insurance premiumsShort-term insurance premiumsFirst half of2023First half of2022First-year regular premiumsPrioritising business value,in the first half of 2023,the Company realised a strong growth in its insurance business with its business structure continuously optimised.Its gross written premiums amounted to RMB470,115 million,a year-on-year increase of 6.9%,hitting a record high for the same period in history and still leading the industry.The key business performance indicators achieved a rapid growth.Premiums from new policies reached RMB171,213 million,a year-on-year increase of 22.9%.First-year regular premiums were RMB97,418 million,increasing by 22.0%year on year.In particular,first-year regular premiums with a payment duration of ten years or longer reached RMB38,957 million,a year-on-year increase of 28.9%,and its proportion in the first-year regular premiums rose by 2.13 percentage points,showing a significant improvement in business structure.The value of half years sales was RMB30,864 million,a year-on-year increase of 19.9%,continuing to lead the industry.The Company vigorously pushed forward the“Eight Reform Programs”,aiming to foster new growth drivers through reforms and innovation.In the first half of 2023,it introduced several strategic measures and reform programs that focused on Party building as the guide,mechanism optimisation,sales system reforms,resources integration,management innovation and ecological driving forces,making new breakthroughs in reforms on key areas.The Company deeply advanced sales system reforms in the individual agent business sector by defining two key focuses for reforms,namely“enhancement of professional competence of the existing sales force”and“exploring new sales models”,as well as two guarantee and supporting strategies,namely“the product services ecosystem”and“precise technology empowerment”,and accelerated the transformation and upgrading of a specialised and professional agent force.The project for upgrading the exiting sales force was fully launched.The Company accelerated the construction of a healthcare and senior-care ecosystem and created a development model with the residential senior-care services in“city center”as the main model and the residential senior-care services in“suburb”,home-based senior-care services and community-based senior-care services as the complementary model.The Company also proceeded with the deployment of senior-care projects,and carried out senior-care service projects in some major cities to develop its own capability in supplying inclusive healthcare and integrated senior-care services at a faster speed,so as to satisfy the diversified needs of people for healthcare and senior-care services.The Company fully advanced the FinTech and Digitalisation Program and actively pushed forward the upgrading of its corporate network to 5G by implementing new technologies as a breakthrough.With the Cloud Native concept applying to the whole process of technological construction,the Company fully applied AI technologies in each aspect of its core value chain,and gave full play to data factors,to further enhance the supporting and empowering function of digitalisation and intellectualisation to its business operation and management in all aspects.12Interim Report 2023|Management Discussion and AnalysisBUSINESS ANALYSISFigures of Gross Written PremiumsGross Written Premiums Categorised by BusinessRMB million January to June 2023January to June 2022Change Life insurance business388,558356,5289.0%First-year business115,35983,51938.1%First-year regular95,56176,87424.3%Single19,7986,645197.9%Renewal business273,199273,0090.1%Health insurance business73,05875,284-3.0%First-year business47,59347,954-0.8%First-year regular1,8572,961-37.3%Single45,73644,9931.7%Renewal business25,46527,330-6.8cident insurance business8,4998,1574.2%First-year business8,2617,8854.8%First-year regular3-100.0%Single8,2617,8824.8%Renewal business238272-12.5%Total470,115439,9696.9%Note:Single premiums in the above table include premiums from short-term insurance business.During the Reporting Period,gross written premiums from the life insurance business of the Company were RMB388,558 million,a year-on-year increase of 9.0%.Gross written premiums from the health insurance business were RMB73,058 million,a year-on-year decrease of 3.0%.Gross written premiums from the accident insurance business were RMB8,499 million,a year-on-year increase of 4.2%.13Interim Report 2023|Management Discussion and AnalysisGross Written Premiums Categorised by ChannelRMB million January to June 2023January to June 2022 Individual agent business sector1362,101352,487First-year business of long-term insurance80,20869,042First-year regular80,10968,957Single9985Renewal business272,499274,016Short-term insurance business9,3949,429Bancassurance channel62,06642,609First-year business of long-term insurance36,21716,709First-year regular17,29410,864Single18,9235,845Renewal business25,64125,707Short-term insurance business208193Group insurance channel15,92316,759First-year business of long-term insurance772732First-year regular916Single763716Renewal business761862Short-term insurance business14,39015,165Other channels230,02528,114First-year business of long-term insurance268First-year regular61Single207Renewal business126Short-term insurance business29,99828,080 Total470,115439,969 Notes:1.Gross written premiums of individual agent business sector include premiums of the general sales team and the upsales team.2.Gross written premiums of other channels mainly include premiums of government-sponsored health insurance business and online sales,etc.14Interim Report 2023|Management Discussion and AnalysisInsurance BusinessAnalysis of Insurance BusinessIn the first half of 2023,the life insurance industry showed a good momentum of recovery.Seizing the opportunities of such recovery,the Company focused on business value growth,proceeded with transformation in greater depth,and made manifested achievements in high-quality business development.Its gross written premiums hit a record high in the first half of the year with its business structure significantly optimised,and the value of half years sales rose rapidly.The size of the Companys sales force was gradually stabilised.As at the end of the Reporting Period,the total number of its sales force was 721,000,and the productivity per person of the individual agent business sector,bancassurance channel and group insurance channel realised a significant year-on-year increase.Individual Agent Business SectorThe individual agent business sector strived to make progress while maintaining stability and consistently deepened business channel restructuring.A rapid growth was achieved in all indicators for the new business,and the business structure was significantly optimised.During the Reporting Period,gross written premiums from the sector were RMB362,101 million,an increase of 2.7%year on year.In particular,renewal premiums were RMB272,499 million.First-year regular premiums were RMB80,109 million,an increase of 16.2%year on year.First-year regular premiums with a payment duration of ten years or longer were RMB38,950 million,an increase of 28.9%year on year,and its proportion in the first-year regular premiums was 48.62%,an increase of 4.81 percentage points year on year.In the first half of 2023,the value of half years sales of the sector was RMB27,404 million,an increase of 13.3%year on year.In the first half of 2023,the individual agent business sector adhered to the strategy of“productive agents-driven business”,concentrated on the“Sales Channel Strengthening Program”,and emphasised on two key focuses for reforms,namely“enhancement of professional competence of the existing sales force”and“exploring new sales models”,to deeply proceed with the sales system reforms in the sector,with an aim to accelerate the transformation and upgrading of a specialised and professional agent force.The“Regular Operation 4.0 System for the Team Building of the Individual Agent Business Sector”was steadily advanced to strengthen the technological support for team building and increase the teams overall capability.The“Zhongxin Project”was carried out to optimise agent recruitment and development,and the recruitment requirements were further improved.The size of its sales force was stabilised as a whole.As at the end of the Reporting Period,the number of agents of the sector was 661,000,generally stable compared with the end of 2022,including 424,000 agents from the general sales team and 237,000 agents from the upsales team.The quality of sales force continued to improve,with an increase in both the number and proportion of high-performance agents.Meanwhile,the productivity of the sales force was improved substantially and the monthly average first-year regular premiums per agent rose by 38.1%year on year.Agents of individual agent business sectorGross written premiums of individual agent business sector(RMB million)First-year regular premiums661,000First half of 2023First half of 2022362,101352,48780,10968,9572.7.2%Diversified Business SectorWith high-quality development as the guidance,the diversified business sector concentrated on specialised business operation,and insisted on transformation and upgrading as well as enhancing quality and efficiency.In the first half of 2023,the Company further optimised and innovated the operation models for its diversified channels,and fostered the new development of the sector by making breakthroughs in refining channels management,increasing value creation from such channels,and pursuing market-oriented operating mechanism,etc.15Interim Report 2023|Management Discussion and AnalysisBancassurance Channel Grasping the trend of the market,the bancassurance channel deepened and expanded its cooperation with banks,and achieved a rapid growth in the scale of its premiums.During the Reporting Period,gross written premiums from the channel amounted to RMB62,066 million,an increase of 45.7%year on year.With its efforts on deepening structural transformation,and increasing the sales of medium-and long-term bancassurance products,it achieved a significant optimisation in its business structure.First-year regular premiums were RMB17,294 million,an increase of 59.2%year on year.First-year regular premiums with a payment duration of five years or longer were RMB7,527 million,with its proportion in the first-year regular premiums rising by 11.20 percentage points year on year to 43.52%.Renewal premiums amounted to RMB25,641 million(a year-on-year decrease of 0.3%),accounting for 41.31%of gross written premiums from the channel.The bancassurance channel constantly enhanced the professional and technological capabilities of its account manager team,the quality of which was improved steadily.As at the end of the Reporting Period,the number of account managers of the bancassurance channel reached 23,000,and the quarterly average active managers recorded a year-on-year growth of 13.8%,with the productivity of regular premiums per account manager increased substantially.Gross written premiums of bancassurance channel(RMB million)Account managers of bancassurance channelFirst-year regular premiums23,000First half of 2022First half of 202317,29462,06610,86442,60945.7Y.2%2.7.2%Gross written premiums of group insurance channel(RMB million)Direct sales representatives37,000Short-term insurance premiumsFirst half of 2023First half of 202215,92316,75914,39015,165Group Insurance Channel The group insurance channel coordinated business scale and profitability and pushed forward stable development in all business lines.During the Reporting Period,gross written premiums from the channel were RMB15,923 million,a decrease of 5.0%year on year.In particular,short-term insurance premiums from the channel were RMB14,390 million,a decrease of 5.1%year on year.As at the end of the Reporting Period,the number of direct sales representatives was approximately 37,000,among which the proportion of high-performance personnel rose by 4.6 percentage points from the end of 2022.45.7Y.2%2.7.2%Gross written premiums of group insurance channel(RMB million)Direct sales representatives37,000Short-term insurance premiumsFirst half of 2023First half of 202215,92316,75914,39015,165Proportion of high-performance personnel rose by percentage points 4.6from the end of 202216Interim Report 2023|Management Discussion and AnalysisOther Channels During the Reporting Period,gross written premiums from other channels were RMB30,025 million,an increase of 6.8%year on year.The Company proactively participated in a variety of government-sponsored health insurance businesses and supported the construction of a multi-tiered medical security system.As at the end of the Reporting Period,the Company carried out over 200 supplementary major medical expenses insurance programs,covering nearly 350 million people.It also undertook over 60 policy-oriented long-term care insurance programs,providing services to more than 33 million people.Meanwhile,it implemented over 110 city-customised commercial medical insurance projects.The Company actively participated in social governance related to medical protection and continued to undertake over 390 health care entrusted programs.Online Insurance BusinessThe Company continued to promote the development of the online insurance business and provided customers with a quality service experience through integrated online-to-offline sales and online direct sales.In the first half of 2023,the Company achieved new breakthroughs in exploring digital business operations and the development of online exclusive business,etc.Its digital sales capability was further strengthened,and its online insurance business grew rapidly.Total premiums3 of online insurance business under the regulatory caliber were RMB53,680 million,an increase of 38.1%year on year.The Company consistently optimised its online insurance business operation system featuring centralised operation and unified management,and gave full play to the advantages of fast access,wide coverage and high efficiency of the Internet,to actively promote the development of its business and consistently enhance its core operating capabilities and channel value of the online insurance business.Integrated Financial BusinessThe Company actively engaged in the construction of a“Life Insurance Plus”integrated financial ecosystem,with a view to empowering the Companys high-quality development.In the first half of 2023,premiums of CLP&C cross-sold by the Company through collaboration were RMB11,856 million.Through the cross-sale of property insurance products,the Company diversified its client contacts and facilitated its sales team to meet sales targets,maintain its size and secure a higher commission income.Additional first-year receipts of enterprise annuity funds and commercial pension products of Pension Company cross-sold by the Company through collaboration were RMB2,045 million.The Company entrusted CGB to sell its bancassurance products,with the first-year regular premiums amounting to RMB1,612 million,an increase of 42.0%year on year.The Company also actively explored the synergy between insurance and investment business,continuously deepened the cooperation with AMC and CLI,etc.,and constantly innovated and explored new insurance-investment interactive model in aspects such as investment project promotion and joint customer exploration.Besides,in order to satisfy the diverse needs of its customers,the Company has carried out various business operation activities by co-working with CLP&C and CGB,so as to provide customers with one-stop and all-round solutions of the high-quality financial and insurance services.Inclusive Healthcare and Integrated Senior-care Service SystemWith insurance business as the core and the“people-centric”approach as the starting point and ultimate goal for the“insurance healthcare and senior-care services”development,the Company fully advanced the“Healthcare and Senior-care Ecosystem Program”to accelerate its deployment in the healthcare and senior-care sector.In the first half of 2023,with respect to the“insurance healthcare services”,the Company fully consolidated internal and external high-quality resources and made consistent efforts to enhance its capability in health management services,creating a health management and service system integrating online and offline operations and with high quality and efficiency.As at the end of the Reporting Period,more than a hundred types of services were available on the China Life Inclusive Healthcare Service Platform,covering seven categories of health management services such as physical examination,health consulting,health promotion,disease prevention,chronic disease management,medical services and rehabilitation care,and the accumulated registered users of the platform increased by over 10%from the end of 2022,ranking among the top of the industry.With respect 3 Including premiums from online insurance business acquired by different sales channels of the Company.17Interim Report 2023|Management Discussion and Analysisto the“insurance senior-care services”,the Company accelerated its deployment in the healthcare and senior-care sector,enhanced its capability of service supply,and created a development model with the residential senior-care services in“city center”as the main model and the residential senior-care services in“suburb”,home-based senior-care services and community-based senior-care services as the complementary model.The Company accelerated the consolidation of the existing healthcare and senior-care resources by setting up the China Life Integrated Senior Care Fund,with the expansion of senior-care services to six additional key cities and launching the pilot programs of home-based senior-care services in five cities in the first half of the year.As for the next stage,with an unchanged focus on its principal insurance business,the Company will strengthen its ability comprehensively to integrate the inclusive healthcare and integrated senior-care businesses and enhance its platform influence.By creating a close-loop system of“products services payment”,the Company will develop its core competitiveness of“product services”,so as to facilitate its transformation from risk compensation to full chain management of risks,making significant contributions in strengthening the social security system,and improving peoples wellbeing and quality of life.Analysis of Insurance ProductsThe Company actively served national strategies and adhered to the original aspiration of“providing insurance services for the people”.In light of the internal and external environments for product research and development,the Company further strengthened the underlying ecosystem construction of products and optimised its product structure,so as to enhance its product supply capability in a responsive,efficient and secured manner.It also made continuous efforts in exploring the criteria and rules on service-product integration to improve the supply efficiency of its“product services”.In the first half of 2023,the Company newly developed and upgraded a total of 78 insurance products.In actively serving the Healthy China initiative,the Company steadily promoted the research and development of products with respect to critical illness insurance,care insurance and medical insurance,to provide better health protection for customers with diversified demands.It developed through innovation the insurance product series named the“Xiang Ban Fu”and other products on the basis of the product series named the“Zun Xiang Fu”and“Hui Xiang Fu”,and launched illness insurance products especially for students and children such as“Le Xue Wu You”.To actively serve the national strategy of proactively responding to population aging,the Company continued to develop products,such as pension insurance and long-term care insurance,after the launch of the third-pillar private pension insurance product.It also actively implemented pilot programs of insurance liability conversion between life insurance and long-term care insurance,for the purpose of satisfying the diverse needs of customers for pension security.Moreover,the Company actively facilitated rural revitalisation and regional harmonious development by continuously rolling out its exclusive series of products for rural revitalisation to provide insurance protection against death,medical treatments and accidents for the relevant groups of people,and exploring the product supply for the designated regions by launching the accident injury insurance of Hainan Free Trade Port and other insurance products.It also carried out in-depth studies on the needs of professional athletes for retirement protection and promoted innovation in the development of sports insurance products.18Interim Report 2023|Management Discussion and AnalysisInvestment PortfoliosAs at the end of the Reporting Period,the Companys investment assets categorised by investment object are set out as below:RMB million As at 30 June 2023Investment categoryAmountPercentage Fixed-maturity financial assets3,887,47272.16%Term deposits445,7808.28%Bonds2,901,06453.86bt-type financial products1477,8688.87%Other fixed-maturity investments262,7601.15%Equity financial assets976,99618.14%Common stocks435,8928.09%Funds3166,2193.09%Other equity investments4374,8856.96%Investment properties12,9730.24sh and others5249,7834.64%Investments in associates and joint ventures259,4434.82%Total5,386,667100.00%Notes:1.Debt-type financial products include debt investment schemes,trust schemes,asset-backed plans,credit asset-backed securities,specialised asset management plans,and asset management products,etc.2.Other fixed-maturity investments include statutory deposits-restricted and interbank certificates of deposits,etc.3.Funds include equity funds,bond funds and money market funds,etc.In particular,the balance of money market funds as at 30 June 2023 was RMB2,640 million.4.Other equity investments include private equity funds,unlisted equities,preference shares and equity investment plans,etc.5.Cash and others include cash,cash at banks,short-term deposits and financial assets purchased under agreements to resell,etc.As at the end of the Reporting Period,the Companys investment assets reached RMB5,386,667 million.Among the major types of investments,the percentage of investment in bonds was 53.86%,the percentage of term deposits was 8.28%,the percentage of investment in debt-type financial products was 8.87%,and the percentage of investment in stocks and funds(excluding money market funds)was 11.13%.4 In accordance with IFRS 9 Financial Instruments,there is no need for the Company to restate and present any comparative information associated with financial instruments.Therefore,comparative information on investment business is not presented because of no comparability.Investment Business4In the first half of 2023,the interest rate of fixed-income assets was adjusted downward after a short-term surge at the beginning of the year,and the low interest rate environment with a shortage of quality assets remained unchanged.The stock market was under fluctuation with diversified sector performance.Under the complicated and ever-changing market environment,the Company firmly maintained its strategic consistency and pursued asset-liability matching management.It carried out tactical asset allocation flexibly by actively seizing market opportunities under the guidance of strategic asset allocation.Adhering to the“dumbbell type”allocation strategy for fixed-income assets,the Company increased allocation to bonds with long duration by leveraging short-term opportunities presented by interest rate rebounds at the start of the year.The Company consistently pursued balanced allocations and structural optimisation with its equity asset positions remaining stable in general.Besides,it took proactive actions to expand reserves of alternative investment projects and made innovation in investment models,maintaining a stable size of alternative asset allocations.19Interim Report 2023|Management Discussion and AnalysisInvestment IncomeRMB million January to June 2023 Gross investment income91,372Net investment income90,585Net income from fixed-maturity investments71,125Net income from equity investments11,348Net income from investment properties62Investment income from cash and others2,386Share of profit of associates and joint ventures5,664 Realised disposal gains(12,489) Unrealised gains or losses12,482 Expected credit losses of investment assets(794)Net investment yield3.31%Gross investment yield3.33%Note:In the calculation of an investment yield,the average investment assets as the denominator exclude the fair value changes of debt-type investments measured at fair value through other comprehensive income,so as to reflect the strategic intention of the Company for the management of assets and liabilities.Additionally,only interest income from fixed-maturity assets and rental income from investment properties are annualised,and such treatment does not apply to interest income from/interest paid for financial assets purchased under agreements to resell and financial assets sold under agreements to repurchase,dividend income,spread income,and gains and losses from changes in fair values,etc.In the first half of 2023,the Companys net investment income was RMB90,585 million,and the net investment yield was 3.31%;the gross investment income of the Company was RMB91,372 million,and the gross investment yield was 3.33%.Credit Risk ManagementThe Companys credit asset investments mainly included credit bonds and debt-type financial products,which concentrated on sectors such as banking,transportation,non-banking finance,public utilities and energy.As at the end of the Reporting Period,over 98%of the credit bonds held by the Company were rated AAA by external rating institutions,whereas over 99%of the debt-type financial products were rated AAA by external rating institutions.In general,the asset quality of the Companys credit investment products was in good condition,and the credit risks were well controlled.The Company insisted on a prudent investment philosophy.Based on a disciplined and scientific internal rating system and a multi-dimensional management mechanism of risk limits,the Company prudently scrutinised credit profiles of targets and risk exposure concentration before investment and carried out ongoing tracking after investment,effectively controlling credit risks through early identification,early warning and early disposal.Under a market environment where credit default events occurred frequently,no credit default event occurred for the Company in the first half of 2023.Major InvestmentsDuring the Reporting Period,there was no material equity investment or non-equity investment of the Company that was subject to disclosure requirements.20Interim Report 2023|Management Discussion and AnalysisANALYSIS OF SPECIFIC ITEMSInsurance Contract LiabilitiesRMB million As at 30 June 2023As at 31 December 2022Change Insurance contract liabilities of long-term insurance business4,657,3504,231,07510.1%Insurance contract liabilities of short-term insurance business38,73635,8728.0%Total of insurance contract liabilities4,696,0864,266,94710.1%Including:Contractual service margin802,380783,4732.4%As at the end of the Reporting Period,the insurance contract liabilities of the Company were RMB4,696,086 million,10.1%up from RMB4,266,947 million as at the end of 2022,primarily due to the accumulation of insurance liabilities from new policies and renewals.Analysis of Cash FlowsLiquidity SourcesThe Companys cash inflows mainly come from insurance premiums received,interest,dividend and bonus,and proceeds from sale and maturity of investment assets.The primary liquidity risks with respect to these cash inflows are the risk of surrender by contract holders and policyholders,as well as the risks of default by debtors,interest rate fluctuations and other market volatilities.The Company closely monitors and manages these risks.The Companys cash and bank deposits can provide it with a source of liquidity to meet normal cash outflows.As at the end of the Reporting Period,the balance of cash and cash equivalents was RMB194,708 million.In addition,the vast majority of its term deposits in banks allow it to withdraw funds on deposits,subject to a penalty interest charge.As at the end of the Reporting Period,the amount of term deposits was RMB445,780 million.The Companys investment portfolio also provides it with a source of liquidity to meet unexpected cash outflows.The Company is also subject to market liquidity risk due to the large size of its investments in some of the markets in which it invests.In some circumstances,some of its holdings of investment securities may be large enough to have an influence on the market value.These factors may adversely affect its ability to sell these investments or sell them at a fair price.Liquidity UsesThe Companys principal cash outflows primarily relate to the payables for the liabilities associated with its various life insurance,annuity,accident insurance and health insurance products,operating expenses,income taxes and dividends that may be declared and paid to its equity holders.Cash outflows arising from the Companys insurance activities primarily relate to benefit payments under these insurance products,as well as payments for policy surrenders,withdrawals and policy loans.The Company believes that its sources of liquidity are sufficient to meet its current cash requirements.21Interim Report 2023|Management Discussion and AnalysisConsolidated Cash FlowsThe Company has established a cash flow testing system,and conducts regular tests to monitor the cash inflows and outflows under various scenarios and adjusts the asset portfolio accordingly to ensure sufficient sources of liquidity.RMB million January to June 2023January to June 2022ChangeMain reasons for change Net cash inflow/(outflow)from operating activities249,424233,4636.8%An increase in the scale of universal insurance accountsNet cash inflow/(outflow)from investing activities(166,896)(127,463)30.9%The needs for investment managementNet cash inflow/(outflow)from financing activities(15,528)(72,529)-78.6%The needs for liquidity managementForeign exchange gains/(losses)on cash and cash equivalents114205-44.4%Net increase in cash and cash equivalents67,11433,67699.3%Solvency RatioAn insurance company shall have the capital commensurate with its risks and business scale.According to the nature and capacity of loss absorption by capital,the capital of an insurance company is classified into the core capital and the supplementary capital.The core solvency ratio is the ratio of core capital to minimum capital,which reflects the adequacy of the core capital of an insurance company.The comprehensive solvency ratio is the ratio of the sum of core capital and supplementary capital to minimum capital,which reflects the overall capital adequacy of an insurance company.The following table shows the Companys solvency ratios as at the end of the Reporting Period:RMB million As at 30 June 2023As at 31 December 2022(unaudited)Core capital709,523699,688Actual capital1,031,8181,007,601Minimum capital505,233487,290Core solvency ratio140.433.59%Comprehensive solvency ratio204.23 6.78%As at the end of the Reporting Period,the comprehensive solvency ratio and the core solvency ratio of the Company were 204.23%and 140.43%,respectively,continuing to stay relatively high.Affected by factors such as the business growth,an increase in investment assets and dividends payment,the solvency ratios slightly decreased from the end of 2022.Sale of Material Assets and EquityDuring the Reporting Period,there was no sale of material assets and equity of the Company.22Interim Report 2023|Management Discussion and AnalysisMajor Subsidiaries and Associates of the CompanyRMB million Company nameMajor business scopeRegistered capitalShareholdingTotal assetsNet assetsNet profit China Life Asset Management Company LimitedManagement and utilisation of proprietary funds;acting as agent or trustee for asset management business;consulting business relevant to the above businesses;other asset management business permitted by applicable PRC laws and regulations.4,00060 ,56017,4981,490 China Life Pension Company LimitedGroup pension insurance and annuity;individual pension insurance and annuity;short-term health insurance;accident insurance;reinsurance of the above insurance businesses;business for the use of insurance funds that are permitted by applicable PRC laws and regulations;pension insurance asset management product business;management of funds in RMB or foreign currency as entrusted by entrusting parties for the retirement benefit purpose;other businesses permitted by the NAFR.3,40070.74%is held by the Company,and 3.53%is held by AMC10,1526,851504 China Life Property and Casualty Insurance Company LimitedProperty loss insurance;liability insurance;credit insurance and bond insurance;short-term health insurance and accident insurance;reinsurance of the above insurance businesses;business for the use of insurance funds that are permitted by applicable PRC laws and regulations;other businesses permitted by the NAFR.27,800407,80437,882608 China Guangfa Bank Co.,Ltd.Taking public deposits;granting short-term,mid-term and long-term loans;handling settlements in and out of China;honoring bills and offering discounting services;issuing financial bonds;issuing,paying for and underwriting government bonds as an agent;sales and purchases of negotiable securities such as government bonds and financial bonds;engaging in inter-bank borrowings;providing letters of credit service and guarantee;engaging in bank card business;acting as payment and receipt agent and insurance agent;providing safe deposit box services;taking deposits and granting loans in foreign currency;foreign currency remittance;foreign currency exchange;international settlements;foreign exchange settlements and sales;inter-bank foreign currency borrowings;honoring bills of exchange and offering discounting services in foreign currency;granting foreign currency loans;granting foreign currency guarantees;sales and purchases of negotiable securities other than shares in a foreign currency for itself and as an agent;issuing negotiable securities other than shares in a foreign currency for itself and as an agent;sales and purchases of foreign exchange on its own account and on behalf of its customers;issuing and making payments for foreign credit card as an agent;offshore financial operations;assets and credit verification,consultation and notarisation businesses;other businesses approved by the NAFR and other relevant authorities.21,79043.686%3,464,263272,2719,920 Note:For details,please refer to Note 19 in the Notes to the Interim Condensed Consolidated Financial Statements in this report.Structured Entities Controlled by the CompanyThe details of structured entities controlled by the Company are set out in Note 19 in the Notes to the Interim Condensed Consolidated Financial Statements in this report.Analysis of Core CompetitivenessDuring the Reporting Period,there was no material change in the Companys core competitiveness.23Interim Report 2023|Management Discussion and AnalysisOperations and ServicesIn the first half of 2023,sticking to the“people-centric”approach and serving the overall national development,the Company enhanced its operations and services by responding to the voices of customers.It accelerated the implementation of an integrated model of intelligent and centralised operations,strengthened the protection of consumers rights and interests,and strived to improve its capability of service supply and delivery,with a commitment to provide the“convenient,quality and caring”operations and services of high quality.Service delivery capability was improved with further business mode optimisation.The Companys service efficiency was further improved by intelligent and centralised operations,with the intelligent processing rate of insurance underwriting rising to 94.9%.The shared business mode of operations was fully applied to the entire business process,and the efficiency of policy administration and underwriting for new insurance policies was improved by 27.6%and 36.6%,respectively.The capability of service access through multiple contact points was further improved.The monthly active users of the China Life APP grew by 14.3%year on year,the online customer services surged by 167.4%year on year,and the online services delegated to sales agents amounted to more than 4.22 million customer-times.Service provision capability was enhanced with more diversified services.The healthcare and senior-care services achieved breakthroughs and satisfied the needs of diverse customer groups.Having consolidated its resources,the Company launched six brand new residential senior-care services projects,introduced a pilot program of home-based senior-care services,and provided specific customer groups with the preferential services of“Short Stay Experience”in China Life Caregarden.An upgraded VIP customer services program was rolled out with expanded customer scope and new privileged services,and the number of customers being provided with the VIP services grew by 19.3%year on year.Besides,the Company accelerated the transformation of its service counters from an insurance policy service center to a customer experience center,a sales support center,as well as an education center for the protection of consumers rights and interests,and more than 400 customer centers had their image changed and upgraded.TECHNOLOGY CAPABILITIES,OPERATIONS AND SERVICES,RISK MANAGEMENT AND CONTROLTechnology CapabilitiesIn the first half of 2023,the Company launched the FinTech and Digitalisation Program to deepen technological innovation and consolidate digital infrastructure,with the aim to promoting its high-quality development with high-quality supply of technological capabilities.New awards for technological innovation were received.A real-time data service platform of the full-stack IT application innovation,which was capable of processing data volume at petabytes(PB)level,was constructed based on the new proprietary distributed technological architecture and was selected to be a case study of the national IT application innovation.China Life distributed hybrid cloud was awarded the special prize of Capital Financial Innovation Achievements,and the intelligent identification and verification system for anti-money laundering,which was the first application innovation of“machine learning knowledge graph”in the anti-money laundering field of the life insurance industry,was awarded the second prize of the FinTech Development Awards by the Peoples Bank of China.Digital capability was constantly enhanced.The Company further improved the quality and efficiency of its data service by emphasising on the real-time and the consistency of data,and fully empowered various business sectors such as sales,services,operations and risk control with data factors as the driving force.With its trillion-level data processing capability,the Company realised the whole-process automated generation of financial statements under new insurance contract standards,and developed a financial accounting and actuarial measurement system under the new accounting standards by using more accurate algorithm,more sophisticated model and more efficient process,fully ensuring the implementation of the new accounting standards in a systemic,complete and accurate manner.Digital risk control was consistently intensified.The Company created a digital risk control system based on the big data analytics,which accurately identified a variety of risk scenarios through multi-dimensional modelling analysis and cross comparison.By moving forward risk control points and dynamic monitoring,it realised quick identification and accurate capture of risk scenarios in key business fields.The Company also established a RegTech application laboratory for anti-money laundering with the Peoples Bank of China,Nanchang Center Sub-branch,to explore the empowerment of the full-coverage and look-through anti-money laundering regulation by applying technological means.24Interim Report 2023|Management Discussion and AnalysisClaims settlement services demonstrated the Companys original aspiration of providing insurance services for the people.The“convenient and caring”services of claims settlement won wide recognition,with an average efficiency of 0.39 day for claims settlement(rising by 17%year on year),the number of claims payment increasing by 21.5%year on year,and a claims acceptance rate rising to 99.7%.“Advanced Claims Payment”made claims payments of more than RMB74 million,effectively mitigating the financial pressure faced by customers on medical treatments.The Company promoted reminder services on claims notification of electronic invoices for medical charges,providing claims payments of more than 270,000 customer-times.The coverage of convenient claims payment methods was further expanded.“Direct Claims Payment”provided claims payments of more than 3.41 million customer-times and“Claims Settlement for Critical Illness within One Day”made claims payments of over RMB5,400 million,both rising by 50%year on year.The protection of consumers rights and interests was significantly improved.The Company integrated the protection of consumers rights and interests into each aspect of its corporate governance and business operation and management,achieving the effective operation of the closed-loop management mechanism.It reinforced the concept of integrity and compliance in sales and services,improved the system for the management of customer complaints,extensively collected the voices of customers,identified and resolved customer experience problems,explored service opportunities,and pushed service notification of over 3.4 million.As the Company consistently enhanced the sense of contentment,happiness and security of its consumers,it ranked among the top of the industry in the assessment of consumer protection conducted by the industry regulator,with customer satisfaction maintaining at a high level.Risk Management and ControlDuring the Reporting Period,the Company consistently strengthened its internal control and risk management in strict compliance with the laws and regulations of its listed jurisdictions,as well as the regulatory requirements of the industry.The Company has established a risk preference management system with the statement on risk preference as the carrier,and the risk tolerance and limit indicators as the focus,integrated risk preference requirements into various lines of its business operation and management,and significantly enhanced its capability in risk management.After the formal implementation of C-ROSS(Phase II)Regulation from 2022,the Company benchmarked against the new regulations for active implementation,maintaining its evaluation result of SARMRA at the leading position in the life insurance industry.As of the first quarter of 2023,the Company has maintained the rating of Class A for 20 consecutive quarters in the integrated risk rating for insurance companies.The Company actively conducted various tasks on risk screening and governance and identified hidden risks in a timely manner,so as to enhance its capability to address risks in all aspects.The Company took active actions in refining and implementing the C-ROSS(Phase II)Regulation and constantly optimised the enterprise-wide risk management system.The system for investment risk management and control was continuously improved,and a framework for the whole-chain investment risk analysis was established.The Company strengthened the system for sales risk management and control,actively conducted sales risk pre-warning and investigation,cultivated integrity culture among sales agents,and introduced the credit rating system for the agents,etc.The Company fully implemented the regulatory requirements on anti-money laundering,and performed all of its anti-money laundering obligations,which led to the iterative upgrading of its anti-money laundering capabilities and further improved the effectiveness of its anti-money laundering risk management and control.The Company consistently strengthened the supervision through audits.In addition to the implementation of special audits on key areas and companies of concern,the Company carried out the audits of economic responsibility and the audits of senior management,strengthened the application of audit results comprehensively,and fully exerted the role of internal audit to offer support to the decision making for the supervision,appraisal and employment of the managers.It consistently stepped up its efforts in supervising rectification and liability attribution for any problems identified in audits,fully proceeded with the mechanism for audit supervision and rectification as well as the mechanism for handover and follow-up of issues,and further optimised closed-loop internal audits,in a bid to enhance the efficiency and effects of audits.The Company paid great attention to and actively implemented the Data Security Law of the PRC to strictly protect major data and personal information,so as to safeguard the legitimate rights and interests of customers.On the basis of being successfully awarded the highest level certification under the Data Management Capability Maturity Assessment Model(DCMM)in 2022,the Company continued to optimise data governance structure and data management rules,further improved its long-term mechanism for data management,and consistently strengthened the management and control of data security,in order to ensure that the data was manageable and controllable.25Interim Report 2023|Management Discussion and AnalysisPERFORMANCE OF THE CORPORATE SOCIAL RESPONSIBILITYBy upholding its strategic goal of“building a world-class and responsible life insurance company”in corporate responsibility,the Company deepened the concept of sustainable development and actively performed various economic,environmental and social responsibilities,contributing to the society with healthy,harmonious and green development.Sticking to the original role of insurance for the better protection of peoples livelihoodBeing“people-centric”,the Company actively developed a series of diversified inclusive insurance products and stepped up its efforts to serve the real economy,so as to better serve peoples good life.It expanded the inclusive insurance protection supply to meet the needs of general public for health protection.As at the end of the Reporting Period,the Company carried out a total of over 200 supplementary major medical expenses insurance programs,covering nearly 350 million people.It also undertook over 60 long-term care insurance programs,providing services to more than 33 million people.Meanwhile,it implemented over 110 city-customised commercial medical insurance projects.The Company was devoted to enhancing the protection for people at specific risks,such as the elderly,women,children,people with disabilities and new urban residents,etc.As at the end of the Reporting Period,the Company provided an insurance protection of over RMB2.0 trillion to approximately 33.88 million elderly people.It also provided an insurance protection of approximately RMB1.1 trillion to 7.27 million women of specific illnesses.Moreover,the Company fully leveraged the advantages of the large scale and long-term nature of insurance funds with its investments in serving the real economy and the regional development strategy of over RMB3.8 trillion and over RMB2.5 trillion,respectively,as at the end of the Reporting Period.Facilitating rural revitalisation to consolidate achievements in poverty alleviationIn the first half of 2023,the Company continued to improve its long-term mechanism for assistance to make every effort to enhance the quality and efficiency of financial and insurance services in serving“agriculture,farmers and rural areas”.The Company dispatched 950 cadres staying at villages for assistance,undertook projects in 1,171 assistance localities and devoted assistance funds of RMB11.24 million,helping farmers to improve both production and income.The Company made substantial efforts to develop insurance business in response to the demands of rural residents for diversified insurance protection,offered risk protection of RMB18 trillion for 190 million rural residents and made the claims payment of RMB8,200 million to 2.08 million people,fortifying the multi-layered insurance protection network and effectively consolidating achievements in poverty alleviation.Implementing a“dual carbon”strategy and promoting green developmentThe Company actively engaged in the development of a green finance system with the characteristics of China Life,firmly prioritising eco-environmental conservation and green development,with an aim to contribute to the realisation of the“dual carbon”goal.It fully advanced the green insurance businesses and devised solutions for customers from the green industries with respect to a series of insurance products and services,aiming to enhance its capability in supplying green insurance services.During the Reporting Period,the sum assured by the Company of the green insurance businesses was RMB383,806 million.The Company continued to strengthen its management system of responsible investment by incorporating ESG concept into investment analysis and decision-making process to facilitate the green transition of investment business.As at the end of the Reporting Period,its green investments in existing projects totalled over RMB440 billion.The Company also deepened green business operations and practised energy saving and emission reduction to the greatest possible extent.It generally achieved the full coverage of paperless insurance application for individual insurance business.The online service rate of each of policy administration and claims settlement remained at a high level of above 90%.Supporting public welfare campaigns to collaboratively create social valueThe Company adhered to the concept of“people-oriented,caring for life,creating value and serving the community”in social responsibility and voluntarily devoted itself to public welfare and charitable campaigns,striving to make contributions to the society.During the Reporting Period,the Company made a donation of RMB20.4 million through China Life Foundation for financing assistance programs targeted at families with special difficulties during family planning as well as distressed women suffering from“two gynecological cancers”,which facilitated the development of a harmonious society.The Company advocated the spirit of volunteer services and encouraged its employees to take part in the practices of public welfare,with the number of registered youth volunteers amounting to more than 7,000.The Company also deeply engaged in public welfare campaigns in education by consistently carrying out the“Assistance in Sports Program for 100 Schools”to donate sports equipment to schools,to select and assign those from physical education universities to serve as volunteer teachers in schools and to organise basketball training sessions and leagues,which offered assistance to teenagers through sports programs.The Company continuously carried out the charitable activity of“Art Back to the Mountain”to promote aesthetic education,providing high-quality resources and guidance in relation to aesthetic education to rural children.26Interim Report 2023|Management Discussion and AnalysisFUTURE PROSPECTIndustry Landscape and Development TrendsIn the long run,with high-quality development as the top priority of the industry,Chinas life insurance industry is still at an important stage full of strategic opportunities.Chinese modernisation represents a grand blueprint for Chinas economic and social development.As Chinas GDP per capita is expected to reach the level of moderately developed countries,middle-income groups will continue to expand,the domestic social security system will be further improved,and peoples demands for high-quality healthcare,medical,senior-care services and wealth management will rise sharply,which will provide a huge market for the development of the life insurance industry.With market players acceleratedly entering into new sectors,fostering new growth drivers and speeding up exploration on specialisation,digitalisation,integration and ecologicalization,etc.,the life insurance industry is at a crucial stage where traditional driving forces are being transformed and upgraded while new driving forces are ready to exert their functions.In order to serve the national strategy of proactively responding to population aging and the Healthy China initiative,the industry regulator has rolled out a series of important supporting policies,which will further direct the industry to return to the original role of insurance and enhance the risk protection capabilities.Development Strategies and Business Plans of the CompanyIn the second half of 2023,the Company will stick to the guideline of making progress while maintaining stability,and firmly implement the business strategy of“achieving stable growth,prioritising business value,optimising structure,strengthening sales force,promoting reforms and guarding against risks”.Adhering to its strategic consistency,the Company will focus on steady and healthy development,asset-liability matching management,reforms on key areas,and risk prevention and control,and strengthen customer relationship management as well as diversified insurance product strategy,striving to achieve a steady growth in its annual gross written premiums and a moderate growth in new business value.Besides,the Company will continue to stabilise the quantity of its sales force with improved quality,and endeavor to achieve breakthroughs in innovation of key areas,so as to make new achievements in its high-quality development.Potential RisksFrom the perspective of liabilities,due to the effects of various factors such as unstable foundation for sustained recovery of Chinas economy,insufficient domestic demands and low long-term interest rates,the foundation for the full recovery of the industry is not solid yet.The effective supply of services in such sectors as healthcare and senior-care services and wealth management remains to be improved,and new driving forces in relation to services and technologies,etc.,need to be cultivated.The Company will take a variety of measures to actively cope with risks and challenges.It will adhere to the guideline of making progress while maintaining stability,pursue high-quality development,accelerate the sales system reforms,and properly proceed with the empowerment and implementation of healthcare and senior-care ecosystem.It will also endeavor to improve capabilities in customer services and management,strengthen the supporting role of digital iteration in all aspects,consistently optimise its risk management system,and effectively carry out risk prevention and control measures in the key areas of concern,so as to improve its business operation and management.From the perspective of assets,as the interest rate of fixed-income assets will remain at a low level,the quality fixed-income assets are still in short supply,and the equity market may still be dominated by volatility and structural opportunities in the short term,the Company will face double pressures from continuous downward yield of interest-bearing investment products and the increased volatility in the overall returns of investment portfolios.It will consistently strengthen the asset-liability matching management,further optimise its asset allocation structure,and flexibly adjust its investment strategy to cope with market changes,with a view to effectively balancing the stability of the short-term investment returns and the long-term value appreciation.The Company anticipates that it will have sufficient capital to meet its insurance business expenditures and new general investment needs in the second half of 2023.At the same time,the Company will make corresponding financing arrangements based on capital market conditions if it plans to implement any business development strategies in the future.2728Interim Report 2023|Embedded ValueBACKGROUNDChina Life Insurance Company Limited prepares financial statements to public investors in accordance with the relevant accounting standards.An alternative measure of the value and profitability of a life insurance company can be provided by the embedded value method.Embedded value is an actuarially determined estimate of the economic value of the life insurance business of an insurance company based on a particular set of assumptions about future experience,excluding the economic value of future new business.In addition,the value of half years sales represents an actuarially determined estimate of the economic value arising from new life insurance business issued in half year based on a particular set of assumptions about future experience.China Life Insurance Company Limited believes that reporting the Companys embedded value and value of half years sales provides useful information to investors in two respects.First,the value of the Companys in-force business represents the total amount of shareholders interest in distributable earnings,in present value terms,which can be expected to emerge over time,in accordance with the assumptions used.Second,the value of half years sales provides an indication of the value created for investors by new business activity based on the assumptions used and hence the potential of the business.However,the information on embedded value and value of half years sales should not be viewed as a substitute of financial measures under the relevant accounting basis.Investors should not make investment decisions based solely on embedded value information and the value of half years sales.It is important to note that actuarial standards with respect to the calculation of embedded value are still evolving.There is still no universal standard which defines the form,calculation methodology or presentation format of the embedded value of an insurance company.Hence,differences in definition,methodology,assumptions,accounting basis and disclosures may cause inconsistency when comparing the results of different companies.Also,the calculation of embedded value and value of half years sales involves substantial technical complexity and estimates can vary materially as key assumptions are changed.Therefore,special care is advised when interpreting embedded value results.The values shown below do not consider the future financial impact of transactions between the Company and CLIC,CLI,AMC,Pension Company,CLP&C,and etc.EMBEDDEDVALUE29Interim Report 2023|Embedded ValueDEFINITIONS OF EMBEDDED VALUE AND VALUE OF HALF YEARS SALESThe embedded value of a life insurer is defined as the sum of the adjusted net worth and the value of in-force business allowing for the cost of required capital.“Adjusted net worth”is equal to the sum of:Net assets,defined as assets less corresponding policy liabilities and other liabilities valued;and Net-of-tax adjustments for relevant differences between the market value and the book value of assets,together with relevant net-of-tax adjustments to certain liabilities.The market value of assets can fluctuate significantly over time due to the impact of the prevailing market environment.Hence the adjusted net worth can fluctuate significantly between valuation dates.The“value of in-force business”and the“value of half years sales”are defined here as the discounted value of the projected stream of future shareholders interest in distributable earnings for existing in-force business at the valuation date and for half years sales in the 6 months immediately preceding the valuation date.The value of in-force business and the value of half years sales have been determined using a traditional deterministic discounted cash flow methodology.This methodology makes implicit allowance for the cost of investment guarantees and policyholder options,asset/liability mismatch risk,credit risk,the risk of operating experiences fluctuation and the economic cost of capital through the use of a risk-adjusted discount rate.PREPARATION AND REVIEWThe embedded value and the value of half years sales were prepared by China Life Insurance Company Limited in accordance with the“CAA Standards of Actuarial Practice:Appraisal of Embedded Value”issued by the China Association of Actuaries(“CAA”)in November 2016.Deloitte Consulting(Shanghai)Co.,Ltd.performed a review of China Lifes embedded value.The review statement is contained in the“Independent Actuaries Review Opinion Report on Embedded Value of China Life Insurance Company Limited”section.ASSUMPTIONSThe valuation assumptions used as at 30 June 2023 are consistent with those used as at 31 December 2022.30Interim Report 2023|Embedded ValueSUMMARY OF RESULTSThe embedded value as at 30 June 2023 and the corresponding results as at 31 December 2022 are shown below:Components of Embedded ValueRMB million ITEM30 June 202331 December 2022 A Adjusted Net Worth733,478682,694B Value of In-Force Business before Cost of Required Capital 656,806620,053C Cost of Required Capital(78,614)(72,227)D Value of In-Force Business after Cost of Required Capital(B C)578,192547,825E Embedded Value(A D)1,311,6691,230,519 Note:Numbers may not be additive due to rounding.The value of half years sales for the 6 months ended 30 June 2023 and for the corresponding period of last year is shown below:Components of Value of Half Years SalesRMB million ITEM30 June 202330 June 2022 A Value of Half Years Sales before Cost of Required Capital39,73030,440B Cost of Required Capital(8,866)(4,695)C Value of Half Years Sales after Cost of Required Capital(A B)30,86425,745Including:Value of Half Years Sales of Individual Agent Business Sector27,40424,185 The new business margin of half years sales of individual agent business sector for the 6 months ended 30 June 2023 is shown below:New Business Margin of Half Years Sales of Individual Agent Business Sector 30 June 202330 June 2022 By First Year Premium27.0(.5%By Annual Premium Equivalent30.20.4%Note:First Year Premium is the written premium used for calculation of the value of half years sales and Annual Premium Equivalent is calculated as the sum of 100 percent of first year regular premiums and 10 percent of single premiums.31Interim Report 2023|Embedded ValueMOVEMENT ANALYSISThe following analysis tracks the movement of the embedded value from the start to the end of the Reporting Period:Analysis of Embedded Value Movement in the First Half Year of 2023RMB million ITEM AEmbedded Value at the Start of Year1,230,519BExpected Return on Embedded Value45,726CValue of New Business in the Period30,864DOperating Experience Variance 1,687EInvestment Experience Variance(14,942)FMethodology and Model Changes(374)GMarket Value and Other Adjustments 29,484HExchange Gains or Losses332IShareholder Dividend Distribution and Capital Changes(13,850)JOthers 2,223KEmbedded Value as at 30 June 2023(sum A through J)1,311,669 Note:Items B through J are explained below:B Reflects expected impact of covered business,and the expected return on investments supporting the 2023 opening net worth.C Value of half years sales for the 6 months ended 30 June 2023.D Reflects the difference between actual operating experience in the first half year of 2023(including mortality,morbidity,lapse,and expenses etc.)and the assumptions.E Compares actual with expected investment returns during the first half year of 2023.F Reflects the effects of appraisal methodology and model enhancement.G Change in the market value adjustment from the beginning of year 2023 to 30 June 2023 and other adjustments.H Reflects the gains or losses due to changes in exchange rate.I Reflects dividends distributed to shareholders during the first half year of 2023.J Other miscellaneous items.32Interim Report 2023|Embedded ValueSENSITIVITY RESULTSSensitivity tests were performed using a range of alternative assumptions.In each of the sensitivity tests,only the assumption referred to was changed,with all other assumptions remaining unchanged.The results are summarized below:Sensitivity ResultsRMB million Value of In-Force Business after Cost of Required CapitalValue of Half years Sales after Cost of Required Capital Base case scenario578,19230,8641.Risk discount rate 50bps552,289 29,117 2.Risk discount rate-50bps605,940 32,752 3.Investment return 50bps697,722 39,459 4.Investment return-50bps459,181 22,307 5.10%increase in expenses571,580 28,435 6.10crease in expenses584,803 33,292 7.10%increase in mortality rate for non-annuity products and 10crease in mortality rate for annuity products574,162 30,330 8.10crease in mortality rate for non-annuity products and 10%increase in mortality rate for annuity products582,183 31,402 9.10%increase in lapse rates577,917 30,251 10.10crease in lapse rates578,525 31,526 11.10%increase in morbidity rates569,617 29,809 12.10crease in morbidity rates586,919 31,919 13.Allowing for diversification in calculation of VIF626,671 33Interim Report 2023|Embedded ValueINDEPENDENT ACTUARIES REVIEW OPINION REPORT ON EMBEDDED VALUE OF CHINA LIFE INSURANCE COMPANY LIMITEDChina Life Insurance Company Limited(“China Life”)has prepared embedded value results as at 30 June 2023(“EV Results”).The disclosure of these EV Results,together with a description of the methodology and assumptions that have been used,are shown in the Embedded Value section.China Life has retained Deloitte Consulting(Shanghai)Co.,Ltd.to review its EV Results.The task is undertaken by Deloitte Actuarial and Insurance Solutions of Deloitte Consulting(Shanghai)Co.,Ltd.(“Deloitte Consulting”or“we”).Scope of workOur scope of work covered:a review of the methodology used to develop the embedded value and value of half years sales as at 30 June 2023,in accordance with the“CAA Standards of Actuarial Practice:Appraisal of Embedded Value”,issued by the China Association of Actuaries(“CAA”);a review of the economic and operating assumptions used to develop embedded value and value of half years sales as at 30 June 2023;and a review of China Lifes EV Results,including embedded value,value of half years sales,analysis of embedded value movement from 31 December 2022 to 30 June 2023,and the sensitivity results of value of in-force business and value of half years sales.Basis of Opinion,Reliance and LimitationWe carried out our review work based on“CAA Standards of Actuarial Practice:Appraisal of Embedded Value”,issued by CAA.In carrying out our review,we have relied on the completeness and accuracy of audited and unaudited data and information provided by China Life.The determination of embedded value is based on a range of assumptions on future operations and investment performance.The future actual experiences are affected by internal and external factors,many of which are not entirely controlled by China Life.Hence the future actual experiences may deviate from these assumptions.This report is addressed solely to China Life in accordance with the terms of our engagement letter.To the fullest extent permitted by applicable law,we do not accept or assume any responsibility,duty of care or liability to anyone other than China Life for or in connection with our review work,the opinions we have formed,or for any statements set forth in this report.OpinionBased on the scope of work above,we have concluded that:The embedded value methodology used by China Life is in line with the“CAA Standards of Actuarial Practice:Appraisal of Embedded Value”issued by CAA.This method is commonly used by life and health insurance companies in China;The economic assumptions used by China Life have taken into account the current investment market conditions and the investment strategy of China Life;The operating assumptions used by China Life have taken into account the past experience and the expectation of future experience;and The embedded value results are consistent with its methodology and assumptions used.The overall result is reasonable.For and on behalf ofDeloitte Consulting(Shanghai)Co.,Ltd.Eric Lu Yu Jiang23 August 2023Interim Report 2023|Significant Events34INFORMATION ON DELISTING OF AMERICAN DEPOSITARY SHARESThe delisting of the American depositary shares(“ADSs”)of the Company took effect on 2 September 2022,and the ADS program was terminated on 11 November 2022.Holders of ADSs would be able to surrender their ADSs to the depositary for cancellation and to take delivery of the H Shares at any time prior to 11 May 2023,with each ADS surrendered to be exchanged into 5 H Shares of the Company,in accordance with the provisions of the Deposit Agreement entered into by and among the Company,the depositary and the holders of ADSs and the terms and conditions of the ADSs.For details,please refer to the announcements published by the Company on the HKExnews website of Hong Kong Exchanges and Clearing Limited on 12 August 2022 and 2 September 2022,respectively.As at the end of the Reporting Period,any work in relation to the termination of the ADS program has been fully completed.MATERIAL LITIGATIONS OR ARBITRATIONSDuring the Reporting Period,the Company was not involved in any material litigation or arbitration.MAJOR CONNECTED TRANSACTIONSContinuing Connected TransactionsDuring the Reporting Period,the following continuing connected transactions were carried out by the Company pursuant to Rule 14A.76(2)of the Rules Governing the Listing of Securities on the HKSE(the“Listing Rules”),including the asset management agreement between the Company and AMC,the insurance sales framework agreement between the Company and CLP&C,the framework agreement between the Company and China Life Capital,and the framework agreements entered into by China Life AMP with the Company,CLIC and CLI,respectively.These continuing connected transactions were subject to the reporting,announcement and annual review requirements but were exempt from the independent shareholders approval requirement under the Listing Rules.CLIC,the controlling shareholder of the Company,holds 60%of the equity interest in CLP&C and 100%of the equity interest in China Life Capital and CLI.Therefore,each of CLIC,CLP&C,China Life Capital and CLI constitutes a connected person of the Company.AMC is held as to 60%and 40%by the Company and CLIC,respectively,and is therefore a connected subsidiary of the Company.China Life AMP is a subsidiary of AMC,and is therefore also a connected subsidiary of the Company.SIGNIFICANT EVENTSInterim Report 2023|Significant Events35During the Reporting Period,the continuing connected transaction carried out by the Company that was subject to the reporting,announcement,annual review and independent shareholders approval requirements under Chapter 14A of the Listing Rules included the agreement for entrusted investment and management and operating services with respect to alternative investments with insurance funds between the Company and CLI.Such agreement and the transactions thereunder have been approved by the independent shareholders of the Company.During the Reporting Period,the Company also carried out certain continuing connected transactions,including the policy management agreement between the Company and CLIC,and the asset management agreement between CLIC and AMC,which were exempt from the reporting,announcement,annual review and independent shareholders approval requirements under Chapter 14A of the Listing Rules.The Company has complied with the disclosure requirements under Chapter 14A of the Listing Rules in respect of the above continuing connected transactions.When conducting the above continuing connected transactions during the Reporting Period,the Company has followed the pricing policies and guidelines formulated at the time when such transactions were entered into.Policy Management AgreementThe Company and CLIC entered into the 2022-2024 policy management agreement on 31 December 2021,with a term from 1 January 2022 to 31 December 2024.Pursuant to the agreement,the Company will accept CLICs entrustment to provide policy administration services relating to the non-transferred policies.The Company acts as a service provider under the agreement and does not acquire any rights or assume any obligations as an insurer under the non-transferred policies.For details as to the method of calculation of the service fee,please refer to Note 19 in the Notes to the Interim Condensed Consolidated Financial Statements.The annual cap in respect of the service fee to be paid by CLIC to the Company for each of the three years ending 31 December 2024 is RMB491 million.For the first half of 2023,the service fee paid by CLIC to the Company amounted to RMB231.60 million.Asset Management AgreementsAsset Management Agreement between the Company and AMCThe Company and AMC entered into the 2023-2025 asset management agreement on 1 January 2023,with a term from 1 January 2023 to 31 December 2025.Pursuant to the 2023-2025 asset management agreement,AMC agreed to invest and manage assets entrusted to it by the Company,on a discretionary basis,within the scope granted by the Company and in accordance with the requirements of applicable laws and regulations,regulatory requirements and the investment guidelines given by the Company.In consideration of AMCs se
2024-08-02
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This is a free translation into English of an announcement issued in China and is provided solely for the convenience of English-speaking readers.This announcement should be read in conjunction with,and is construed in accordance with,relevant Chinese laws and professional auditing standards applicable in China.Should there be any inconsistency between the Chinese version and the English version,the Chinese version shall prevail.Investors can access the Companys announcements on the website of the Shanghai Stock Exchange().1/23 Stock Code:601668 Abbreviation:CSCEC China State Construction Engineering Corporation Limited Report for the First Quarter of 2024 The Board of Directors of the Company and each member of the Board of Directors guarantee that the contents of the public announcement contain no false or misunderstanding statements or major omission,and bear legal liabilities for the truthfulness,accuracy and completeness of the said contents.Important Notice:The Companys Board of Directors,Board of Supervisors and Directors,Supervisors and Senior Management guarantee that information contained in the Quarterly Report is true,accurate and complete and does not contain any false representations,misleading statements or material omissions,and severally and jointly accept legal liabilities thereof.Zheng Xuexuan,Head of the Company,Huang Jie,Head of Accounting,and Xie Song,Head of the Accounting Office(Chief Accounting Officer)guarantee that the financial report information set out in this Quarterly Report is true,accurate and complete.Whether the Q1 financial statements have been audited?Yes No I.Key Financial Data(I)Key accounting data and financial indicators Unit:000 yuan Currency:RMB Item Current reporting period Change YoY(%)Revenue 549,319,265 4.7 Total profit 22,826,576 1.1 Net profit 17,851,772 1.2 Net profit attributable to shareholders of the Company 14,921,852 1.2 Net profit attributable to shareholders of the Company after deducting non-recurring profit or loss 14,739,216 1.1 Net cash flows from operating activities-96,595,019 N/A This is a free translation into English of an announcement issued in China and is provided solely for the convenience of English-speaking readers.This announcement should be read in conjunction with,and is construed in accordance with,relevant Chinese laws and professional auditing standards applicable in China.Should there be any inconsistency between the Chinese version and the English version,the Chinese version shall prevail.Investors can access the Companys announcements on the website of the Shanghai Stock Exchange().2/23 Item Current reporting period Change YoY(%)Basic earnings per share(RMB/share)0.35 Flat Diluted earnings per share(RMB/share)0.35 Flat Weighted average return on net assets(%)3.38-0.35 ppt Net asset per share attributable to ordinary shareholders(RMB/share)10.42 12.16 As at the end of the Reporting Period As at the end of last year Change at the end of current reporting period as compared to the end of last year(%)Total assets 2,966,209,035 2,903,322,519 2.2 Owners equity attributable to shareholders of the Company 442,677,608 427,609,892 3.5 Note:“This Reporting Period”refers to the three-month period from the beginning to the end of this quarter,the same below.Explanation on the Companys key accounting data and financial indicators When calculating earnings per share,the restricted shares that have not yet met the unlocking conditions and become invalid are deducted from the weighted average number of ordinary shares issued by the Company.According to relevant accounting requirements,when calculating earnings per share,the dividends or interests of other equity instruments such as preference shares and perpetual bonds and restricted shares shall be excluded from the net profit attributable to shareholders of the Company.The net assets per share attributable to ordinary shareholders are the net assets attributable to shareholders of the parent company deducting other equity instruments,and then divided the balance by the total number of issued shares as at the end of the Reporting Period.Statement of Non-Recurring Profit or Loss Unit:000 yuan Currency:RMB Item Amount of current reporting period Remarks Gains or losses from disposal of non-current assets include the offset of recognized asset impairment provisions.14,823/This is a free translation into English of an announcement issued in China and is provided solely for the convenience of English-speaking readers.This announcement should be read in conjunction with,and is construed in accordance with,relevant Chinese laws and professional auditing standards applicable in China.Should there be any inconsistency between the Chinese version and the English version,the Chinese version shall prevail.Investors can access the Companys announcements on the website of the Shanghai Stock Exchange().3/23 Government grants recognized through profit or loss,except government grants which are closely related to the Companys normal business operations,which comply with national policies,can be enjoyed according to established criteria,and having a sustained impact on the Companys profit or loss.188,831/In addition to the normal operation of the Companys effective hedging business,income/losses arising from changes in fair value of financial assets and liabilities held by non-financial corporations and from disposal of financial assets and liabilities 161/Fund possession fees charged on non-financial enterprises,which are recorded as profit or loss 3,205/Non-operating income and expenses other than the above items 72,494/Less:Impact on income tax 60,917/Impact on non-controlling interests(after tax)35,961/Total 182,636/Explanation should be made for the significant non-recurring profit or loss not listed in the“Explanatory Announcement No.1 on Information Disclosure for Companies Offering Their Securities to the PublicNon-Recurring Profit or Loss”,and for the non-recurring profit or loss listed in the“Explanatory Announcement No.1 on Information Disclosure for Companies Offering Their Securities to the PublicNon-Recurring Profit or Loss”and defined as recurring profit or loss.Applicable N/A (II)Changes in Key Accounting Data and Financial Indicators of the Company and Reasons for Such Changes Applicable N/A Items Change ratio(%)Main Reason Revenue 4.7 The Company continues to enhance its core business and deepen project performance management.It has,therefore,recorded stable revenue growth.Total profit 1.1 The Company has constantly promoted business transformation and precision cost control.However,due to fluctuations in exchange rates,the increase in total profits is slightly lower than the increase in revenue.Net profit attributable to shareholders of the Company 1.2 The Company remains committed to enhancing quality and efficiency,with a focus on boosting its value creation capabilities.This has realized a steady increase in net profit attributable to the parent company.Net cash flows from operating activities N/A The Company has consistently enhanced cash flow management,focusing on strengthening governance at the source of business.It has optimized the mechanism for cash flow budgeting and bolstered basic cash flow management practices.In Q1,the net outflow of operational cash flow increased year-over-year due to decreased inflows from the real estate business along with increased land purchases.This is a free translation into English of an announcement issued in China and is provided solely for the convenience of English-speaking readers.This announcement should be read in conjunction with,and is construed in accordance with,relevant Chinese laws and professional auditing standards applicable in China.Should there be any inconsistency between the Chinese version and the English version,the Chinese version shall prevail.Investors can access the Companys announcements on the website of the Shanghai Stock Exchange().4/23 Note:All the above changes represent increases/decreases(%)of items included in the consolidated statements from the beginning of the year to the end of the Reporting Period as compared to the same period of last year,or increases/decreases(%)as of the end of the Reporting Period as compared to the end of last year.This is a free translation into English of an announcement issued in China and is provided solely for the convenience of English-speaking readers.This announcement should be read in conjunction with,and is construed in accordance with,relevant Chinese laws and professional auditing standards applicable in China.Should there be any inconsistency between the Chinese version and the English version,the Chinese version shall prevail.Investors can access the Companys announcements on the website of the Shanghai Stock Exchange().5/23 II.Shareholder Information(I)Total number of ordinary shareholders and preferred shareholders with voting rights restored&shareholdings of top-10 shareholders Unit:Share Total number of ordinary shareholders as at the end of the Reporting Period 392,560 Total number of preferred shareholders with voting rights restored as at the end of the Reporting Period(if any)N/A Holdings of top-10 shareholders(excluding shares lent through refinancing)Name of shareholder Nature of shareholder Number of shares Shareholding ratio(%)Number of shares held subject to trading moratorium Pledged,marked or frozen Status Number China State Construction Engineering Corporation State-owned corporate entity 23,731,541,937 57.02 0 Nil 0 Hong Kong Securities Clearing Company Limited Others 1,844,475,919 4.43 0 Nil 0 China Securities Finance Corporation Limited Others 1,258,300,898 3.02 0 Nil 0 Central Huijin Asset Management Ltd.State-owned corporate entity 583,327,120 1.40 0 Nil 0 Industrial and Commercial Bank of ChinaSSE Index 50 Trading Open-end Index Securities Investment Fund Securities investment fund 351,040,983 0.84 0 Nil 0 China Life Insurance Co.,Ltd.-Traditional-Ordinary Insurance Product-005L-CT001 Hu Others 334,562,012 0.80 0 Nil 0 Industrial and Commercial Bank of China Limited-Huatai-Pinebridge CSI 300 ETF Securities investment fund 226,499,545 0.54 0 Nil 0 National Social Security Fund Portfolio 413 Others 205,170,036 0.49 0 Nil 0 China Construction BankE Fund CSI 300 ETF Sponsor Fund Securities investment fund 158,299,590 0.38 0 Nil 0 Bank of ChinaHarvest CSI 300 ETF Securities investment fund 122,380,232 0.29 0 Nil 0 Shareholdings of the top 10 holders of shares not subject to trading moratorium Name of shareholder Number of circulating shares not subject to trading moratorium Class and number of shares Class Number This is a free translation into English of an announcement issued in China and is provided solely for the convenience of English-speaking readers.This announcement should be read in conjunction with,and is construed in accordance with,relevant Chinese laws and professional auditing standards applicable in China.Should there be any inconsistency between the Chinese version and the English version,the Chinese version shall prevail.Investors can access the Companys announcements on the website of the Shanghai Stock Exchange().6/23 China State Construction Engineering Corporation 23,731,541,937 RMB ordinary shares 23,731,541,937 Hong Kong Securities Clearing Company Limited 1,844,475,919 RMB ordinary shares 1,844,475,919 China Securities Finance Corporation Limited 1,258,300,898 RMB ordinary shares 1,258,300,898 Central Huijin Asset Management Ltd.583,327,120 RMB ordinary shares 583,327,120 Industrial and Commercial Bank of ChinaSSE Index 50 Trading Open-end Index Securities Investment Fund 351,040,983 RMB ordinary shares 351,040,983 China Life Insurance Co.,Ltd.-Traditional-Ordinary Insurance Product-005L-CT001 Hu 334,562,012 RMB ordinary shares 334,562,012 Industrial and Commercial Bank of China Limited-Huatai-Pinebridge CSI 300 ETF 226,499,545 RMB ordinary shares 226,499,545 National Social Security Fund Portfolio 413 205,170,036 RMB ordinary shares 205,170,036 China Construction BankE Fund CSI 300 ETF Sponsor Fund 158,299,590 RMB ordinary shares 158,299,590 Bank of ChinaHarvest CSI 300 ETF 122,380,232 RMB ordinary shares 122,380,232 Descriptions on the related relationship or acts in concert of the above shareholders There is no related relationship or action in concert between China State Construction Engineering Corporation,the largest shareholder of the Company,and any other shareholder mentioned above.The Company is not aware of any related relationship among the above shareholders,or whether they are parties acting in concert.Top 10 shareholders and top 10 shareholders not subject to trading moratorium involved in the margin trading and refinancing business(if any)Top 10 shareholders and top 10 shareholders not subject to trading moratorium are not involved in the margin trading business;see the table below for details about their involvement in the refinancing business.This is a free translation into English of an announcement issued in China and is provided solely for the convenience of English-speaking readers.This announcement should be read in conjunction with,and is construed in accordance with,relevant Chinese laws and professional auditing standards applicable in China.Should there be any inconsistency between the Chinese version and the English version,the Chinese version shall prevail.Investors can access the Companys announcements on the website of the Shanghai Stock Exchange().7/23 Information on shares lent by shareholders holding more than 5%of shares,top 10 shareholders and top 10 holders of shares not subject to trading moratorium involved in the refinancing business Applicable N/A Unit:Share Information on shares lent by shareholders holding more than 5%of shares,top 10 shareholders and top 10 holders of shares not subject to trading moratorium involved in the refinancing business Name of shareholder(full name)Ordinary and credit account holdings at the beginning of the period Shares that had been lent through refinancing and not yet been returned at the beginning of the period Ordinary and credit account holdings at the end of the period Shares that had been lent through refinancing and not yet been returned at the end of the period Total number Percentage(%)Total number Percentage(%)Total number Percentage(%)Total number Percentage(%)Industrial and Commercial Bank of ChinaSSE Index 50 Trading Open-end Index Securities Investment Fund 255,381,383 0.61 1,819,900 0.00 351,040,983 0.84 0 0.00 Industrial and Commercial Bank of China Limited-Huatai-Pinebridge CSI 300 ETF 155,880,345 0.37 104,000 0.00 226,499,545 0.54 16,300 0.00 China Construction BankE Fund CSI 300 ETF Sponsor Fund 58,740,190 0.14 84,200 0.00 158,299,590 0.38 676,200 0.00 Change in top 10 shareholders and top 10 holders of shares not subject to trading moratorium due to shares lent through refinancing/returned compared to the previous period Applicable N/A This is a free translation into English of an announcement issued in China and is provided solely for the convenience of English-speaking readers.This announcement should be read in conjunction with,and is construed in accordance with,relevant Chinese laws and professional auditing standards applicable in China.Should there be any inconsistency between the Chinese version and the English version,the Chinese version shall prevail.Investors can access the Companys announcements on the website of the Shanghai Stock Exchange().8/23 III.Other Cautions Other important information about the Companys business condition during the Reporting Period to which investors shall be cautioned to pay attention Applicable N/A (I)Discussion and Analysis of Business Operation In 2024Q1,the Company further implemented the major decisions and arrangements of the CPC Central Committee and the State Council,and diligently followed the requirements of the State-owned Assets Supervision and Administration Commission.It prioritized high-quality development,dedicated itself to the strategic goal of“one creation and five aspects of strength”,and marched on along the strategic path of“One Improvement,Six Commitments and Six Specialization”.Facing challenges head-on and taking the initiative,the Company vigorously engaged in production and operations and systematically advanced various reform and development tasks,with main operating indicators steadily increasing.Overall,business operation featured the following characteristics.1.Market expansion progressed against the odds,with the value of new contracts experiencing rapid growth.During the reporting period,the Company proactively responded to new situations and changes in the industry,focused on high-end projects,maintained upscale marketing,and met the market expansion progress plan,with the value of new contract reaching RMB 1.19 trillion,up 9.6%increase YoY.By business segment:The structure of housing construction business constantly improved.The value of new contracts reached RMB 806.2 billion,up 11.4%YoY.Specifically,the proportion of public building projects continued to rise,with new contracts for industrial plants amounting to RMB 215.7 billion,up 39.8%YoY.Infrastructure construction and investment business grew at a high speed.The value of new contracts amounted to RMB 300.5 billion,up 23.2%YoY.Specifically,the value of new contracts for energy engineering,water and environmental protection,and hydraulic and water transport grew rapidly.Real estate and investment business proactively responded to market changes.Contractual sales totaled RMB 77.8 billion,and the floor area of these sales totaled 2.63 million square meters.The Company adhered to precision investment.It acquired approx.1.62 million square meters of new land reserves,predominantly situated in first-tier and leading second-tier cities.This acquisition increased the total land reserve to 84.47 million square meters by the end of the reporting period.Prospecting and design business maintained stable development.The value of new contracts amounted to RMB 4 billion,down 3.6%YoY.The Company focused on its core business such as architectural design,urban planning,municipal public engineering design,and prospecting,while constantly promoting its orginal design capabilities.Unit:RMB 100 million,Currency:RMB Value of new contracts for housing construction business segments No.Category Subcategory 2024(January-March)2023(January-March)YoY increase(%)1 Residential housing Commercial housing,etc.1,775 1,700 4.4 2 Government-subsidized housing Government-subsidized housing,etc.297 475-37.5 This is a free translation into English of an announcement issued in China and is provided solely for the convenience of English-speaking readers.This announcement should be read in conjunction with,and is construed in accordance with,relevant Chinese laws and professional auditing standards applicable in China.Should there be any inconsistency between the Chinese version and the English version,the Chinese version shall prevail.Investors can access the Companys announcements on the website of the Shanghai Stock Exchange().9/23 Value of new contracts for housing construction business segments No.Category Subcategory 2024(January-March)2023(January-March)YoY increase(%)3 Industrial plants Processing and manufacturing plants,etc.2,157 1,543 39.8 4 Scientific,educational,cultural,health,and sports facilities Research facilities,educational facilities,healthcare buildings,cultural facilities,sports facilities,exhibition and convention centers,etc.1,505 1,453 3.6 5 Commercial complexes Commercial office buildings,urban complexes,hotels,etc.1,467 1,419 3.4 6 Others Municipal supporting facilities 861 648 32.9 Total/8,062 7,238 11.4 Unit:RMB 100 million,Currency:RMB Value of new contracts for infrastructure construction business segments No.Category Subcategory 2024(January-March)January-March 2023 YoY increase(%)1 Municipal engineering Municipal roads,telecommunications engineering,defense and disaster prevention engineering,etc.569 697-18.4 2 Transportation engineering Expressways,railways(including high-speed railways),urban rail transit,airports,bridges,etc.596 801-25.6 3 Energy engineering PV power,wind power,and nuclear power engineering,etc.940 281 234.8 4 Water and environmental protection Environmental engineering,water supply and treatment,etc.365 196 86.4 5 Hydraulics and water transport Hydraulics and water transport 75 30 155.7 6 Others Petrochemical engineering,etc.459 434 5.8 Total/3,005 2,438 23.2 This is a free translation into English of an announcement issued in China and is provided solely for the convenience of English-speaking readers.This announcement should be read in conjunction with,and is construed in accordance with,relevant Chinese laws and professional auditing standards applicable in China.Should there be any inconsistency between the Chinese version and the English version,the Chinese version shall prevail.Investors can access the Companys announcements on the website of the Shanghai Stock Exchange().10/23 2.The projects progressed in an orderly manner,with a robust growth in operating revenue.During the reporting period,the Company deepened comprehensive contract management.It effectively handled all critical phases of project fulfilment,and successfully completed several major projects.The operating income came in at RMB 549.3 billion,up 4.7%YoY.Specifically,the housing construction business recorded an operating revenue of RMB 365.8 billion,up 6.1%YoY;the infrastructure construction and investment business registered an operating revenue of RMB 127.7 billion,up 6.4%YoY;the real estate development and investment business generated an operating revenue of RMB 46.5 billion,down 8.8%YoY;the prospecting and design business posted an operating revenue of RMB 2.6 billion,up 2.5%YoY.3.Enhanced efficiency and effective development of potential drove a consistent rise in profits.During the reporting period,the Company remained committed to enhancing quality and efficiency.It deepened comprehensive business management,aiming to boost its value creation capabilities and steadily increase its profit.As a result,the net profit attributable to shareholders of the Company reached RMB 14.92 billion,representing a YoY increase of 1.2%.Specifically,the housing construction business recorded a gross profit of RMB 22.61 billion,up 6.5%YoY;the infrastructure construction and investment business registered a gross profit of RMB 10.92 billion,up 8.3%YoY;the real estate development and investment business generated a gross profit of RMB 8.92 billion,up 7.8%YoY;the prospecting and design business posted a gross profit of RMB 280 million,down 20.8%YoY.4.Focus on key regions led to a strong start in overseas business.During the reporting period,the Company implemented a high-quality overseas development strategy.It signed contracts for a number of major projects in key markets,and pressed ahead with iconic projects.The total value of new contracts of overseas business rose by 59.0%YoY to RMB 27.2 billion,and operating income realized came in at RMB 22 billion,up 3.9%YoY.Moving forward,the Company will keep a close eye on the annual goals and tasks,and advance production,operations,reforms,and innovation all at once,striving to strengthen its core functions and core competencies and constantly open up new prospects for high-quality development.(II)Increase in Shareholder Holdings On October 19,2023,the Company received a notice from its controlling shareholder,China State Construction Engineering Corporation(hereinafter referred to as the“Group”).Based on their confidence in the Companys prospects and their recognition of its medium-to long-term investment value,the Group plans to increase its A-share holdings by centralized bidding through the Shanghai Stock Exchange trading system within six months after the date of issuance of the Announcement on Proposed Increase in Shareholder Holdings of CSCECs Stocks(Announcement No.:Interim 2023-057),with a total amount of no less than RMB 500 million and no more than RMB 1 billion(the“shareholding increase”).Between October 25,2023 and April 16,2024,the Group increased its A-share holdings by 100,845,940 shares,involving an amount of approx.RMB 500,004,203.40(taxes excluded).The shareholding increase was realized by centralized bidding through the Shanghai Stock Exchange trading system.For details,please refer to the Announcement on Implementation Results of the Shareholding Increase Plan by CSCECs Controlling Shareholder(Announcement No.:Interim 2024-017).This is a free translation into English of an announcement issued in China and is provided solely for the convenience of English-speaking readers.This announcement should be read in conjunction with,and is construed in accordance with,relevant Chinese laws and professional auditing standards applicable in China.Should there be any inconsistency between the Chinese version and the English version,the Chinese version shall prevail.Investors can access the Companys announcements on the website of the Shanghai Stock Exchange().11/23 IV.Quarterly Financial Statements(I)Type of audit opinions Applicable N/A (II)Financial statements Consolidated Balance Sheet March 31,2024 Compiled by:China State Construction Engineering Corporation Limited Unit:000 yuan Currency:RMB Type of report:Unaudited Item March 31,2024 December 31,2023 Current assets:Cash and bank balances 339,161,285 358,790,899 Financial assets held for trading 15,015 14,854 Notes receivable 4,492,998 2,613,164 Accounts receivable 263,040,264 257,698,659 Accounts receivable financing 4,677,597 4,353,284 Prepayments 30,814,456 28,778,596 Other receivables 81,969,647 76,554,995 Inventories 821,109,442 796,342,895 Contractual assets 354,827,300 334,954,194 Current portion of non-current assets 57,861,516 54,290,578 Other current assets 135,766,197 134,570,627 Total current assets 2,093,735,717 2,048,962,745 Non-current assets:Debt investments 21,692,780 21,681,916 Other debt investments 139,245 136,574 Long-term receivables 115,372,577 111,329,401 Long-term equity investments 115,038,372 113,983,973 Investments in other equity instruments 6,112,783 6,107,503 Other non-current financial assets 1,525,114 1,525,114 Investment properties 159,644,836 158,491,475 Fixed assets 53,499,501 52,721,575 Construction in progress 4,701,916 4,086,880 Right-of-use assets 6,919,991 6,689,182 Intangible assets 33,184,491 32,730,141 Goodwill 2,403,859 2,387,960 Long-term prepaid expenses 1,466,526 1,448,739 This is a free translation into English of an announcement issued in China and is provided solely for the convenience of English-speaking readers.This announcement should be read in conjunction with,and is construed in accordance with,relevant Chinese laws and professional auditing standards applicable in China.Should there be any inconsistency between the Chinese version and the English version,the Chinese version shall prevail.Investors can access the Companys announcements on the website of the Shanghai Stock Exchange().12/23 Deferred tax assets 22,653,640 22,885,269 Other non-current assets 328,117,687 318,154,072 Total non-current assets 872,473,318 854,359,774 Total assets 2,966,209,035 2,903,322,519 Current liabilities:Short-term borrowings 134,453,467 124,352,134 Notes payable 10,189,974 10,770,185 Accounts payable 671,074,796 689,957,840 Advance receipts 886,120 843,074 Contractual liabilities 304,691,483 316,984,078 Accrued payroll 8,058,902 11,494,654 Taxes and surcharges payable 63,615,160 66,087,180 Other payables 135,058,526 139,739,834 Current portion of non-current liabilities 126,802,040 127,873,148 Other current liabilities 111,619,493 102,330,742 Total current liabilities 1,566,449,961 1,590,432,869 Non-current liabilities:Long-term borrowings 521,765,234 458,112,463 Bonds payable 97,882,665 92,372,831 Lease liabilities 4,697,944 4,607,506 Long-term payables 12,321,797 12,380,443 Long-term accrued payroll 1,550,321 1,541,880 Contingent liabilities 1,939,258 2,032,508 Deferred income 408,952 388,504 Deferred tax liabilities 8,986,032 8,799,029 Other non-current liabilities 1,602,793 1,584,377 Total non-current liabilities 651,154,996 581,819,541 Total liabilities 2,217,604,957 2,172,252,410 Owners equity(or shareholders equity):Paid-in capital(or equity)41,619,952 41,919,514 Other equity instruments 9,202,249 9,131,494 Including:preferred shares Perpetual bonds 9,202,249 9,131,494 Capital reserve 11,433,099 12,050,197 Less:Treasury shares 915,065 1,831,725 Other comprehensive income-2,412,994-2,575,572 Special reserves 911,609 915,879 Surplus reserve 15,579,360 15,579,360 General risk reserve 2,570,069 2,582,513 Retained earnings 364,689,329 349,838,232 Total equity attributable to owners(or shareholders)442,677,608 427,609,892 This is a free translation into English of an announcement issued in China and is provided solely for the convenience of English-speaking readers.This announcement should be read in conjunction with,and is construed in accordance with,relevant Chinese laws and professional auditing standards applicable in China.Should there be any inconsistency between the Chinese version and the English version,the Chinese version shall prevail.Investors can access the Companys announcements on the website of the Shanghai Stock Exchange().13/23 Non-controlling interests 305,926,470 303,460,217 Total owners equity(or shareholders equity)748,604,078 731,070,109 Total liabilities and owners equity(or shareholders equity)2,966,209,035 2,903,322,519 Head of the Company:Zheng Xuexuan Chief Finance Officer:Huang Jie Head of the Finance Department:Xie Song Consolidated Income Statement January-March 2024 Compiled by:China State Construction Engineering Corporation Limited Unit:000 yuan Currency:RMB Type of report:Unaudited Item 2024Q1 2023Q1 I.Total operating income 549,319,265 524,828,043 Including:operating income 549,319,265 524,828,043 II.Total operating costs 527,473,280 503,879,050 Including:operating cost 504,899,416 482,356,640 Taxes and surcharges 1,934,629 2,344,735 Selling expenses 1,641,472 1,715,769 General and administrative expenses 8,075,024 7,981,847 R&D expenses 6,336,204 6,444,187 Finance expenses 4,586,535 3,035,872 Including:interest expenses 4,996,912 4,573,034 Interest income 707,989 761,335 Add:other income 176,122 161,717 Investment income(loss marked with“-”)678,526 1,082,841 Including:income from investment in associates and joint ventures 556,505 829,873 Income from derecognition of financial assets measured at amortised cost-109,445-186,964 Income from changes in fair value(loss marked with“-”)161-2,328 Credit impairment losses(losses marked with“-”)31,720 142,504 Asset impairment losses(losses marked with“-”)-5,666 144,216 Asset disposal income(loss marked with“-”)14,823 10,953 III.Operating profit(loss marked with“-”)22,741,671 22,488,896 Add:Non-operating income 111,400 130,612 This is a free translation into English of an announcement issued in China and is provided solely for the convenience of English-speaking readers.This announcement should be read in conjunction with,and is construed in accordance with,relevant Chinese laws and professional auditing standards applicable in China.Should there be any inconsistency between the Chinese version and the English version,the Chinese version shall prevail.Investors can access the Companys announcements on the website of the Shanghai Stock Exchange().14/23 Less:Non-operating expenses 26,495 43,968 IIV.Total profit(total loss marked with“-”)22,826,576 22,575,540 Less:income tax expenses 4,974,804 4,927,684 V.Net profit(net loss marked with“-”)17,851,772 17,647,856(I)Classified by continuity of operations 1.Net profit from continuing operations(net loss marked with“-”)17,851,772 17,647,856 2.Net profit from discontinued operations(net loss marked with“-”)-(II)Classified by ownership of the equity 1.Net profit attributable to owners of the parent(net loss marked with“-”)14,921,852 14,744,751 2.Profit attributable to non-controlling interests(net loss marked with“-”)2,929,920 2,903,105 VI.Other comprehensive income,net of tax 162,823 677,793(I)Attributable to owners of the parents 162,578 676,529 1.Other comprehensive income that will not be reclassified to profit or loss 1,132 470,958(1)Remeasurement gains or losses of a defined benefit plan-(2)Other comprehensive income that cannot be reclassified to profit/loss using the equity method-(3)Changes in fair value of investments in other equity instruments 1,132 470,958(4)Changes in fair value of the Companys own credit risk-2.Other comprehensive income that may be reclassified to profit or loss 161,446 205,571(1)Other comprehensive income that can be reclassified to profit/loss using the equity method-(2)Changes in fair value of other debt investments-(3)Amount of financial assets reclassified to other comprehensive income-(4)Credit impairment provisions for other debt investments-(5)Cash flow hedge reserve-(6)Exchange differences on translation of foreign currency financial statements 161,446 205,571(7)Others-(II)Attributable to non-controlling interests 245 1,264 VII.Total comprehensive income 18,014,595 18,325,649(I)Attributable to owners of the parent 15,084,430 15,421,280 This is a free translation into English of an announcement issued in China and is provided solely for the convenience of English-speaking readers.This announcement should be read in conjunction with,and is construed in accordance with,relevant Chinese laws and professional auditing standards applicable in China.Should there be any inconsistency between the Chinese version and the English version,the Chinese version shall prevail.Investors can access the Companys announcements on the website of the Shanghai Stock Exchange().15/23 (II)Attributable to non-controlling interests 2,930,165 2,904,369 VIII.Earnings per Share:(I)Basic earnings per share(RMB/share)0.35 0.35(II)Diluted earnings per share(RMB/share)0.35 0.35 As regards business combinations of entities under common control that took place during the reporting period,net profits realized by the merged parties prior to the combination is:RMB 0;and the net profits of the merged parties realized during the previous reporting period is:RMB 0.Head of the Company:Zheng Xuexuan Chief Finance Officer:Huang Jie Head of the Finance Department:Xie Song This is a free translation into English of an announcement issued in China and is provided solely for the convenience of English-speaking readers.This announcement should be read in conjunction with,and is construed in accordance with,relevant Chinese laws and professional auditing standards applicable in China.Should there be any inconsistency between the Chinese version and the English version,the Chinese version shall prevail.Investors can access the Companys announcements on the website of the Shanghai Stock Exchange().16/23 Consolidated Statement of Cash Flow January-March 2024 Compiled by:China State Construction Engineering Corporation Limited Unit:000 yuan Currency:RMB Type of report:Unaudited Item 2024Q1 2023Q1 I.Cash flows from operating activities:Cash receipts from sales of goods and rendering of services 553,077,236 536,205,777 Refund of taxes and surcharges 433,173 426,015 Cash receipts relating to other operating activities 16,175,852 18,253,856 Sub-total cash inflows from operating activities 569,686,261 554,885,648 Cash payments for goods and services 599,273,176 554,394,366 Cash payments to and on behalf of employees 29,970,918 28,604,090 Payments of taxes and surcharges 18,159,673 19,539,579 Cash payments relating to other operating activities 18,877,513 17,771,751 Sub-total cash outflows from operating activities 666,281,280 620,309,786 Net cash flows from operating activities-96,595,019-65,424,138 II.Cash flows from investing activities:Cash receipts from disposal of investments 31,081 337,617 Cash receipts from returns on investments 124,392 778,906 Net cash receipts from disposal of fixed assets,intangible assets and other long-term assets 22,379 8,333 Cash receipts relating to other investing activities 5,729,293 1,206,496 Sub-total cash inflows from investing activities 5,907,145 2,331,352 Cash payments to acquire fixed assets,intangible assets and other long-term assets 7,429,915 2,932,720 Cash payments for investments 1,573,803 1,889,330 Net cash payments to acquire subsidiaries and other business units-1,706,285 Cash payments relating to other investing activities 3,748,451 927,737 Sub-total cash outflows from investing activities 12,752,169 7,456,072 This is a free translation into English of an announcement issued in China and is provided solely for the convenience of English-speaking readers.This announcement should be read in conjunction with,and is construed in accordance with,relevant Chinese laws and professional auditing standards applicable in China.Should there be any inconsistency between the Chinese version and the English version,the Chinese version shall prevail.Investors can access the Companys announcements on the website of the Shanghai Stock Exchange().17/23 Net cash flows from investing activities-6,845,024-5,124,720 III.Cash flows from financing activities:Cash receipts from capital contributions 59,212 83,472 Including:cash receipts from capital contributions from non-controlling shareholders of subsidiaries 59,212 83,472 Cash receipts from borrowings 198,904,572 152,843,478 Cash receipts relating to other financing activities 150,337 43,936 Sub-total cash inflows from financing activities 199,114,121 152,970,886 Cash payments for debt repayment 100,845,336 57,359,323 Cash payments for distribution of dividends or profit and interest expenses 5,997,141 3,989,877 Including:Dividends or profit paid to non-controlling shareholders of subsidiaries 179,556 170,849 Other cash payments relating to financing activities 1,945,404 9,098,836 Sub-total cash outflows from financing activities 108,787,881 70,448,036 Net cash flows arising from financing activities 90,326,240 82,522,850 IV.Effect of foreign exchange rate changes on cash and cash equivalents 30,368-160,446 V.Net increase in cash and cash equivalents-13,083,435 11,813,546 Add:cash and cash equivalents at beginning of the period 329,130,935 313,000,191 VI.Cash and cash equivalents at the end of the period 316,047,500 324,813,737 Head of the Company:Zheng Xuexuan Chief Finance Officer:Huang Jie Head of the Finance Department:Xie Song This is a free translation into English of an announcement issued in China and is provided solely for the convenience of English-speaking readers.This announcement should be read in conjunction with,and is construed in accordance with,relevant Chinese laws and professional auditing standards applicable in China.Should there be any inconsistency between the Chinese version and the English version,the Chinese version shall prevail.Investors can access the Companys announcements on the website of the Shanghai Stock Exchange().18/23 Balance Sheet of the Parent Company March 31,2024 Compiled by:China State Construction Engineering Corporation Limited Unit:000 yuan Currency:RMB Type of report:Unaudited Item March 31,2024 December 31,2023 Current assets:Cash and bank balances 13,813,554 16,512,686 Notes receivable 84,169 58,941 Accounts receivable 26,617,946 26,260,382 Accounts receivable financing 5,000 20,826 Prepayments 6,943,166 7,213,040 Other receivables 27,725,865 27,584,143 Inventories 519,312 379,916 Contractual assets 17,450,428 16,702,491 Current portion of non-current assets 3,160,392 3,158,911 Other current assets 5,072,777 4,922,286 Total current assets 101,392,609 102,813,622 Non-current assets:Debt investments 6,771,629 6,788,023 Long-term receivables 519,493 518,603 Long-term equity investments 226,538,897 226,483,401 Investments in other equity instruments 991,400 772,510 Other non-current financial assets 273,625 273,625 Investment properties 456,848 463,061 Fixed assets 1,118,314 1,143,196 Construction in progress 127,803 146,507 Right-of-use assets 471,995 480,421 Intangible assets 266,038 275,050 Long-term prepaid expenses 23,347 27,708 Deferred tax assets 1,731,356 1,729,211 Other non-current assets 9,356,833 9,419,104 Total non-current assets 248,647,578 248,520,420 Total assets 350,040,187 351,334,042 Current liabilities:Short-term borrowings 27,190,662 31,424,634 Accounts payable 54,802,638 57,237,097 Contractual liabilities 13,073,371 13,053,429 Accrued payroll 236,334 288,940 This is a free translation into English of an announcement issued in China and is provided solely for the convenience of English-speaking readers.This announcement should be read in conjunction with,and is construed in accordance with,relevant Chinese laws and professional auditing standards applicable in China.Should there be any inconsistency between the Chinese version and the English version,the Chinese version shall prevail.Investors can access the Companys announcements on the website of the Shanghai Stock Exchange().19/23 Taxes and surcharges payable 2,358,422 2,632,966 Other payables 51,253,799 51,700,804 Current portion of non-current liabilities 10,193,220 9,952,674 Other current liabilities 4,370,004 4,024,971 Total current liabilities 163,478,450 170,315,515 Non-current liabilities:Long-term borrowings 30,703,000 25,478,000 Lease liabilities 426,912 420,369 Long-term payables 7,657,987 7,955,337 Long-term accrued payroll 101,880 101,880 Contingent liabilities 2,159 3,093 Deferred income 2,354 2,354 Total non-current liabilities 38,894,292 33,961,033 Total liabilities 202,372,742 204,276,548 Owners equity(or shareholders equity):Paid-in capital(or equity)41,619,952 41,919,514 Other equity instruments 9,202,249 9,131,494 Including:preferred shares-Perpetual bonds 9,202,249 9,131,494 Capital reserve 29,714,234 30,331,332 Less:Treasury shares 915,065 1,831,725 Other comprehensive income 152,444 81,943 Special reserves 36,028 30,620 Surplus reserve 15,579,360 15,579,360 Retained earnings 52,278,243 51,814,956 Total owners equity(or shareholders equity)147,667,445 147,057,494 Total liabilities and owners equity(or shareholders equity)350,040,187 351,334,042 Head of the Company:Zheng Xuexuan Chief Finance Officer:Huang Jie Head of the Finance Department:Xie Song This is a free translation into English of an announcement issued in China and is provided solely for the convenience of English-speaking readers.This announcement should be read in conjunction with,and is construed in accordance with,relevant Chinese laws and professional auditing standards applicable in China.Should there be any inconsistency between the Chinese version and the English version,the Chinese version shall prevail.Investors can access the Companys announcements on the website of the Shanghai Stock Exchange().20/23 Income Statement of the Parent Company January-March 2024 Compiled by:China State Construction Engineering Corporation Limited Unit:000 yuan Currency:RMB Type of report:Unaudited Item 2024Q1 2023Q1 I.Operating income 12,631,956 12,960,008 Less:operating cost 11,454,510 12,277,556 Taxes and surcharges 9,538 15,889 Selling expenses-General and administrative expenses 232,784 230,532 R&D expenses 8,571 72,055 Finance expenses 341,990 455,411 Including:interest expenses 408,955 355,598 Interest income 20,527 19,517 Add:other income 4,103 4,986 Investment income(loss marked with“-”)-1,702 100,652 Including:income from investment in associates and joint ventures 1,917 53,819 Credit impairment losses(losses marked with“-”)-9,794 113,803 Asset impairment losses(losses marked with“-”)277 4,233 Asset disposal income(losses marked with“-”)22-II.Operating profits(losses marked with“-”)577,469 132,239 Add:Non-operating income 2,003 238 Less:Non-operating expenses 6 138 III.Total profit(total loss marked with“-”)579,466 132,339 Less:income tax expenses 45,424 19,630 IV.Net profit(net loss marked with“-”)534,042 112,709(I)Net profit from continuing operations(net loss marked with“-”)534,042 112,709(ii)Net profit from discontinued operations(net loss marked with“-”)-V.Other comprehensive income,net of tax 70,502-61,569(I)Other comprehensive income that will not be reclassified to profit or loss-1.Remeasurement gains or losses of a defined benefit plan-2.Other comprehensive income that cannot be reclassified to profit/loss using the equity method-This is a free translation into English of an announcement issued in China and is provided solely for the convenience of English-speaking readers.This announcement should be read in conjunction with,and is construed in accordance with,relevant Chinese laws and professional auditing standards applicable in China.Should there be any inconsistency between the Chinese version and the English version,the Chinese version shall prevail.Investors can access the Companys announcements on the website of the Shanghai Stock Exchange().21/23 3.Changes in fair value of investments in other equity instruments-4.Changes in fair value of the Companys own credit risk-(II)Other comprehensive income that may be reclassified to profit or loss 70,502-61,569 1.Other comprehensive income that can be reclassified to profit/loss using the equity method-2.Changes in fair value of other debt investments-3.Amount of financial assets reclassified to other comprehensive income-4.Credit impairment provisions for other debt investments-5.Cash flow hedge reserve-6.Exchange differences on translation of foreign currency financial statements 70,502-61,569 7.Others-VI.Total comprehensive income 604,544 51,140 VII.Earnings per share:(I)Basic earnings per share(RMB/share)(II)Diluted earnings per share(RMB/share)Head of the Company:Zheng Xuexuan Chief Finance Officer:Huang Jie Head of the Finance Department:Xie Song Cash Flow Statement of the Parent Company January-March 2024 Compiled by:China State Construction Engineering Corporation Limited Unit:000 yuan Currency:RMB Type of report:Unaudited Item 2024Q1 2023Q1 I.Cash flows from operating activities:Cash receipts from sales of goods and rendering of services 12,930,612 13,730,011 Refund of taxes and surcharges 11,494 13,682 Cash receipts relating to other operating activities 7,578,836 7,388,623 Sub-total cash inflows from operating activities 20,520,942 21,132,316 This is a free translation into English of an announcement issued in China and is provided solely for the convenience of English-speaking readers.This announcement should be read in conjunction with,and is construed in accordance with,relevant Chinese laws and professional auditing standards applicable in China.Should there be any inconsistency between the Chinese version and the English version,the Chinese version shall prevail.Investors can access the Companys announcements on the website of the Shanghai Stock Exchange().22/23 Cash payments for goods and services 15,647,118 16,382,888 Cash payments to and on behalf of employees 576,840 571,417 Payments of taxes and surcharges 302,519 281,589 Cash payments relating to other operating activities 6,693,489 5,815,998 Sub-total cash flows from operating activities 23,219,966 23,051,892 Net cash outflows from operating activities-2,699,024-1,919,576 II.Cash flows from investing activities:Cash receipts from disposal of investments-Cash receipts from returns on investments-53,204 Net cash receipts from disposal of fixed assets,intangible assets and other long-term assets 33 218 Net cash receipts from disposal of subsidiaries and other business units-Cash receipts relating to other investing activities 10,047 51,110 Sub-total cash inflows from investing activities 10,080 104,532 Cash payments to acquire fixed assets,intangible assets and other long-term assets 4,801 8,382 Cash payments for investments 268,889 3,236,937 Net cash payments to acquire subsidiaries and other business units-Cash payments relating to other investing activities-Sub-total cash outflows from investing activities 273,690 3,245,319 Net cash flows from investing activities-263,610-3,140,787 III.Cash flows from financing activities:Cash receipts from capital contributions-Cash receipts from borrowings 9,700,000 12,700,000 Cash receipts relating to other financing activities-59,632 Sub-total cash inflows from financing activities 9,700,000 12,759,632 Cash payments for debt repayment 8,725,000 5,525,000 Cash payments for distribution of dividends or profit and interest expenses 371,199 422,990 This is a free translation into English of an announcement issued in China and is provided solely for the convenience of English-speaking readers.This announcement should be read in conjunction with,and is construed in accordance with,relevant Chinese laws and professional auditing standards applicable in China.Should there be any inconsistency between the Chinese version and the English version,the Chinese version shall prevail.Investors can access the Companys announcements on the website of the Shanghai Stock Exchange().23/23 Other cash payments relating to financing activities 37,267 4,001,623 Sub-total cash outflows from financing activities 9,133,466 9,949,613 Net cash flows arising from financing activities 566,534 2,810,019 IV.Effect of foreign exchange rate changes on cash and cash equivalents-28,656-73,775 V.Net increase in cash and cash equivalents-2,424,756-2,324,119 Add:cash and cash equivalents at beginning of the period 16,230,156 19,809,626 VI.Cash and cash equivalents at the end of the period 13,805,400 17,485,507 Head of the Company:Zheng Xuexuan Chief Finance Officer:Huang Jie Head of the Finance Department:Xie Song (III)Adjustments to financial statements at the beginning of the current year for the initial application of the new accounting standards or their interpretation in 2024 Applicable N/A The above is hereby announced.The Board of Directors of China State Construction Engineering Corporation Limited April 29,2024
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2024Half Year ReportTrafigura Group Pte.Ltd.Performance highlights1The companies in which Trafigura .
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JANUARY JUNE 2024HALF-YEARLY FINANCIAL REPORT1 1 2 8 8 10 22 32 Updated InformationKey FiguresKey FactsGroup NewsInterim GroupManagement ReportVolkswagen Shares Business DevelopmentResults of Operations,Financial Position and Net AssetsOutlook34 Brands andBusiness Fields38Interim Consolidated Financial Statement(Condensed)38 3942 43 44 45 69 Income StatementStatement of Comprehensive Income Balance SheetStatement of Changes in Equity Cash Flow StatementNotesResponsibility StatementReview ReportThe financial data presented in this report has been prepared in accordance with International Financial Reporting Standards(IFRS accounting standards).All figures shown are rounded in accordance with standard commercial practice,so minor discrepancies may arise from addition of these amounts;the same applies to the calculation of percentages.Unless stated otherwise,comparative prior-year figures are presented in parentheses next to the figures for the reporting period.In accordance with German Accounting Standards,our comments are limited to the significant factors impacting on our business in the reporting period.We hope our readers will understand that,for reasons of simplicity,we do not use gender-specific language.The form chosen represents all genders.Specified vehicle range values correspond to results obtained through the Worldwide Harmonized Light Vehicles Test Procedure(WLTP)on the chassis dynamometer.WLTP range values for series-produced vehicles may vary depending on the equipment.The actual range will deviate in practice depending on various other factors.This document is an English translation of the original report written in German.In case of discrepancies,the German version shall take precedence.Both language versions can be found online at:www.volkswagen- 70 1 Key FiguresUpdated Information VOLKSWAGEN GROUP AUTOMOTIVE DIVISION Volume data also includes the unconsolidated Chinese joint ventures(Chin.JVs);prior-year deliveries have been updated to reflect subsequent statistical trends.The allocation of consolidation adjustments between the Automotive and Financial Services divisions is included in the Automotive Division.Key Figures 3 2 Key FactsUpdated Information Deliveries to Volkswagen Group customers,including the Chinese joint ventures,down slightly year-on-year to 4.3(4.4)million vehicles in the first six months of 2024;noticeable decrease in Asia-Pacific;growth in nearly all other sales regions worldwide Deliveries of all-electric vehicles to customers down slightly year-on-year(1.4%)due in particular to general buyer reluctance;share of Group deliveries at 7.3(7.4)%Group sales revenue up slightly year-on-year at 158.8(156.3)billion due to volume-related increases in the financial services business Operating result down at 10.1(11.3)billion;restructuring expenses in the Passenger Cars Business Area of 1 billion Earnings before tax decrease to 10.2(11.9)billion;earnings after tax decline by 1.2 billion to 7.3 billion Automotive Divisions net cash flow amounts to 0.1(2.5)billion;automotive investment ratio at 13.4(12.1)%Net liquidity in the Automotive Division at robust level of 31.3 billion;dividend payment of 4.5 billion in May Key Facts 3 Group NewsUpdated Information PRESENTATION OF NEW PRODUCTS AND TECHNOLOGIES The Volkswagen Group and its brands also showcased a variety of new vehicles and technologies in the second quarter of 2024.Auto China 2024 in Beijing Volkswagen is systematically pressing ahead with its approach“in China,for China”in an effort to achieve even closer alignment with the specific requirements of customers in the worlds largest automotive market.The Volkswagen Passenger Cars brand unveiled the new ID.CODE at the Auto China 2024 exhibition in Beijing.The concept car offers a completely new aesthetic and acts as a preview for a prospective large electric-powered SUV.The ID.CODE is designed for Level 4 fully autonomous driving.The new progressive ID.UX sub-brand also plays a key role in positioning Volkswagen in the Chinese market.With all-electric,lifestyle-oriented models,this sub-brand is designed to appeal to younger customers in particular.With the Q6L e-tron,the Audi brand is bringing the technological benefits of the new Premium Platform Electric(PPE)to China:impressive values for range and charging performance,outstanding driving experience and a BEV design specifically for the Chinese market.The Q6L e-tron has an extended wheelbase which provides not only more legroom for passengers in the interior but also space for a larger battery.Highly efficient electric drivetrains and a newly developed lithium-ion battery offer a range of up to around 700 km.The interior has been designed with a focus on the needs of Chinese customers,additionally featuring market-specific connectivity solutions,digital services,and a China-specific version of the Audi assistant.Driver assistance systems specially developed for the requirements of the market and functions for automated driving and parking round off the vehicle.The new Audi Q6L e-tron,as well as future models based on the PPE,will be produced in a completely new factory in Changchun.There,Audi is currently building its most state-of-the-art production site in China.The Lamborghini Urus SE made its world premiere in Beijing.The first PHEV Super SUV has a 4.0-liter twin-turbo V8 engine with 456 kW(620 PS)of power and an electric drivetrain.With the power of both combustion engine and electric motor,the Urus SE delivers a total power output of 588 kW(800 PS)on the road.The com-bination of driving modes with four new electric performance levels gives a total of eleven options,delivering a range of up to around 60 km in the all-electric driving mode.Porsche also underscored its“in China,for China”approach at Auto China 2024 and celebrated the market premieres of the all-electric Macan based on the PPE and a China-specific model of the new Taycan generation.IFAT 2024 in Munich At IFAT 2024 in Munich,the worlds leading trade fair for water,sewage,waste and raw materials management,Scania presented sustainable,smart and safe solutions for the challenges faced by cities and municipalities.Group News 4 Group NewsUpdated Information Scania has a diverse offering of vehicles for waste and recycling.The line-up of sustainable drive systems extends from electrification to biomethane or biodiesel.MAN presented its expanded portfolio of eTrucks at IFAT.The new versions of the eTGX and eTGS vehicles can be highly customized with a variety of wheelbases,cab versions,engine performance classes,battery combi-nations and other industry-typical features,and have a battery performance period of up to 1.6 million km or up to 15 years,depending on their use.Customer-specific selection of the number of batteries can lead to a payload gain of up to 2.4 t.Industry-specific eMobility consultancy complemented the range of services showcased at MANs exhibition stand.Other model innovations After unveiling the new Golf in the first quarter of 2024,the Volkswagen Passenger Cars brand presented the updated version of the iconic Golf GTI in the second quarter.Now boasting an output of 195 kW(265 PS),the new GTI is 15 kW(20 PS)more powerful than its predecessor.Striking features on the outside include the new front end with LED headlights and an illuminated Volkswagen logo,as well as redesigned LED tail light clusters.Inside,the everyday athlete impresses with an infotainment system that is intuitively controlled by means of a touch-screen that appears to be freestanding,or by voice assistant with ChatGPT integration.The new GTI Clubsport,the sporty,optimized version of the classic model,stands out above all thanks to its sharper exterior design,high-end sports suspension and impressive performance data:the Golf GTI Clubsport accelerates from a standstill to 100 km/h in 5.6 seconds;with the optional Race package a top speed of 267 km/h can be achieved.The new Golf GTE and the new Golf eHybrid offer new plug-in hybrid technology and a host of enhanced features:with an output of 200 kW(272 PS),the performance drive of the Golf GTE even surpasses the level of the new Golf GTI thanks to its additional electric power.The Golf eHybrid is designed for maximum comfort and delivers an output of 150 kW(204 PS).The all-electric range of the GTE has been increased to up to approximately 131 km.With the eHybrid,it is even possible to achieve a range of around 143 km.In addition,both models come with a fast charge function.The presentation of the new Golf R and Golf R Estate marked the sporty final of the new launches in the Golf family.The new maximum output of 245 kW(333 PS)corresponds to an increase of 10 kW(14 PS)compared with their predecessors.The top speed of 250 km/h can be increased to 270 km/h by adding the R-Performance package.Together with the ID.7 GTX Tourer,the new ID.7 GTX is currently the most powerful electric vehicle from Volks-wagen.The dynamic fastback powers from a standstill to 100 km/h in just 5.4 seconds.The ID.7 GTX transmits its 250 kW(340 PS)of power to the road thanks to the electric dual-motor all-wheel drive with an electric motor on the front and rear axles.This performance model boasts a range of up to around 595 km.At fast charging stations with 200 kW,the ID.7 GTXs 86-kWh battery can be charged from 10%to 80%in 26 minutes.koda presented the second generation of the Kodiaq in April 2024.The SUV flagship model of the Czech brand has grown and incorporates the first elements of a new design language.Its interior boasts an infotainment system with a 13-inch display,a head-up display and a 10-inch digital cockpit.The five powertrain options range from 110 kW(150 PS)to 150 kW(204 PS).The Kodiaq is now available as a plug-in hybrid for the first time,offering an electric range of up to around 100 km and an entry-level engine with mild hybrid technology.The latest generation of Dynamic Chassis Control and LED matrix headlights with more powerful light output are also debuted in the new Kodiaq.CUPRA celebrated the world premieres of the new CUPRA Formentor and the new CUPRA Leon in April.The two models showcase the brands new design language,defined by an aggressive-looking front with triangular matrix LED lights and a big,bold lower mouth.The same triangular lighting design also acts as a frame for the central CUPRA logo illuminated in the rear.The raw emotion of the exterior design is reflected in the interior which mixes sportiness and sustainability with a range of digital technologies and exclusive material choices.CUPRA is embracing a sustainable approach,for example with its bucket seats which can be covered in up to 73%recycled vegan microfibre depending on the configuration.The Formentor and the Leon are available with a range of power-trains including four different technologies:TSI(petrol),mild hybrid(eTSI),TDI(diesel)and e-hybrid(plug-in 5 Group NewsUpdated Information hybrid).The new generation of plug-in hybrids delivers 200 kW(272 PS)with an all-electric range of up to around 100 km and is now also suitable for fast charging.Porsche continued updating its model range in the second quarter of 2024 and has fundamentally upgraded the iconic 911 sports car.The 911 Carrera is powered by an updated 3.0-liter twin-turbo boxer engine that is more powerful than its predecessors.The new 911 Carrera GTS is the first road-approved model in the series to feature a lightweight,powerful T-Hybrid system with a newly developed electric turbocharger.This allows the 911 Carrera GTS Coup to accelerate from zero to 100 km/h in 3.0 seconds and reach a top speed of 312 km/h.The new 911 also features a revamped design,better aerodynamics,a fresh interior,upgraded standard equipment and expanded connectivity.Volkswagen Commercial Vehicles celebrated the world premiere of the new California in May 2024.The iconic camper van is based on the long version of the Multivan and has been redesigned in all respects.While more spacious,versatile and sustainable than its predecessor,it still has the features for which the California is loved such as the pop-up roof,and interior design that has been thought-out down to the very last detail.For the first time,all California models will come with two sliding doors,opening up even more possibilities.Another premiere is a plug-in hybrid all-wheel drive,which temporarily turns the camper into an electric vehicle.The new California will also be launched in the three popular lines“Beach”,“Coast”and“Ocean”.At the end of June,Bentley unveiled the fourth generation of the Continental GT Speed.The 575 kW(782 PS)ultra-performance hybrid powertrain makes the Grand Tourer the most powerful road-going Bentley of all times.It sprints from 0 to 100 km/h in 3.2 seconds and can reach a top speed of 335 km/h.What is more,it offers an all-electric range of up to 81 km.The powerful drive is complemented by a new suspension system.The exterior is defined by the updated front,including single headlights,thus continuing Bentleys striking design development.The luxurious interior features seats with wellness technology,new air ionization,leather covers with new stitching,and dark chrome elements.For the first time,the coup will be launched simultaneously with the open version of the GTC Speed.AWARDS In April 2024,AutoBild named multiple vehicle brands from the Volkswagen Group as the“Best Brands in All Classes”.Volkswagen Passenger Cars won the Best Quality category in the subcompact class.In the compact vans class,Volkswagen Commercial Vehicles took first place in the Best Design category and won the overall title.In addition,the brand clinched a victory in the Best Quality and Best Design categories in the large vans class,also winning the overall title.Audi topped the rankings in the Best Quality category,winning the accolade in the cate-gories of small cars,and convertibles up to 50,000.In the compact cars class,CUPRA won the Best Design cate-gory,while koda emerged as the winner in the Best Price/Performance category and as the overall winner in the same class.koda also came out on top in the Best Price/Performance category in both the midsize and the midsize SUVs classes,as well as being named the overall winner in the latter class.Porsche took first place in the Best Quality and Best Design categories and was crowned the overall winner in the sports cars,convertibles over 50,000 and luxury cars classes.In this,the 13th readers poll,readers could choose from a total of 40 car brands in 14 vehicle classes.At the end of April 2024,Scania won the Green Truck Award for the ninth time with its R 460.The comparative test was organized by the German trade magazines Trucker and VerkehrsRundschau.The most efficient vehicle is determined based on a comparison of fuel consumption,average speed,the volume of AdBlue consumed and vehicle weight.The Scania i6 Super HDH LBG won the“International busplaner Sustainability Award 2024”in the coaches and intercity buses category also in April 2024.The award is presented by HUSS Fachverlag and the winners are chosen by a panel of industry experts.The biogas-powered coach took first place,particularly for its emissions reduction.6 Group NewsUpdated Information The Volkswagen ID.7 achieved a top score of 1.5 in the ADAC vehicle test in mid-May 2024,the highest score ever achieved.The tested ID.7 Pro received outstanding scores especially in the categories of engine/drive,safety,environment/ecological test and comfort.Every year,around 100 vehicles are tested according to 350 criteria in seven main categories during an independent inspection,resulting in an average overall score.At the end of May 2024,Ducati won the“Red Dot:Best of the Best”award in the Product Design category with the Diavel V4.This award is reserved for creations that set a new standard with their design in their sector.The CUPRA DarkRebel Showcar likewise won the highest award at the competition for its outstanding design.The winners of this prestigious design award have been chosen by a panel of experts since 1955.In May 2024,the Volkswagen Tiguan was awarded the highest Euro NCAP safety rating of five stars,in partic-ular for its impact protection and accident prevention technologies.This test procedure examines and evaluates safety aspects of new vehicles in the categories Adult Occupant Protection,Child Occupant Protection,Vulnerable Road Users(such as cyclists and pedestrians)and Safety Assist(driver assistance systems fitted as standard).In June 2024,several Group vehicles received the“Autocar Award 2024”from the British car magazine of the same name.The ID.7 from Volkswagen Passenger Cars was named“Best Saloon”.The CUPRA Born won in the“Best Electric Car”category.This years winner of the“Britains Best Drivers Car”category was the Lamborghini Huracan Sterrati.ANNIVERSARIES In April 2024,Volkswagen celebrated its 40-year presence in the Chinese automotive market,which began in 1984 with the production of the Santana in Shanghai.This was later followed by models such as the Lavida and the Sagitar,developed especially for the Chinese market.Today,Volkswagens network in China features 39 plants with more than 90,000 employees,making Volkswagen the largest European employer in China.Customers can choose from a product line-up of around 160 models,which the Group distributes in conjunction with its joint venture partners.Seventy-five years ago,Volkswagen laid the foundation for the financial services business as an important sales instrument with the establishment of Volkswagen Finanzierungsgesellschaft mbH.With its financial and mobility services,today,the Volkswagen Group is represented in 47 markets worldwide and employs around 18,000 people there.Alongside the traditional business fields of banking,leasing and insurance,Volkswagen Financial Services offers a wide range of mobility services in order to keep customers mobile and support the sales of Volkswagen Group brands.COOPERATION AND INVESTMENTS On June 25,2024,Volkswagen and the US electric vehicle manufacturer Rivian Automotive,Inc.,Irvine/USA(Rivian)announced their intention to form a joint venture in which each party will hold an equal share.The part-nership is aimed at creating next generation software-defined vehicle(SDV)architectures to be used in both companies future electric vehicles.The joint venture is expected to build on Rivians software and electrical archi-tecture to create best-in-class software-defined vehicle technology platforms.A decision on the actual implemen-tation of the joint venture has not yet been made and will depend on a number of technical,financial and regulatory parameters.On the basis of this planned strategic partnership,in June 2024,Volkswagen invested USD 1 billion in Rivian in the form of an unsecured convertible note,which will convert into ordinary shares of Rivian upon receipt of regulatory approvals,but not before December 1,2024.If the joint venture is implemented successfully and certain milestones are reached,Volkswagen intends to make further investments totaling up to USD 4 billion in 2025 and 2026.7 Group NewsUpdated Information ENTRY INTO THE LARGE-SCALE STORAGE SYSTEM BUSINESS The Volkswagen Group plans to enter into the large-scale stationary storage system business with its charging and energy brand Elli.Elli intends to develop,build and operate battery storage projects on an industrial scale together with partners.This will play a substantial role in stabilizing and increasing the efficiency of the power grids.Electricity generated from renewable energy sources can be fed into these storage systems and withdrawn as needed.In the first step,up to 350 MW of capacity and 700 MWh of storage capacity are planned for the biggest projects.The reuse of used storage units from electric vehicles is also a possibility.CAPITAL MARKETS DAY IN CHINA The Volkswagen Group hosted its Capital Markets Day in China for Chinese and international investors and analysts in April 2024.The spotlight topic at this event was the“in China,for China”strategy of developing and manufacturing the Group vehicles destined for the Chinese market in line with the needs of its customers and using local technologies.Measures were presented to cater even better to the wishes of Chinese customers and accelerate model developments and time-to-market,as well as to reduce costs.Building on collaboration with strong local partners,the approach is expected to increase Volkswagens technological competitiveness as a basis for future growth in China.FOURTH RESPONSIBLE RAW MATERIALS REPORT PUBLISHED Since 2021,Volkswagen has voluntarily published a dedicated report on the Group-wide measures for mitigating human rights and environmental risks in raw material supply chains that are particularly at risk.The fourth Respon-sible Raw Materials Report,which was published in May 2024,now covers 18 priority raw materials and their respective supply chains,including battery materials such as lithium,cobalt and nickel.The report centers on the responsible procurement of raw materials as part of the Groups sustainability strategy,with a focus on indirect suppliers in upstream supply chains.VFL WOLFSBURG WOMEN CONTINUE THEIR HISTORIC WINNING STREAK VfL Wolfsburg claimed their tenth successive womens DFB-Pokal title(German football cup)with a 2-0 win in May 2024.With eleven victories in twelve years,they added to their record winning streak,and made history once again with the 50th straight win in a cup match.As brand ambassadors for Volkswagen,the VfL Wolfsburg womens team stands in particular for the values of diversity,affinity,professionalism and team spirit.ANNUAL GENERAL MEETING Volkswagen AGs 64th Annual General Meeting was held on May 29,2024 as a virtual meeting.Around 55%of the Companys share capital was represented.The shareholders approved the proposal of the Board of Management and Supervisory Board to pay a dividend of 9.00(8.70)per ordinary share and 9.06(8.76)per preferred share for fiscal year 2023,which was higher than for the previous year.Furthermore,the Annual General Meeting for-mally approved the actions of the Board of Management and the Supervisory Board for fiscal year 2023.The shareholders also approved the remuneration report for the Board of Management and Supervisory Board for 2023 as well as amendments to the remuneration system for the members of the Board of Management.In addition,the Annual General Meeting appointed EY GmbH&Co.KG Wirtschaftsprfungsgesellschaft as auditors and Group auditors for fiscal year 2024 and as auditors of the review of the condensed interim consolidated financial state-ments and of the interim management report for the first half of fiscal year 2024,for the period from January 1 to September 30,2024 and for the first quarter of fiscal year 2025.Dr.Hessa Sultan Al Jaber,Dr.Hans Michel Pich and Dr.Ferdinand Oliver Porsche were elected to the Supervisory Board for a further term of office.The share-holders also approved two amendments to the Articles of Association.8 Volkswagen SharesInterim Group Management Report The international stock markets recorded a mixed but overall positive first half of 2024.Driven in particular by the hope that central banks would cut their key rates of interest later in the year,they initially continued the upward trend that had started in October 2023 and soared to new record levels.Economic growth ahead of expectations also had a particularly positive impact.As the second quarter of 2024 progressed,however,hopes of imminent interest rate cuts in the USA were dampened by continued inflation.In addition to this,the European equity markets were also affected negatively by the results of the European Parliament elections and the subsequent surprise announcement of new elections in France,as well as by the possible introduction of additional EU tariffs on Chinese-produced battery-electric vehicles and the possibility of retaliation by China.After a favorable year on the stock markets in 2023,which saw the German stock index(DAX)rise by 20%,the new year started with sideways movement.An upward trend in the DAX then began at the end of January 2024,during which the index hit new all-time highs.The German stock market barometer benefited particularly from positive corporate data in the reporting season and market participants expectations of an imminent turnaround in interest rates.In the second quarter of 2024,momentum weakened due to rising geopolitical tensions and political uncertainty.At the end of the first half of 2024,the DAX a performance index that is calculated as if all 80100120140DJFMAMJJASONDPRICE DEVELOPMENT FROM DECEMBER 2023 TO JUNE 2024Index based on month-end prices:December 31,2023=100 Volkswagen ordinary share5.4%Volkswagen preferred share5.7X 8.9%EURO STOXX Automobiles&Parts 0.9%Volkswagen Shares 9 Volkswagen SharesInterim Group Management Report dividend payments were reinvested was up 8.9%on the level recorded at the end of 2023.The EURO STOXX Automobiles&Parts,which is purely a price index,posted a negative performance of 0.9%in the period under review.The prices of Volkswagen AGs preferred and ordinary shares initially saw a slight downward trend at the begin-ning of the reporting period.At the end of January 2024,expectations of positive business figures for the final quarter of 2023 and confidence regarding volume development in 2024 initially led to growth in share value.In early March,amid the publication of positive key figures for the 2023 fiscal year and the Companys 2024 outlook,the capital market took a critical view of the fact that investment requirements continue to be high,extending among other things to the construction of battery cell factories,vehicle development as part of the Companys transformation,and provisions for acquisitions.The further intensification of competition in the automotive sector,expectations of falling margins and lower demand,particularly for electric vehicles,also put a damper on the share price.The same was true of the decline in profits expected by the Company for the joint ventures in its largest single market,China,where competition is intense.In the second quarter,the share price was hit by the EUs announcement of punitive tariffs on Chinese electric vehicles,with the threat of retaliation in the form of Chinese import tariffs on European vehicles.At the end of the first half of 2024,preferred shares were down 5.7%and ordinary shares down 5.4%compared to the end of 2023.Assuming that the dividend(before deduction of taxes)was reinvested in Volkswagen shares at the time of distribution,the total return on the preferred shares was 1.7%and the total return on the ordinary shares was 1.1%.Information and explanations on earnings per share can be found in the notes to the interim consolidated finan-cial statements.Additional Volkswagen share data,plus corporate news,reports and presentations,is available on our website www.volkswagen- FIGURES FOR VOLKSWAGEN SHARES AND MARKET INDICES FROM JANUARY 1 TO JUNE 30,2024 High Low Closing Ordinary share Price()151.50 112.00 112.10 Date Apr.4 Jun.27 Jun.28 Preferred share Price()128.50 103.95 105.40 Date Apr.4 Jun.27 Jun.28 DAX Price 18,869 16,432 18,235 Date May 15 Jan.17 Jun.28 ESTX Auto&Parts Price 708 575 601 Date Apr.8 Jan.19 Jun.28 10 Business DevelopmentInterim Group Management Report GENERAL ECONOMIC DEVELOPMENT The world economy remained on a growth path in the first half of 2024 with similar momentum to the previous year.This trend was seen in both the advanced economies and the emerging markets.Declining but in some cases still relatively high inflation rates in many countries,combined with a continuation of the restrictive monetary poli-cies introduced by major central banks,put a damper on economic growth in many places.Western Europe posted an economic growth rate that was positive yet low in the first six months of 2024,representing a decrease compared to the prior-year level.This trend was seen in many countries in Northern and Southern Europe.In view of declining inflation rates,albeit with continuing above-average dynamics,the European Central Bank decided to lower its key interest rates to a still relatively high level.German economic growth stagnated between January and June 2024,repeating the trend of the comparative prior-year period.Compared with the same period of the prior year,the seasonally adjusted unemployment figures rose on average.After reaching historically high levels in late 2022,monthly inflation rates have since fallen broadly in step with the Eurozone average.95100105110DJFMAMJJASONDEXCHANGE RATE MOVEMENTS FROM DECEMBER 2023 TO JUNE 2024Index based on month-end prices:as of December 31,2023=100 EUR to GBP EUR to USD EUR to CNY EUR to JPYBusiness Development 11 Business DevelopmentInterim Group Management Report The economies in Central and Eastern Europe recorded overall growth in real gross domestic product(GDP)in the first six months of 2024 that was higher than in the prior-year period.In the USA,the pace of growth in gross domestic product in the reporting period exceeded that of the prior-year period.This was despite the US Federal Reserve maintaining its restrictive monetary policy due to relatively high inflation and a tight labor market.Economic output also grew year-on-year in Brazil,albeit more slowly than in the first half of the previous year.Economic growth in China was at a high level compared with other parts of the world,but was slightly weaker in the reporting period than in the prior-year period.TRENDS IN THE MARKETS FOR PASSENGER CARS AND LIGHT COMMERCIAL VEHICLES In the first half of 2024,the volume of the passenger car market worldwide was slightly higher than the equivalent figure for 2023.The performance of the major passenger car markets was largely positive.The supply situation continued to return to normal and the affordability of vehicles improved in some regions of the world amid lower prices and increased sales incentives.The global volume of new registrations of light commercial vehicles between January and June 2024 was on a level with the previous year.In Western Europe,the number of new passenger car registrations in the first half of 2024 increased slightly year-on-year.The performance of the large individual passenger car markets in this region was positive across the board.The volume of new registrations for light commercial vehicles in Western Europe was noticeably higher in the reporting period than for the same period of the previous year.The number of new passenger car registrations in Germany from January to June 2024 was noticeably up on the previous years level.The change in electric vehicle subsidies at the end of 2023 weighed on new registrations of all-electric vehicles,but this effect was more than offset by rising demand for vehicles with conventional and hybrid drivetrains.Production in Germany fell to 2.1 million vehicles(6.1%)in the first six months of 2024,while passenger car exports declined to 1.6 million units(2.5%).The number of light commercial vehicles sold in Germany in the first half of 2024 was significantly up on the 2023 figure.In the Central and Eastern Europe region,there was a significant increase in the volume of the passenger car market in the reporting period.Positive movement was recorded in the number of vehicles sold in the major mar-kets of Central Europe.From January to June 2024,the market volume of light commercial vehicles in Central and Eastern Europe was significantly up on the prior-year level.Sales of passenger cars and light commercial vehicles(up to 6.35 tonnes)in the North America region rose slightly.As a result of an average level of improvement in the availability and affordability of new vehicles,the volume of the US market in the first half of 2024 also saw slight growth,albeit at a lower rate than the region as a whole.In the South America region,the volume of new vehicle registrations for passenger cars and light commercial vehicles in the first six months of 2024 was slightly above the comparative prior-year period.In Brazil,the number of new registrations increased significantly compared to the previous year.12 Business DevelopmentInterim Group Management Report In the Asia-Pacific region,the volume of the passenger car market in the first half of 2024 was on a level with the previous year.The trend in demand for passenger cars in the region was largely determined by developments in the Chinese passenger car market,where demand was slightly up from the level in the prior-year period amidst falling prices.In Japan,by contrast,the market declined significantly,and had a dampening effect on growth in the region.The volume of demand for light commercial vehicles in the Asia-Pacific region in the first six months of 2024 was slightly below the level for the prior-year period.Registration volumes in China,the regions dominant market and the largest market worldwide,also tapered off slightly compared with the period a year earlier.TRENDS IN THE MARKETS FOR PASSENGER CARS AND LIGHT COMMERCIAL VEHICLES FROM JANUARY 1 TO JUNE 30 MARKET VOLUME CHANGE Thousand Units 2024 2023(%)Markets for passenger cars Western Europe 6,189 5,970 3.7 of which:Germany 1,472 1,397 5.4 France 913 888 2.8 United Kingdom 1,007 950 6.0 Italy 891 846 5.3 Spain 560 523 7.1 Central and Eastern Europe 1,244 1,049 18.5 of which:Czech Republic 119 116 3.2 Poland 278 239 16.1 Other Markets 2,119 1,739 21.9 of which:Trkiye 463 431 7.3 South Africa 162 175 7.3 North America 9,504 9,163 3.7 of which:USA 7,899 7,716 2.4 Canada 896 813 10.2 Mexico 709 633 11.9 South America 1,764 1,706 3.4 of which:Brazil 1,078 935 15.4 Argentina 174 223 22.1 Asia-Pacific 16,886 16,795 0.5 of which:China 10,153 9,821 3.4 India 2,119 1,966 7.8 Japan 1,795 2,044 12.2 Worldwide 37,706 36,811 2.4 Markets for light commercial vehicles Western Europe 927 847 9.5 of which:Germany 144 130 11.0 Central and Eastern Europe 150 126 18.4 Asia-Pacific 2,539 2,629 3.4 of which:China 1,216 1,245 2.4 Worldwide 4,042 4,016 0.7 13 Business DevelopmentInterim Group Management Report TRENDS IN THE MARKETS FOR COMMERCIAL VEHICLES In the markets that are relevant for the Volkswagen Group,demand for mid-sized and heavy trucks with a gross weight of more than six tonnes was slightly lower in the reporting period than in the same period of 2023.Truck markets globally were noticeably down on the previous year.This was due to a relatively weak start to the year in the North American markets and China,among other regions.Sales volume in the 27 EU states excluding Malta,but including the United Kingdom,Norway and Switzerland(EU27 3),was on a level with the previous year in the first six months of 2024.New registrations in Germany,the largest market in this region,were up noticeably on the same period of 2023.Demand in the United Kingdom was on a level with the previous year,while it increased noticeably in France.Trkiye recorded a noticeable decrease in new registrations compared with the previous year.There was a slight fall in demand in the South African market.The truck market in North America is divided into weight classes 1 to 8.In the segments relevant for Volkswagen Class 6 to 8(8.85 tonnes or heavier)new registrations were down noticeably on the previous year.In Brazil,the largest market in the South America region,demand for trucks in the first six months of the year was up signifi-cantly on the prior-year figure.In the first six months of 2024,demand in the bus markets that are relevant for the Volkswagen Group was slightly below the level recorded in the same period of the prior year.Demand for buses in the EU27 3 markets in the reporting period was up significantly on the previous year,with the picture varying from country to country.The school bus segment in the US and Canada was significantly below the prior-year level.Demand for buses in Mexico was significantly higher than in the previous year.In Brazil,demand was down sharply on the high prior-year level.TRENDS IN THE MARKETS FOR POWER ENGINEERING The markets for power engineering are influenced by varying regional and economic factors.Consequently,the business growth trends of the respective markets develop mostly independently of one another.In the first half of 2024,the marine market remained at a similar level to the previous year.Demand in merchant shipping declined slightly.In this segment,the market for LNG tankers and tankers recorded a positive year-on-year trend,whereas the markets for container ships and bulk cargo carriers continued their decline.Activity increased in the market for passenger ferries and cruise ships.The special market for government vessels,which is funded by state investments,continued to be active due to the current geopolitical situation.The uncertainty regarding future fuel and emissions regulations persisted in the marine market,but the trend toward new fuel technologies continued unabated.There was still reticence in the market for energy generation in the first half of 2024,particularly in Europe.This was due to the fact that policymakers have not yet completely finalized the strategy and regulations regarding future investments in this area.The current focus on the expansion of renewable energy sources was reflected in corresponding potential in the demand for grid balancing facilities.Such facilities are used to meet additional power requirements if the share of renewables is not sufficient to ensure security of supply.It remains unclear when decarbonized fuels will be available in sufficient volume and at marketable prices.A very positive trend was observed in the demand for power-to-hydrogen plants.In the engines segment,there is ongoing demand for flex-ible dual-fuel and liquid engines.There is also a clear demand on the market for engines that can be converted for use with future fuels such as hydrogen and green ammonia.In connection with the continued use of the existing infrastructure,there is perceptible demand for e-methane,which is produced in power-to-methane plants.Demand for emergency power units(emergency gensets)continued at a stable level in the first two quarters of 2024.In addition to the risks associated with a lack of price stability in the markets and bottlenecks in supply chains,the strong competitive and price pressure continued unabated in the reporting period.The turbomachinery market remained on a level with the previous year in the first half of 2024.The slight fall in energy prices reduced demand for turbo compressors in oil and gas production.Sales of turbo compressors in 14 Business DevelopmentInterim Group Management Report the raw materials and processing industry slightly exceeded the previous years level.There was also increased demand for turbomachinery in the new business fields in the area of decarbonization.Demand for steam turbines to generate power in decentralized power stations was below the prior-year comparison period.The after-sales market for engines in the marine and power plant business in the first six months of 2024 was up on the previous years already high level.Demand in the after-sales market for turbomachinery in the first half of 2024 also exceeded the prior-year period.TRENDS IN THE MARKETS FOR FINANCIAL SERVICES Automotive financial services were in high demand in the first half of 2024.The European passenger car market was characterized by positive demand in the reporting period.Sales of financial services products also increased and were up on the equivalent figure for 2023 as a percentage of vehicle deliveries.The positive trend in the financing of used vehicles continued.The sale of after-sales products such as servicing,maintenance and spare parts agreements continued to expand.In Germany,deliveries of new vehicles and the volume of contracts in the financial services business in the first six months of 2024 were slightly higher year-on-year.New vehicle penetration was also up on the comparative figure for 2023.New contracts for used vehicles were on a level with the previous year.The number of new after-sales contracts increased and,in the reporting period,was above the level seen in the first six months of 2023.The Turkish governments ongoing strict measures to contain the economic crisis were starting to show results in the reporting period.The first local banks are now prepared to issue loans with longer maturities for refinancing.In the first half of 2024,the fleet business was continuously under pressure,while financing for private customers increased slightly.The insurance business stabilized at a high level.Vehicle sales in South Africa declined year-on-year in the period from January to June 2024.As a result,the number of financed purchases also decreased.The decline was due to domestic political uncertainty,the con-tinuing subdued economic conditions and high energy prices.In the period from January to June 2024,the markets for financial services in the North America region devel-oped positively on the whole,compared with the previous year.In the USA,Canada and Mexico,the number of leasing and financing contracts,new vehicle penetration and new contracts for insurance and after-sales products were all up on the prior-year figures.In the South America region,the volume of new vehicle sales was positive overall.The market for financial services recorded an increase in financing contracts.In Brazil,the number of new contracts rose thanks to the range of attractive financial services offered and increased deliveries.The number of car subscriptions entered into also rose.In Argentina,the level of financing contracts was stable in spite of challenging macroeconomic conditions.The Chinese automotive market witnessed a further rise in demand for electrified and used vehicles in the reporting period.In addition,banks are gaining a foothold in the market with attractive products.This,in turn,also affected demand for automotive financial services.In Japan,vehicle sales and demand for automotive financial services were down year-on-year in the first half of 2024.The market continued to be influenced by relatively low interest rates and attractive financial services,despite the most recent rise in long-term interest rates.The financial services business for heavy commercial vehicles was slightly down on the prior-year level in the first six months of 2024 on account of a decrease in deliveries to customers.The lengthy delivery times for com-mercial vehicles continued to return to normal as supply chains stabilized.The financing decision is moving closer to the time of vehicle delivery as customers hope for falling interest rates.15 Business DevelopmentInterim Group Management Report VOLKSWAGEN GROUP DELIVERIES The Volkswagen Group delivered 4,347,965 vehicles to customers worldwide in the first half of 2024.This was 0.6%or 24,105 units less than in the same period of the previous year.While sales figures for passenger cars almost reached the prior-year level,commercial vehicle sales were slightly down year-on-year.The chart in this section shows the trend in deliveries worldwide for the individual months compared with the previous year.In the following,we report separately on deliveries in the Passenger Cars Business Area and the Commercial Vehicles Business Area.VOLKSWAGEN GROUP DELIVERIES FROM JANUARY 1 TO JUNE 301 2024 2023%Passenger Cars 4,187,854 4,203,958 0.4 Commercial Vehicles 160,111 168,112 4.8 Total 4,347,965 4,372,070 0.6 1 The figures include the equity-accounted Chinese joint ventures.Prior-year deliveries have been updated to reflect subsequent statistical trends.GLOBAL DELIVERIES BY THE PASSENGER CARS BUSINESS AREA In the first half of 2024,sales of Volkswagen Group Passenger Cars and Light Commercial Vehicles worldwide were on a level with the previous year at 4,187,854 units(0.4%)in a challenging market.While koda,SEAT/CUPRA,Volkswagen Commercial Vehicles and Lamborghini increased vehicle deliveries,Audi,Bentley and Porsche did not reach their respective prior-year figures.The volume of vehicle sales by the Passenger Cars brand was on a level with the previous year(0.2%).While our sales of passenger cars and light commercial vehicles in the Asia-Pacific and Central and Eastern Europe regions fell short of the prior-year figures,we saw deliveries to customers rise in all other sales regions around the world.Demand for the Volkswagen Groups electrified vehicles was adversely affected by general buyer reluctance in particular:we delivered 317,185 all-electric vehicles(including heavy commercial vehicles)to customers world-wide in the first half of this year.This was 4,425 fewer units or 1.4%less than in the same period of the previous year.Their share of the Groups total deliveries stood at 7.3(7.4)%.Deliveries to customers of our plug-in hybrid models amounted to 135,859( 17.4%)units.As a result,total electrified vehicle deliveries went up by 3.6%;their share of total Group deliveries rose year-on-year to 10.4(10.0)%.The Groups highest-volume all-electric vehicles included the ID.4 and ID.3 from the Volkswagen Passenger Cars brand,the Audi Q4 e-tron and Audi Q8 e-tron,the koda Enyaq iV,the CUPRA Born,the ID.Buzz from Volkswagen Commercial Vehicles and the Porsche Taycan and Taycan Cross Turismo.In an overall global market experiencing slight growth,we achieved a passenger car market share of 10.6(10.9)%.The table that follows in this section provides an overview of passenger car and light commercial vehicle deliv-eries to customers by market in the reporting period.Sales trends in the individual markets are described below.Deliveries in Europe/Other Markets In Western Europe,the Volkswagen Group delivered 1,620,973 vehicles to customers in the first six months of 2024 in an overall market that was at a slightly higher level than in the previous year.This was 2.6%more than in the same period of the prior year.Customer interest in the Volkswagen Groups electrified vehicles was strongest in Western Europe,where we delivered more than 50%of our all-electric models(including heavy commercial vehicles)or 179,572 units to customers in the reporting period.Their share of Group deliveries in this region fell to 10.7(12.7)%.The number of all-electric models handed over to customers was down 14.2%year-on-year,mainly 16 Business DevelopmentInterim Group Management Report due to parts supply shortages.However,incoming orders for Volkswagen Group all-electric models developed encouragingly in Western Europe,more than doubling compared with the prior-year period.The Group vehicles with the highest sales volume were the T-Roc,Golf hatchback and Tiguan models from the Volkswagen Passenger Cars brand.Other models that recorded encouraging demand included the Golf Estate and ID.7 from Volkswagen Passenger Cars,the Fabia hatchback and Octavia Combi from koda,the SEAT Ibiza and SEAT Leon,the CUPRA Leon and CUPRA Ateca,the Multivan and Amarok from Volkswagen Commercial Vehicles,the A3 Sportback and A4 Avant from Audi,as well as the Porsche Cayenne.The T-Cross,Golf,Tiguan,Passat and ID.7 Tourer from the Volkswagen Passenger Cars brand,the Scala,Kamiq,Kodiaq,Octavia and Superb Combi from koda,the SEAT Leon,CUPRA Leon and CUPRA Formentor,the Audi Q7 and the Porsche Panamera were among the new or successor models launched on the market during the reporting period.The Volkswagen Groups share of the passenger car market in Western Europe stood at 23.6(24.1)%.In Germany,576,991 vehicles were delivered to Volkswagen Group customers between January and June 2024 in an overall market registering noticeable growth;this was 4.3%more than the prior-year figure.The Group models with the highest sales volume were the Golf hatchback and T-Roc from the Volkswagen Passenger Cars brand and the koda Octavia Combi.In addition,the Golf Estate from Volkswagen Passenger Cars,the koda Karoq and koda Fabia hatchback,the SEAT Ibiza,the CUPRA Leon and CUPRA Ateca,the Multivan from Volks-wagen Commercial Vehicles,the Audi A4 Avant and the Porsche Cayenne,among others,saw encouraging demand.Seven Group models led the Kraftfahrt-Bundesamt(KBA German Federal Motor Transport Authority)registration statistics in their respective segments:the Polo,Golf,T-Roc,Tiguan,Passat,Multivan/Transporter and Porsche 911.The Golf was again the most popular passenger car in Germany in terms of registrations in the first half of 2024.In the Central and Eastern Europe region,the number of Volkswagen Group vehicles handed over to customers in the first half of 2024 was down 1.0%year-on-year.The overall market experienced significant growth in the same period.Demand developed encouragingly for a number of models,including kodas Octavia Combi and Octavia saloon.The Volkswagen Groups share of the passenger car market in the Central and Eastern Europe region declined to 17.7(21.4)%.In Trkiye,the Volkswagen Group delivered 2.1%more vehicles to customers in the first six months of 2024 than in the prior-year period in an overall market experiencing noticeable growth.The Polo from Volkswagen Passenger Cars was the most sought-after Group model there.In the noticeably contracting South African market,the number of Group models sold decreased by 3.0%.The Polo Vivo from the Volkswagen Passenger Cars brand was the most sought-after Group model in this region.4005006007008009001,0001,100JFMAMJJASONDVOLKSWAGEN GROUP DELIVERIES BY MONTHVehicles in thousands 2024 2023 17 Business DevelopmentInterim Group Management Report Deliveries in North America In North America,the number of Volkswagen Group models delivered to customers from January to June 2024 increased by 11.4%year-on-year.The market as a whole grew slightly over the same period.The share of all-electric vehicles(including heavy commercial vehicles)in the Groups total deliveries decreased to 6.7(7.6)%in this region.The Tiguan Allspace,Taos and Jetta from the Volkswagen Passenger Cars brand were the most sought-after Group models in North America.The Audi Q7,Audi Q8 and the Porsche Panamera were among the successor models launched on the market during the reporting period.The Groups share of the market in this region increased to 4.8(4.5)%.In the US market,which is experiencing slight growth,the Volkswagen Group delivered 7.0%more vehicles to customers in the first half of 2024 than in the prior-year comparison period.The Group models to record the greatest increases in absolute terms included the Jetta and Atlas from Volkswagen Passenger Cars and the Audi Q3.In Canada,the number of deliveries to Volkswagen Group customers increased by 25.9%year-on-year in the reporting period.The overall market recorded significant growth during this period.The Group models with the highest volume of demand were the Taos,Tiguan Allspace and the Jetta from the Volkswagen Passenger Cars brand.In Mexico,where the overall market is seeing significant growth,we delivered 20.1%more vehicles to custom-ers in the first six months of this year than in the prior-year period.Demand developed encouragingly for,among others,the Virtus and Polo from Volkswagen Passenger Cars.Deliveries in South America In the South American market for passenger cars and light commercial vehicles,which was slightly up on the prior-year level,the number of Group models handed over to customers between January and June 2024 increased by 12.6%year-on-year.The Polo,T-Cross and Nivus from Volkswagen Passenger Cars were the Group models with the highest sales volumes.The Groups share of the market in South America rose to 12.5(11.5)%.In Brazil,a market that recorded significant growth,the Volkswagen Group delivered 20.5%more vehicles to customers in the first six months of 2024 than in the prior-year period.The development of the sales of the Polo,Saveiro and Virtus models from Volkswagen Passenger Cars was particularly encouraging.In Argentina,the number of Group models sold in the reporting period decreased by 2.2%in comparison with the previous year in an overall market that was contracting sharply.Group models with the highest sales volume were the Taos from Volkswagen Passenger Cars and the Amarok from Volkswagen Commercial Vehicles.Deliveries in the Asia-Pacific Region In the first six months of 2024,the Volkswagen Groups sales volume in the Asia-Pacific region declined by 8.2%,while the overall market in the same period was on a level with the previous year.The Groups share of the passen-ger car market in this region amounted to 8.7(9.6)%.Chinas overall market recorded slight growth in the reporting period.The Volkswagen Group delivered 7.3wer vehicles to customers there than in the previous year.The increasing intensity of competition continued to have a negative impact.At 90,610 units,the number of all-electric vehicles(including heavy commercial vehicles)handed over to customers in China was 45.2%higher than the prior-year figure.Their share of the Groups total deliveries rose to 6.7(4.3)%.The Group models with the highest sales volume were the Sagitar,Passat and Lavida from Volkswagen Passenger Cars and the Audi A6.In addition,the Lavida XR and ID.3 from Volkswagen Passenger Cars and the A7 saloon,A6 saloon and Q5 from Audi were among the models that saw an encouraging increase in demand.The Porsche Panamera was among the successor models launched on the market during the reporting period.18 Business DevelopmentInterim Group Management Report In the Indian passenger car market,which registered noticeable growth,the Volkswagen Group sold 18.7wer vehicles in the first six months of this year than in the same period of 2023.The Virtus and Taigun from the Volks-wagen Passenger Cars brand and the Slavia from koda were the most sought-after Group models there.In Japan,the number of Group models delivered to customers between January and June 2024 increased by 4.1%year-on-year in a significantly declining overall market.The Group models with the highest sales volume were the Golf hatchback and T-Roc from the Volkswagen Passenger Cars brand.PASSENGER CAR DELIVERIES TO CUSTOMERS BY MARKET FROM JANUARY 1 TO JUNE 301 DELIVERIES(UNITS)CHANGE 2024 2023(%)Europe/Other Markets 2,024,590 1,980,529 2.2 Western Europe 1,620,973 1,579,313 2.6 of which:Germany 576,991 553,063 4.3 France 139,721 128,537 8.7 United Kingdom 249,162 238,465 4.5 Italy 149,576 144,219 3.7 Spain 134,637 129,148 4.3 Central and Eastern Europe 237,665 240,008 1.0 of which:Czech Republic 55,270 61,960 10.8 Russia-2,573 x Poland 76,411 69,634 9.7 Other Markets 165,952 161,208 2.9 of which:Trkiye 76,460 74,881 2.1 South Africa 31,974 32,959 3.0 North America 457,503 410,541 11.4 of which:USA 313,540 293,035 7.0 Canada 61,133 48,559 25.9 Mexico 82,830 68,947 20.1 South America 220,753 196,008 12.6 of which:Brazil 173,308 143,768 20.5 Argentina 26,708 27,319 2.2 Asia-Pacific 1,485,008 1,616,880 8.2 of which:China 1,344,509 1,450,663 7.3 India 39,056 48,044 18.7 Japan 30,808 29,588 4.1 Worldwide 4,187,854 4,203,958 0.4 Volkswagen Passenger Cars 2,220,345 2,224,720 0.2 koda 448,601 432,173 3.8 SEAT/CUPRA 297,418 261,433 13.8 Volkswagen Commercial Vehicles 221,554 198,730 11.5 Audi 832,957 907,111 8.2 Lamborghini 5,558 5,341 4.1 Bentley 5,476 7,096 22.8 Porsche 155,945 167,354 6.8 1 The figures include the equity-accounted Chinese joint ventures.Prior-year deliveries have been updated to reflect subsequent statistical trends.19 Business DevelopmentInterim Group Management Report COMMERCIAL VEHICLE DELIVERIES Between January and June 2024,the Volkswagen Group delivered 4.8wer commercial vehicles to customers worldwide than in the same period of the previous year.We handed over a total of 160,111 commercial vehicles to customers.Trucks accounted for 132,857 units(5.0%)and buses for 12,536(15.6%).Deliveries of the MAN TGE van series to customers saw a noticeable increase compared with the prior-year period,rising to 14,718( 9.6%)vehicles.In the 27 EU states,excluding Malta but including the United Kingdom,Norway and Switzerland(EU27 3),sales from January to June 2024 were down by 5.2%on the same period of the previous year and amounted to a total of 72,111 units,of which 54,676 were trucks and 2,953 were buses.Deliveries of the MAN TGE van series to customers amounted to 14,482 units.In the first six months of the year,deliveries to customers in Trkiye rose significantly to 3,107 vehicles.Of the vehicles sold,2,868 units were trucks,122 were buses and 117 were MAN TGE vans.In South Africa,the number of Volkswagen Group commercial vehicles delivered to customers fell noticeably year-on-year to 2,120 units.Of the units sold,1,789 were trucks and 331 were buses.Sales in North America declined in the first two quarters of 2024 to 37,669(21.8%)vehicles,of which 33,212 were trucks and 4,457 were buses.Deliveries to customers in South America increased to a total of 34,573 vehicles( 36.8%)in the reporting period;30,880 of these were trucks and 3,693 were buses.In Brazil,sales increased very strongly in the first six months of 2024,rising by 48.6%to 29,968 units.This was mainly due to normalization effects in connection with the introduction of a new emissions standard in the previous year.Of the units delivered,26,942 were trucks and 3,026 were buses.In the Asia-Pacific region,the Volkswagen Group sold 4,632 vehicles in the reporting period,including 4,276 trucks and 356 buses.Overall,this was 23.3%less than in the previous year.COMMERCIAL VEHICLE DELIVERIES TO CUSTOMERS BY MARKET FROM JANUARY 1 TO JUNE 301 DELIVERIES(UNITS)CHANGE 2024 2023(%)Europe/Other Markets 83,237 88,600 6.1 of which:EU27 3 72,111 76,036 5.2 of which:Germany 19,196 22,267 13.8 Trkiye 3,107 2,795 11.2 South Africa 2,120 2,317 8.5 North America 37,669 48,192 21.8 of which:USA 27,251 37,886 28.1 Mexico 7,555 7,635 1.0 South America 34,573 25,280 36.8 of which:Brazil 29,968 20,161 48.6 Asia-Pacific 4,632 6,040 23.3 Worldwide 160,111 168,112 4.8 Scania 52,268 46,290 12.9 MAN 49,151 55,999 12.2 Navistar 35,312 45,791 22.9 Volkswagen Truck&Bus 23,380 20,032 16.7 1 Prior-year deliveries have been updated to reflect subsequent statistical trends.20 Business DevelopmentInterim Group Management Report DELIVERIES IN THE POWER ENGINEERING SEGMENT Orders in the Power Engineering segment are usually a part of larger investment projects,for which lead times typi-cally range from just under one year to several years,and partial deliveries as construction progresses are common.Accordingly,there is a time lag between incoming orders and sales revenue from the new construction business.In the period from January to June 2024,sales revenue in the Power Engineering segment was largely driven by Engines&Marine Systems and Turbomachinery,which together generated more than three quarters of total sales revenue.VOLKSWAGEN GROUP FINANCIAL SERVICES The activities in the Financial Services Division cover the Volkswagen Groups dealer and customer financing,leasing,banking and insurance activities,fleet management and mobility services.The division comprises the financial services activities of Volkswagen Group Mobility(formerly:Volkswagen Financial Services),Scania,Navi-star and Porsche Holding Salzburg and also extends to the contracts concluded by our international joint ventures.The Financial Services Divisions products and services were popular in the period from January to June 2024.The number of new financing,leasing,service and insurance contracts signed worldwide increased by 21.3%to 5.5 million.Since January 1,2024,other types of insurance contracts have also been taken into account;the num-ber of contracts as of December 31,2023 has been adjusted.The ratio of leased and financed vehicles to Group deliveries(penetration rate)in the Financial Services Divisions markets stood at 34.8(33.6)%in the reporting period.The total number of contracts stood at 27.6 million on June 30,2024,1.7low the adjusted figure at the end of the previous year.In Europe/Other Markets,4.0 million new contracts were signed,20.7%more than the comparative prior-year figure.At 19.8(20.1)million,the total number of contracts at the end of the reporting period fell short of the figure for December 31,2023.The customer financing/leasing area was responsible for 7.1(7.1)million of these con-tracts.The number of new contracts signed in North America in the first half of 2024 increased to 733(481)thousand.At 4.1(4.1)million,the number of contracts as of June 30,2024 was on a level with the end of the previous year.The customer financing/leasing area recorded 1.7(1.6)million contracts.In the South America region,381(242)thousand new contracts were concluded in the period from January to June of this year.The total number of contracts at the end of the reporting period was unchanged from Decem-ber 31,2023,at 1.4(1.4)million;0.6(0.6)million of these contracts related to the customer financing/leasing area.The number of new contracts signed in the Asia-Pacific region in the first six months of 2024 declined to 389(502)thousand,falling short of the comparative prior-year figure.At the end of June 2024,the total number of contracts stood at 2.4(2.5)million.The customer financing/leasing area was responsible for 1.4(1.5)million of these contracts.21 Business DevelopmentInterim Group Management Report SALES TO THE DEALER ORGANIZATION The Volkswagen Groups unit sales to the dealer organization decreased in the reporting period by 2.4%to 4,340,843 units(including the equity-accounted companies in China).This was partly due to the high volumes of unit sales at the end of 2023.Unit sales outside Germany fell by 3.3%to 3,739,770 vehicles.Growth was recorded particularly in Brazil,the United Kingdom and Canada.In contrast,fewer vehicles were sold above all in China.Unit sales in Germany increased by 3.6%year-on-year.The proportion of the Groups total unit sales attributable to Germany increased to 13.8(13.0)%.PRODUCTION At 4,606,319 vehicles,the Volkswagen Groups production in the first half of 2024(including the equity-accounted companies in China)was down by 1.8%.Production in Germany declined by 16.4%to 904,461 vehicles.The pro-portion of the Groups total production accounted for by Germany decreased to 19.6(23.1)%.INVENTORIES Global inventories of new vehicles(including the equity-accounted companies in China)at Group companies and in the dealer organization at the end of June 2024 were significantly higher than at year-end 2023 and moderately above the corresponding prior-year figure.EMPLOYEES At 655,905( 0.2%),the number of active employees in the Volkswagen Group at the end of June 2024 was on a level with the figure as of December 31,2023.In addition,12,311 employees were in the passive phase of their partial retirement and 14,555 young people were in vocational traineeships.At the close of the reporting period,the Volkswagen Group had a total of 682,771 employees worldwide,matching the level recorded at the end of 2023.A total of 294,705 people were employed in Germany(1.3%)and a further 388,066 were employed outside Germany( 0.7%).VOLUME DATA OF THE VOLKSWAGEN GROUP FROM JANUARY 1 TO JUNE 301 in thousands 2024 2023%Vehicle sales(units)4,341 4,448 2.4 Production(units)4,606 4,691 1.8 Employees(as of June 30,2024/Dec.31,2023)682.8 684.0 0.2 1 Including the unconsolidated Chinese joint ventures.22 Results of Operations,Financial Position and Net AssetsInterim Group Management Report In line with the Groups internal financial management and reporting structures,which are presented in the 2023 Annual Report,the Volkswagen Group consists of two divisions:the Automotive Division and the Financial Services Division.The Automotive Division comprises the Passenger Cars and Light Commercial Vehicles segment,the Commercial Vehicles segment and the Power Engineering segment,as well as the figures from the recon-ciliation.The reconciliation,which contains the elimination of intragroup transactions between the two divisions,is allocated to the Automotive Division.In the Automotive Division,we combine the Passenger Cars and Light Commercial Vehicles segment with the reconciliation to form the Passenger Cars Business Area.The Commercial Vehicles and Power Engineering segments correspond to the business areas of the same name.The Financial Services Division and the Financial Services segment are also identical.RESTRUCTURING IN THE VOLKSWAGEN GROUP In the first half of 2024,the Volkswagen Group recognized restructuring costs of 1.0 billion in the other operating result.They are primarily attributable to Volkswagen AG.To enable the company to focus its efforts to meet the target of a long-term reduction in personnel costs in the administrative areas of Volkswagen AG,the Board of Management resolved in April 2024 to promote the downsizing with selective severance agreements.COOPERATION WITH RIVIAN On June 25,2024,Volkswagen and the US electric vehicle manufacturer Rivian Automotive,Inc.,Irvine/USA(Rivian)announced their intention to form a joint venture in which each party will hold an equal share.The partnership is aimed at creating next generation software-defined vehicle(SDV)architectures to be used in both companies future electric vehicles.The joint venture is expected to build on Rivians software and electrical architecture to create best-in-class software-defined vehicle technology platforms.A decision on the actual implementation of the joint venture has not yet been made and will depend on a number of technical,financial and regulatory parameters.On the basis of this planned strategic partnership,in June 2024,Volkswagen invested USD 1 billion in Rivian in the form of an unsecured convertible note,which will convert into ordinary shares of Rivian upon receipt of regulatory approvals,but not before December 1,2024.The conversion price for half of the outstanding amount under the note will be calculated on the basis of a defined daily volume-weighted average price(VWAP)prior to this announcement and the conversion price for the remaining half will be calculated on the basis of a defined Results of Operations,Financial Position and Net Assets 23 Results of Operations,Financial Position and Net AssetsInterim Group Management Report daily VWAP prior to the conversion date.Fluctuations in the value of the convertible note,which is classified as debt in the balance sheet,are recognized at fair value through profit or loss.Due to Rivians positive share price performance,the measurement of the convertible note gave rise to a non-cash gain of 73 million as of June 30,2024,which is presented in the other financial result.If the joint venture is implemented successfully and certain milestones are reached,Volkswagen intends to make further investments of up to USD 4 billion.If applicable,USD 2 billion of this is to be invested in ordinary shares of Rivian,and is expected to take the form of two tranches of USD 1 billion each in 2025 and 2026.The pricing will be based on a defined average market price of the ordinary shares of Rivian prior to each respective purchase.If applicable,the remaining investments of USD 2 billion are to be allocated to the newly established joint venture and licenses,the amount being split between a payment when the joint venture is established,a license for Rivians electric architecture technology,and a loan to the joint venture in 2026.MGT GAS TURBINE BUSINESS OF MAN ENERGY SOLUTIONS In its ruling of July 3,2024,the German Federal Ministry for Economic Affairs and Climate Action prohibited the sale of the MGT gas turbine business to CSIC Longjiang GH Gas Turbine Co.Ltd.,Harbin/China.The Federal Cabinet approved the prohibition ruling.Following the prohibition,MAN Energy Solutions SE,Augsburg,discontinued the development,manufacture and sales of MGT gas turbines.It will continue its service activities for MGT gas turbines.The prohibition of the planned sale and the discontinuation of the new-build business with MGT gas turbines means that these activities are no longer presented in line with IFRS 5 and led to the recognition of an impairment loss on the capitalized development costs and inventories for MGT gas turbines as of June 30,2024.This resulted in an expense of 86 million,which is presented in cost of sales and the other operating result.There are three further types of gas turbines(THM,FT8 and S class)in addition to the MGT gas turbines.Business with these is not affected by this development.RESULTS OF OPERATIONS Results of operations of the Group The Volkswagen Group generated sales revenue of 158.8(156.3)billion in the first half of 2024.This positive trend was attributable to the Financial Services Division.The Volkswagen Group generated 80.1(81.7)%of its sales revenue outside Germany.Gross profit decreased by 1.6 billion to 29.3 billion.As a consequence,the gross margin declined to 18.5(19.8)%.The Volkswagen Groups operating result amounted to 10.1(11.3)billion in the first six months of 2024.The operating return on sales was 6.3(7.3)%.The lower result was due mainly to an unfavorable trend in unit sales,the mix and pricing,as well as to higher upfront expenditures for new products.The Passenger Cars Business Area recognized expenses of 1.0 billion for restructuring measures in the period from January to June 2024.The Power Engineering Business Area incurred expenses in connection with the planned closure of the MGT gas turbine business of MAN Energy Solutions.In the previous year,the fair value measurement of derivatives to which hedge accounting is not applied had reduced the operating result by 2.5 billion.In the reporting period,a rise in interest expenses and foreign exchange losses in connection with the deconsolidation of Volkswagen Bank Rus had an additional adverse impact on the Financial Services Divisions operating result.The financial result was down on the previous year,at 0.1(0.6)billion.The share of the result of equity-accounted investments was lower than in the prior-year period,also due to the decline in the result of the Chinese joint ventures.A rise in interest expenses led to a negative interest result in the first half of 2024.In the other financial result,the positive performance of net income from securities and funds offset adverse exchange rate effects.The prior-year period had additionally been impacted by non-cash expenses from adjustments to the 24 Results of Operations,Financial Position and Net AssetsInterim Group Management Report carrying amounts of investees due to changes in share prices and to impairment tests.The Volkswagen Groups earnings before tax decreased by 1.7 billion to 10.2 billion in the first six months of 2024.At 7.3 billion,earnings after tax declined by 1.2 billion on the previous year.Results of operations in the Automotive Division In the period from January to June 2024,the Automotive Divisions sales revenue of 129.4(130.6)billion was on a level with the prior-year figure.Sales revenue in the Passenger Cars and Commercial Vehicles business areas was similar to that of the previous year,while it increased noticeably in the Power Engineering Business Area.As our Chinese joint ventures are accounted for using the equity method,the Groups business performance in the Chinese passenger car market is essentially reflected in the Groups sales revenue only through deliveries of vehi-cles and vehicle parts.Cost of sales was virtually unchanged from the prior-year period.There was a rise in the research and devel-opment costs recognized in profit or loss included in this item,while the cost of materials was down,driven by lower volumes.The research and development ratio(R&D ratio),which is defined as total research and develop-ment costs as a share of the Automotive Divisions sales revenue,was at 8.8(7.8)%in the first half of 2024,an increase on the same period a year earlier.The automotive investment ratio,which combines the R&D and capex ratios,amounted to 13.4(12.1)%in the reporting period.In the first six months of 2024,there was a noticeable year-on-year increase in distribution expenses driven,among other factors,by higher marketing costs as well as in administrative expenses;their respective share of sales revenue also went up.The other operating result stood at 1.7(3.2)billion.The Passenger Cars Business Area recognized expenses of 1.0 billion for restructuring measures in the period from January to June 2024.Moreover,exchange rates had a negative effect in the reporting period.In the previous year,the fair value measurement of derivatives to which hedge accounting is not applied had had an adverse impact of 2.5 billion.In the period from January to June 2024,the Automotive Divisions operating result amounted to 8.6 billion,down 0.5 billion on the previous year.An unfavorable trend in unit sales,the mix and pricing,higher upfront expenditures for new products,and expenses for restructuring measures had a negative impact.Expenses were incurred in the Power Engineering Business Area in connection with the planned closure of the MGT gas turbine business of MAN Energy Solutions.In the previous year,the fair value measurement of derivatives to which hedge accounting is not applied had reduced the operating result by 2.5 billion.The operating return on sales decreased 01,5003,0004,5006,0007,5009,000Q1Q2Q3Q4OPERATING RETURN BY QUARTERVolkswagen Group in million20242023 25 Results of Operations,Financial Position and Net AssetsInterim Group Management Report RESULTS OF OPERATIONS IN THE PASSENGER CARS,COMMERCIAL VEHICLES AND POWER ENGINEERING BUSINESS AREAS FROM JANUARY 1 TO JUNE 30 million 2024 2023 Passenger Cars Sales revenue 104,629 106,362 Operating result 6,453 7,118 Operating return on sales(%)6.2 6.7 Commercial Vehicles Sales revenue 22,738 22,331 Operating result 2,059 1,796 Operating return on sales(%)9.1 8.0 Power Engineering Sales revenue 1,998 1,875 Operating result 123 206 Operating return on sales(%)6.2 11.0 to 6.7(7.0)%.Our operating result largely benefits from the business performance of our equity-accounted Chinese joint ventures only through deliveries of vehicles and vehicle parts and through license income,as these joint ventures are included in the financial result.Results of operations in the Financial Services Division In the first half of 2024,the Financial Services Divisions sales revenue went up to 29.4 billion,a year-on-year increase of 14.6%on the back of higher volumes.Compared with the previous year,cost of sales increased faster than sales revenue,driven in particular by a very strong rise in interest expenses and higher depreciation of the residual values of leased vehicles.As a result,gross profit went down by 0.4 billion to 3.8 billion.The Financial Services Divisions operating result of 1.4(2.2)billion was down on the first six months of 2023.The decline was mainly the result of higher interest expenses,as well as foreign exchange losses in connection with the deconsolidation of Volkswagen Bank Rus.The operating return on sales decreased to 4.8(8.7)%.FINANCIAL POSITION Financial position of the Group In the period from January to June 2024,the Volkswagen Groups gross cash flow decreased by 2.0 billion to 23.9 billion year-on-year,driven among other things by earnings-related factors.The negative non-cash measurement effects in connection with hedging transactions,which mainly affected prior-year earnings,are eliminated from the cash flow statement.The change in working capital amounted to 19.4(18.9)billion;in the reporting period,this was primarily attributable to an increase in lease assets,receivables and inventories,offset by a rise in other provisions and liabilities.Cash flows from operating activities went down by 2.6 billion to 4.5 billion in the first half of 2024.The Volkswagen Groups investing activities attributable to operating activities decreased by 0.4 billion to 11.5 billion in the reporting period.Higher investments in property,plant and equipment,investment property and intangible assets,excluding capitalized development costs(capex)were more than offset by lower expenses for mergers and acquisitions.26 Results of Operations,Financial Position and Net AssetsInterim Group Management Report The Volkswagen Groups financing activities generated a total cash inflow of 15.8(3.0)billion.Financing activi-ties mainly include the issuance and redemption of bonds,changes in other financial liabilities,the dividend of 4.5 billion paid to the shareholders of Volkswagen AG,and the redemption of the hybrid note of 1.25 billion called in May 2024.At the end of the reporting period,the Volkswagen Group reported cash and cash equivalents of 50.4 billion in its cash flow statement,compared to 43.5 billion at the end of December 2023.On June 30,2024,the Volkswagen Groups net liquidity stood at 163.6 billion;it had amounted to 147.4 bil-lion at the end of 2023.Financial position of the Automotive Division In the first half of 2024,the Automotive Division recorded a gross cash flow of 16.8 billion,down 3.0 billion on the prior-year figure for reasons including lower earnings.The non-cash measurement effects in connection with hedging transactions,which mainly affected prior-year earnings,are eliminated from the cash flow statement.The change in working capital amounted to 5.9(6.1)billion.The main reasons for the change in the reporting period were the growth in inventories and receivables,offset by an increase in other provisions and liabilities.Cash flows from operating activities went down by 2.8 billion to 10.9 billion in the reporting period.In the period from January to June 2024,investing activities attributable to operating activities decreased to 11.1(11.3)billion.Within this figure,investments in property,plant and equipment,investment property and intangible assets,excluding capitalized development costs(capex)increased by 0.3 billion to 5.9 billion.The capex ratio was 4.6(4.3)%.A considerable portion of capex was allocated primarily to our production facilities and to models launched or to be launched this year and next,the electrification and digitalization of our products,technologies of the future,and enhancements of our modular and all-electric toolkits and platforms.Additions to capitalized development costs were on a level with the previous year,at 5.2(5.2)billion.The“Acquisition and disposal of equity investments”item amounted to 0.3(0.6)billion;it primarily included strategic investments in a variety of companies.The Automotive Divisions net cash flow declined by 2.6 billion to 0.1 billion.Investing activities in the Automotive Division also include the convertible note granted to Rivian.The Automotive Divisions financing activities led to a cash outflow of 1.9(12.8)billion in the reporting period.They related mainly to the issuance and redemption of bonds and changes in other financial liabilities,the dividend paid to the shareholders of Volkswagen AG,and the redemption of the hybrid note called in May 2024.The prior-year period had also included the payment of a special dividend to the shareholders of Volkswagen AG in connec-tion with the IPO of Dr.Ing.h.c.F.Porsche AG(Porsche AG).At the end of the first half of 2024,the Automotive Division reported sound net liquidity of 31.3 billion,compared with 40.3 billion at the end of December 2023.Financial position of the Financial Services Division In the first six months of 2024,the Financial Services Division recorded gross cash flow of 7.1(6.2)billion.The change in working capital amounted to 13.6(12.8)billion.Funds tied up in working capital increased in the reporting period,driven particularly by higher lease assets and receivables.As a result,cash flows from operating activities amounted to 6.4(6.7)billion.Investing activities attributable to operating activities declined to 0.5(0.6)billion.27 Results of Operations,Financial Position and Net AssetsInterim Group Management Report FINANCIAL POSITION IN THE PASSENGER CARS,COMMERCIAL VEHICLES AND POWER ENGINEERING BUSINESS AREAS FROM JANUARY 1 TO JUNE 30 million 2024 2023 Passenger Cars Gross cash flow 13,913 16,844 Change in working capital 4,053 4,635 Cash flows from operating activities 9,860 12,209 Cash flows from investing activities attributable to operating activities 9,975 10,749 Net cash flow 115 1,460 Commercial Vehicles Gross cash flow 2,647 2,664 Change in working capital 1,659 1,171 Cash flows from operating activities 988 1,492 Cash flows from investing activities attributable to operating activities 1,006 473 Net cash flow 18 1,019 Power Engineering Gross cash flow 249 290 Change in working capital 172 254 Cash flows from operating activities 77 35 Cash flows from investing activities attributable to operating activities 73 45 Net cash flow 4 10 The Financial Services Divisions financing activities generated a cash inflow of 17.7(15.8)billion in the first half of 2024.This figure relates primarily to the issuance and redemption of bonds and to other financial liabilities.At the end of June 2024,the Financial Services Divisions negative net liquidity,which is common in the indus-try,was 194.9 billion as against 187.7 billion on December 31,2023.NET ASSETS Consolidated balance sheet structure At the end of the first half of 2024,the Volkswagen Group had total assets of 630.4 billion,5.0%more than at the end of 2023.Equity stood at 192.3 billion,2.4 billion higher than at the end of 2023,primarily for earnings-related reasons.The equity ratio was 30.5(31.6)%.Automotive Division balance sheet structure The Automotive Divisions intangible assets were up slightly compared to the end of 2023,mainly because of additions to capitalized development costs,which exceeded amortization and impairment losses.Property,plant and equipment was almost unchanged from December 31,2023.Equity-accounted investments decreased,due primarily to the Chinese joint ventures dividend resolutions.Total non-current assets stood at 188.7(186.0)bil-lion,similar to the figure recorded at the end of the previous year.Current assets amounted to 128.2(120.2)billion on June 30,2024,an increase compared to the end of 2023.Inventories expanded noticeably.Current other receivables and financial assets rose,due among other factors to outstanding dividend payments from the Chinese joint ventures and a rise in trade receivables.Cash and cash equivalents were down by 6.9 billion to 21.8 billion.28 Results of Operations,Financial Position and Net AssetsInterim Group Management Report At the end of the reporting period,the Automotive Division reported equity of 147.1(146.3)billion,this was on a level with the figure recorded at the end of the previous year.Earnings performance,lower actuarial losses from the remeasurement of pension plans because of the change in the discount rate,and beneficial effects arising from currency translation were set against the dividend paid to the shareholders of Volkswagen AG and the redemption of the hybrid note called in May 2024.Non-controlling interests,which increased slightly,were mostly attributable to the non-controlling interest shareholders of the Porsche AG Group and of the TRATON Group.The equity ratio was 46.4(47.8)%.Non-current liabilities amounted to 89.9(86.9)billion at the end of the reporting period,up slightly from December 31,2023.Non-current financial liabilities grew strongly,while pension provisions decreased noticeably,driven primarily by actuarial remeasurement following a change in the discount rate.Current liabilities rose noticeably from the end of 2023 to 80.0(73.1)billion at the end of the first six months of 2024.Current financial liabilities declined to 6.6(8.6)billion.The figures for the Automotive Division also contain the elimination of intragroup transactions between the Automotive and Financial Services divisions.As the current financial liabilities for the primary Automotive Division were lower than the loans granted to the Finan-cial Services Division,a negative amount was disclosed in both periods.Trade payables went up,and current other liabilities also expanded.Current other provisions were higher,driven among other factors by the planned restruc-turing measures in the Passenger Cars Business Area.At the end of the reporting period,the Automotive Division had total assets of 316.9 billion,3.5%more than at the end of 2023.BALANCE SHEET STRUCTURE OF THE PASSENGER CARS,COMMERCIAL VEHICLES AND POWER ENGINEERING BUSINESS AREAS million Jun.30,2024 Dec.31,2023 Passenger Cars Non-current assets 147,281 149,881 Current assets 102,800 100,013 Total assets 250,081 249,894 Equity 128,201 127,684 Non-current liabilities 65,896 69,259 Current liabilities 55,984 52,952 Commercial Vehicles Non-current assets 39,799 34,530 Current assets 21,623 16,237 Total assets 61,422 50,767 Equity 16,251 15,918 Non-current liabilities 23,499 17,077 Current liabilities 21,672 17,772 Power Engineering Non-current assets 1,635 1,631 Current assets 3,811 3,955 Total assets 5,446 5,585 Equity 2,612 2,703 Non-current liabilities 464 532 Current liabilities 2,370 2,350 29 Results of Operations,Financial Position and Net AssetsInterim Group Management Report Financial Services Division balance sheet structure On June 30,2024,the Financial Services Divisions total assets amounted to 313.4 billion,6.6%more than at the end of 2023.At 181.2(174.7)billion,total non-current assets were up compared to the end of fiscal year 2023.The prop-erty,plant and equipment included in this item was unchanged.Lease assets and non-current financial services receivables increased,driven mainly by higher volumes.Current assets climbed by 10.8%to 132.3 billion.The Financial Services Divisions cash and cash equivalents included in this item nearly doubled to 28.6(14.8)billion.At the end of the first half of 2024,the Financial Services Division accounted for around 49.7(49.0)%of the Volkswagen Groups assets.Equity in the Financial Services Division stood at 45.3 billion at the end of June 2024,3.8%more than at the end of the previous year.The equity ratio was 14.4(14.8)%.At 119.3(117.7)billion,the Financial Services Divisions non-current liabilities were at approximately the same level as that recorded at the end of 2023.Current liabilities went up,due primarily to a significant rise in current financial liabilities,which in turn was driven particularly by higher deposits.Deposits from the direct banking business amounted to 54.0 billion on June 30,2024,compared with 38.8 bil-lion at the end of 2023.REPORT ON EXPECTED DEVELOPMENTS,RISKS AND OPPORTUNITIES In view of the trend in demand for the Audi Q8 e-tron model family in certain markets,an information and consultation process planned under Belgian law has been launched at the Brussels location.In this process,the Board of Management of Audi Brussels S.A./N.V.develops solutions for the location together with the competent social partners.One of the outcomes at the end of this process may also be the discontinuation of operations.Mainly as a result of unplanned expenses in connection with the possible restructuring at Audis Brussels location,we have revised our forecast for the Groups and the Passenger Cars Divisions operating result.We now anticipate an operating return on sales in each case of between 6.5%and 7.0%.For the Power Engineering Business Area,we have raised the sales revenue expectations.The transaction announced as part of the strategic partnership with Rivian could lead to an unplanned cash outflow of up to 2.0 billion in the current fiscal year.Consequently,we now estimate that the net cash flow for the Automotive Division will be in the range of 2.5 billion to 4.5 billion,with net liquidity of between 37 billion and 39 billion.The forecast for all other core performance indicators remains unchanged.The outlook for fiscal year 2024 can be found on page 32.Litigation Diesel issue 1.Product-related lawsuits worldwide(excluding the USA/Canada)In the second consumer protection class action in Brazil,which pertains to roughly 67 thousand Amarok vehicles,the Superior Court of Justice rejected in April 2024 the appeal filed by the plaintiff against the June 2023 appellate court decision.The plaintiff has filed an interlocutory appeal against this decision with the Superior Court of Justice at the end of April.In Italy,the parties to the class action brought by the consumer organization Altroconsumo signed a settlement agreement in May 2024 completely resolving all claims for roughly 60 thousand customers validly registered in the class action who had purchased VW,Audi,koda,or SEAT vehicles from 2009 to 2015 with type EA 189 engines that were affected by the diesel issue.Both sides refrain from appealing the last years judgment at the first appellate level by the Venice appeals court,thus terminating the proceedings.Provisions totaling to roughly 50 million were made for the settlement and its implementation.30 Results of Operations,Financial Position and Net AssetsInterim Group Management Report 2.Proceedings in the USA/Canada In March 2024,Volkswagen Group of America Finance,LLC(VWGoAF)submitted to the United States Securities and Exchange Commission(SEC)an executed consent to enter into a final judgment,without admitting or denying the allegations of the SECs amended complaint filed in September 2020,which requires,among other things,payment in the amount of about USD 49 million.Subsequently,the SEC and VWGoAF filed a motion for entry of final judgment as to VWGoAF requesting the U.S.District Court for the Northern District of California to enter final judgment that would fully resolve the SECs claims against VWGoAF.In April 2024,the court granted the motion and entered final judgment as to VWGoAF,and issued an order dismissing with prejudice all claims against Volkswagen AG and a former Chair of the Board of Management of Volkswagen AG.Accordingly,the SECs claims against all defendants in this lawsuit have been fully resolved.3.Lawsuits filed by investors worldwide(excluding the USA/Canada)Excluding the United States and Canada,the amount of the claims being asserted worldwide against Volks-wagen AG in connection with the diesel issue in the form of investor lawsuits,judicial applications for dunning and conciliation procedures,and claims registered under the Kapitalanleger-Musterverfahrensgesetz(KapMuG Ger-man Capital Investor Model Declaratory Judgment Act)declined to approximately 8.7 billion in the reporting period due to the dismissal of one lawsuit and the withdrawal of another.Since the beginning of the proceedings,investor lawsuits in excess of 1 billion have thus been withdrawn or finally and conclusively dismissed.Additional important legal cases In Brazil,the Brazilian dealership association Associao Brasileira Dos Distribuidores Volkswagen(Assobrav)has filed an appeal against the trial courts January 2024 judgment dismissing the lawsuit in its entirety.Assobrav and individual dealers had brought suit against Volkswagen do Brasil in December 2023 in connection with taxes refunded to Volkswagen do Brasil by the Brazilian government because of what was deemed to constitute an unconstitutional double taxation of vehicles.The plaintiffs are demanding that Volkswagen do Brasil share at least part of the refund with them.In July 2021,the European Commission assessed a fine totaling roughly 502 million against Volkswagen AG,AUDI AG,and Porsche AG pursuant to a settlement decision.Volkswagen declined to file an appeal,hence the decision became final in 2021.The subject matter scope of the decision was limited to the cooperation of German automobile manufacturers on individual technical questions in connection with the development and introduction of SCR(selective catalytic reduction)systems for passenger cars that were sold in the European Economic Area.The manufacturers were not charged with any other misconduct such as price fixing or allocating markets and customers.Within the Volkswagen Group it has been noted from public sources that the Brazilian competition authority Conselho Administrativo de Defesa Econmica(CADE)has opened proceedings against,among others,Volkswagen AG,AUDI AG and Porsche AG on allegations of improper exchange of information,possibly on the basis of the EU case.The Group has not yet received any deliveries or further information.The Korean competition authority KFTC has searched the premises of VW Group Korea within the reporting period.This happened in connection with investigations commenced in 2022 by the European Commission and the Competition and Markets Authority(CMA),the English antitrust authorities,on suspicion that European,Japanese,and Korean manufacturers,as well as national organizations operating in such countries,and the European Automobile Manufacturers Association(ACEA)may have agreed from 2001/2002 until the commencement of the investigations,particularly in the ACEA Working Group Recycling and related sub-groups thereof,to avoid paying for the services of recycling companies that dispose of end-of-life vehicles(specifically passenger cars and light 31 Results of Operations,Financial Position and Net AssetsInterim Group Management Report commercial vehicles).In June 2024,the Chinese competition authorities also served Volkswagen AG with a request for information in this matter.In the lawsuit that Greenpeace is supporting in Braunschweig,the Braunschweig Higher Regional Court rejected the plaintiffs appeal in June 2024 and upheld the Braunschweig Regional Courts February 2023 dis-missal of the complaint.The plaintiffs in the action had sought,among other things,to compel Volkswagen AG to initially reduce in stages,and by 2029 completely cease,its production and placement into the stream of com-merce of vehicles with internal combustion engines,as well as to reduce greenhouse gas emissions from develop-ment,production,and marketing(including third party vehicle use).The lawsuit further sought to compel Volks-wagen to exercise influence over Group companies,subsidiaries,and joint ventures so as to cause them to fulfill these demands as well.In Russia,in the remaining lawsuit concerning ostensible claims totaling approximately RUB 28.5 billion,the trial court rendered a judgment in July 2024 ordering Volkswagen AG to pay damages of approximately RUB 16.9 bil-lion.The judgment is not yet final;Volkswagen AG will file an appeal and continue to defend itself in this action.In line with IAS 37.92,no further statements have been made concerning estimates of financial impact or regarding uncertainty as to the amount or maturity of provisions and contingent liabilities in relation to additional important legal cases.This is so as to not compromise the results of the proceedings or the interests of the Company.Beyond these events,there were no significant changes in the reporting period compared with the disclosure on the Volkswagen Groups expected development in fiscal year 2024 contained in the combined management report of the 2023 Annual Report in the sections“Report on Expected Developments”and“Report on Risks and Oppor-tunities”,including in section“Legal Risks”.32 Outlook for 2024Interim Group Management Report Our planning is based on the assumption that global economic output will grow overall in 2024 at a similar pace as in 2023.The persistently high,albeit declining,inflation in major economic regions and the resulting restrictive monetary policy measures taken by central banks are expected to dampen consumer demand.However,we antici-pate a gradual reduction in the key interest rates by Western central banks during the current year,which should have a bolstering effect on overall demand.We continue to believe that risks will arise from protectionist tenden-cies,turbulence in the financial markets and structural deficits in individual countries.In addition,continuing geopolitical tensions and conflicts are weighing on growth prospects;risks are associated in particular with the Russia-Ukraine conflict and the confrontations in the Middle East.We assume that the advanced economies,on average,will show positive momentum on a level with the previous year,while economic growth in the emerging markets will slow slightly.The trend in the automotive industry closely follows global economic developments.We assume that compe-tition in the international automotive markets will intensify further.Crisis-related disruption to the global supply chain and the resulting impact on vehicle availability may weigh on the volume of new registrations.Uncertainty may also arise from shortages of intermediates and commodities.These may be further exacerbated by the con-sequences of the Russia-Ukraine conflict and the confrontations in the Middle East and may,in particular,lead to rising prices for materials and a declining availability of energy.We predict that trends in the markets for passenger cars in the individual regions will be mixed but predomi-nantly positive in 2024.Overall,the global volume of new car sales is expected to be slightly higher than in the previous year.For 2024,we anticipate that the volume of new passenger car registrations in Western Europe will be slightly higher than that recorded in 2023.In the German passenger car market,we expect the volume of new registrations in 2024 to also be slightly up on the prior-year level.Sales of passenger cars in 2024 are expected to significantly exceed the prior-year figures overall in markets in Central and Eastern Europe subject to the further development of the Russia-Ukraine conflict.The volume of sales in the markets for passenger cars and light commercial vehicles(up to 6.35 tonnes)in North America in 2024 is forecast to be slightly higher than the level seen the previous year.We also anticipate a slight increase in new registrations in the South American markets in 2024 compared with the previous year.The passenger car markets in the Asia-Pacific region are expected to be on a level with the prior-year figure in 2024.Trends in the markets for light commercial vehicles in the individual regions will be mixed;on the whole,we expect the sales volume for 2024 to be slightly above the previous years figure.Outlook for 2024 33 Outlook for 2024Interim Group Management Report For 2024,we expect to see a slight downward trend in new registrations for mid-sized and heavy trucks with a gross weight of more than six tonnes compared with the previous year in the markets that are relevant for the Volkswagen Group,with variations from region to region.A noticeable year-on-year increase in demand is antici-pated for 2024 in the bus markets relevant for the Volkswagen Group,whereby this will vary depending on the region.We assume that automotive financial services will prove highly important to global vehicle sales in 2024.In a challenging market environment,we anticipate that deliveries to customers by the Volkswagen Group in 2024 will increase by up to 3%compared to the previous year.Challenges will arise in particular from the economic situation,the increasing intensity of competition,volatile commodity,energy and foreign exchange markets,and more stringent emissions-related requirements.We expect the sales revenue of the Volkswagen Group and the Passenger Cars Business Area to exceed the previous years figure by up to 5%in 2024.The operating return on sales for the Volkswagen Group and the Passen-ger Cars Business Area is likely to be between 6.5%and 7%.For the Commercial Vehicles Business Area,we antici-pate an operating return on sales of 8.5%to 9.5%,also amid a year-on-year increase of up to 5%in sales revenue.In the Power Engineering Business Area,we expect sales revenue to be up to 6ove the prior-year figure and operating profit to be in the low three-digit-million euro range.For the Financial Services Division,we forecast an increase of 37%in sales revenue compared with the prior year and an operating result in
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Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549Form 10-QQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31,2024orTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _ to _Commission File Number:1-11373Cardinal Health,Inc.(Exact name of registrant as specified in its charter)Ohio31-0958666(State or other jurisdiction ofincorporation or organization)(IRS EmployerIdentification No.)7000 Cardinal Place,Dublin,Ohio43017(Address of principal executive offices)(Zip Code)(614)757-5000(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 shares(without par value)CAHNew 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 of1934 during the preceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject tosuch filing requirements for the past 90 days.Yes No oIndicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule405 of Regulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required tosubmit such files).Yes No oIndicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reportingcompany,or an emerging growth company.See the definitions of“large accelerated filer,”“accelerated filer,”“smaller reporting company”andemerging 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 withany new 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 The number of the registrants common shares,without par value,outstanding as of April 26,2024,was the following:243,566,952.Cardinal HealthQ3 Fiscal 2024 Form 10-QTable of ContentsPageManagements Discussion and Analysis of Financial Condition and Results of Operations2Explanation and Reconciliation of Non-GAAP Financial Measures16Quantitative and Qualitative Disclosures about Market Risk19Controls and Procedures19Legal Proceedings20Risk Factors20Unregistered Sales of Equity Securities and Use of Proceeds20Financial Statements21Exhibits42Form 10-Q Cross Reference Index43Signatures44About Cardinal HealthCardinal Health,Inc.,an Ohio corporation formed in 1979,is a global healthcare services and products company providing customized solutionsfor hospitals,healthcare systems,pharmacies,ambulatory surgery centers,clinical laboratories,physician offices and patients in the home.Weprovide pharmaceuticals and medical products and cost-effective solutions that enhance supply chain efficiency.We connect patients,providers,payers,pharmacists and manufacturers for integrated care coordination.Effective January 1,2024,we began operating under an updatedorganizational structure and re-aligned our financial reporting structure under two reportable segments:Pharmaceutical and Specialty Solutions(PSS)segment and Global Medical Products and Distribution(GMPD)segment.All remaining operating segments that are not significantenough to require separate reportable segment disclosures are included in Other,which is comprised of Nuclear and Precision Health Solutions,at-Home Solutions and OptiFreight Logistics.As used in this report,“we,”“our,”“us,”and similar pronouns refer to Cardinal Health,Inc.and itsmajority-owned and consolidated subsidiaries,unless the context requires otherwise.Our fiscal year ends on June 30.References to fiscal 2024and fiscal 2023 and to FY24 and FY23 are to the fiscal years ending or ended June 30,2024 and June 30,2023,respectively.Forward-Looking StatementsThis Quarterly Report on Form 10-Q for the quarter ended March 31,2024(this Form 10-Q)(including information incorporated by reference)includes forward-looking statements addressing expectations,prospects,estimates and other matters that are dependent upon future events ordevelopments.Many forward-looking statements appear in Managements Discussion and Analysis of Financial Condition and Results ofOperations(MD&A),but there are others in this Form 10-Q,which may be identified by words such as“expect,”“anticipate,”“intend,”“plan,”“believe,”“will,”“should,”“could,”“would,”“project,”“continue,”“likely,”and similar expressions,and include statements reflecting future resultsor guidance,statements of outlook and expense accruals.These matters are subject to risks and uncertainties that could cause actual results todiffer materially from those made,projected or implied.The most significant of these risks and uncertainties are described in this Form 10-Q,including Exhibit 99.1,and in Risk Factors in our Annual Report on Form 10-K for the fiscal year ended June 30,2023(our“2023 Form 10-K”),our Forms 10-Q for the quarters ending September 30,2023 and December 31,2023,and other SEC filings made since June 30,2023.Forward-looking statements in this Form 10-Q speak only as of the date of this document.Except to the extent required by applicable law,weundertake no obligation to update or revise any forward-looking statement.Non-GAAP Financial MeasuresIn the Overview of Consolidated Results section of MD&A,we use financial measures that are derived from our consolidated financial data butare not presented in our condensed consolidated financial statements prepared in accordance with U.S.generally accepted accountingprinciples(GAAP).These measures are considered non-GAAP financial measures under the United States Securities and ExchangeCommission(SEC)rules.The reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparableGAAP financial measures are included in the“Explanation and Reconciliation of Non-GAAP Financial Measures”section following MD&A in thisForm 10-Q.1Cardinal Health|Q3 Fiscal 2024 Form 10-QMD&AOverviewManagements Discussion and Analysis of Financial Condition andResults of OperationsThe discussion and analysis presented below is concerned with material changes in financial condition and results of operations,includingamounts and certainty of cash flows from operations and from outside sources,between the periods specified in our condensed consolidatedbalance sheets at March 31,2024 and June 30,2023,and in our condensed consolidated statements of earnings for the three and nine monthsended March 31,2024 and 2023.All comparisons presented are with respect to the prior-year period,unless stated otherwise.Our previouslyreported segment results have been recast to conform to our new reporting structure and reflect changes in the elimination of inter-segmentrevenue and allocated corporate technology and shared function expenses,which are driven by the reporting structure change.The discussionand analysis in this Form 10-Q should be read in conjunction with the MD&A included in our 2023 Form 10-K.2Cardinal Health|Q3 Fiscal 2024 Form 10-QMD&AOverviewOverview of Consolidated ResultsRevenueDuring the three and nine months ended March 31,2024,revenue increased 9 percent and 10 percent to$54.9 billion and$167.1 billion,respectively,primarily due to branded and specialty pharmaceutical sales growth from existing customers.GAAP and Non-GAAP Operating EarningsThree Months Ended March 31,Nine Months Ended March 31,(in millions)20242023Change20242023ChangeGAAP operating earnings$367$572(36)%$835$590 42%State opioid assessment related to prior fiscal years (6)Shareholder cooperation agreement costs1 1 8 Restructuring and employee severance53 16 106 62 Amortization and other acquisition-related costs80 74 207 216 Impairments and(gain)/loss on disposal of assets,net84 20 622 883 Litigation(recoveries)/charges,net81(76)29(256)Non-GAAP operating earnings$666$606 10%$1,799$1,497 20%The sum of the components and certain computations may reflect rounding adjustments.We had GAAP operating earnings of$367 million and$572 million during the three months ended March 31,2024 and 2023,respectively,and$835 million and$590 million during the nine months ended March 31,2024 and 2023,respectively.GAAP operating earnings during the threeand nine months ended March 31,2024 were favorably impacted by GMPD and Pharmaceutical and Specialty Solutions segment profit.GAAPoperating earnings also reflects the pre-tax non-cash goodwill impairment charges related to the GMPD segment of$90 million during the threemonths ended March 31,2024 and the$671 million and$863 million during the nine months ended March 31,2024 and 2023,respectively.SeeCritical Accounting Policies and Sensitive Accounting Estimates section of this MD&A and Note 5 of the Notes to Condensed ConsolidatedFinancial Statements for additional information.GAAP operating earnings during the three months ended March 31,2024 reflects$193 million of litigation charges recognized in connection withopioid-related matters,which were partially offset by a benefit of$105 million related to opioid-related prepayments.GAAP operating earningsduring the three and nine months ended March 31,2023 were favorably impacted by litigation recoveries and a reduction in litigation reserves.See Results of Operations section of this MD&A and Note 7 of the Notes to Condensed Consolidated Financial Statements for additionalinformation.Non-GAAP operating earnings during the three and nine months ended March 31,2024 increased 10 percent and 20 percent,respectively,dueto increases in GMPD and Pharmaceutical and Specialty Solutions segment profit.3Cardinal Health|Q3 Fiscal 2024 Form 10-QMD&AOverviewGAAP and Non-GAAP Diluted EPSThree Months Ended March 31,Nine Months Ended March 31,($per share)20242023Change20242023ChangeGAAP diluted EPS$1.05$1.34(22)%$2.49$1.23 N.M.State opioid assessment related to prior fiscal years 0.02 Shareholder cooperation agreement costs (0.02)Restructuring and employee severance0.16 0.05 0.32 0.18 Amortization and other acquisition-related costs0.24 0.21 0.62 0.61 Impairments and(gain)/loss on disposal of assets,net 0.44 0.35 2.14 2.82 Litigation(recoveries)/charges,net0.19(0.21)0.05(0.60)Non-GAAP diluted EPS$2.08$1.74 20%$5.62$4.24 33%The sum of the components and certain computations may reflect rounding adjustments.The reconciling items are presented within this table net of tax.See quantification of tax effect of each reconciling item in our GAAP to Non-GAAP Reconciliations in the Explanationand Reconciliation of Non-GAAP Financial Measures.(1)Diluted earnings per share attributable to Cardinal Health,Inc.(diluted EPS).(2)For the three and nine months ended March 31,2024,impairments and(gain)/loss on disposal of assets,net includes pre-tax goodwill impairment charges of$90 million and$671 million,respectively,related to the GMPD segment.For fiscal 2024,the estimated net tax benefit related to the impairments is$56 million and is included in the annualeffective tax rate.The incremental interim tax benefit recognized during the nine months ended March 31,2024 is$36 million and will reverse in the fourth quarter of the fiscalyear.For the nine months ended March 31,2023,impairments and(gain)/loss on disposal of assets,net included cumulative pre-tax goodwill impairment charges of$863 millionrelated to the former Medical segment.For fiscal 2023,the net tax benefit related to the impairment was$68 million and was included in the annual effective tax rate.Theincremental interim tax benefit recognized during the nine months ended March 31,2023 was$66 million and reversed in the fourth quarter of fiscal 2023.The changes in GAAP diluted EPS during the three and nine months ended March 31,2024 were primarily due to the factors impacting GAAPoperating earnings.GAAP diluted EPS was adversely impacted by goodwill impairment charges related to the GMPD segment,which had a$(0.29)per share after tax impact during the three months ended March 31,2024,and a$(2.35)and$(2.76)per share after tax impact duringthe nine months ended March 31,2024 and 2023,respectively.See Critical Accounting Policies and Sensitive Accounting Estimates section ofthis MD&A,and Note 5 and Note 8 of the Notes to Condensed Consolidated Financial Statements for additional details.During the three and nine months ended March 31,2024,non-GAAP diluted EPS increased 20 percent and 33 percent to$2.08 and$5.62 pershare,respectively,due to higher non-GAAP operating earnings and a lower share count.Cash and EquivalentsOur cash and equivalents balance was$3.7 billion at March 31,2024 compared to$4.0 billion at June 30,2023.During the nine months endedMarch 31,2024,net cash provided by operating activities was$1.7 billion,which includes the impact of our annual payment of$378 million andprepayments of$239 million primarily related to the agreement to settle the vast majority of the opioid lawsuits filed by states and localgovernmental entities(the National Opioid Settlement Agreement).During the three months ended March 31,2024,we issued additional long-term debt and received net proceeds of$1.14 billion,of which$589 million were classified as cash and equivalents in our condensedconsolidated balance sheets as of March 31,2024.The remaining proceeds were invested in short-term time deposits with initial effectivematurities of more than three months and classified as prepaid expenses and other.In addition,during the nine months ended March 31,2024,we deployed$1.2 billion for the Specialty Networks acquisition,$750 million for share repurchases,$377 million for cash dividends and$318million for capital expenditures.(1)(2)(1)4Cardinal Health|Q3 Fiscal 2024 Form 10-QMD&AOverviewSignificant Developments in Fiscal 2024 and TrendsOperating and Segment Reporting Structure ChangesEffective January 1,2024,we began operating under an updated organizational structure and re-aligned our financial reporting structure undertwo reportable segments:Pharmaceutical and Specialty Solutions segment and GMPD segment.All remaining operating segments that are notsignificant enough to require separate reportable segment disclosures are included in Other.The following indicates the changes from thesecond quarter of fiscal 2024 to the new reporting structure:Pharmaceutical and Specialty Solutions segment:This reportable segment is comprised of all businesses formerly within ourPharmaceutical segment except Nuclear and Precision Health Solutions.GMPD segment:This reportable segment is comprised of all businesses formerly within our Medical segment except at-Home Solutionsand OptiFreight Logistics.Other:This is comprised of the remaining operating segments,Nuclear and Precision Health Solutions,at-Home Solutions andOptiFreight Logistics.Our previously reported segment results have been recast to conform to our new reporting structure and reflect changes in the elimination ofinter-segment revenue and allocated corporate technology and shared function expenses,which are driven by the reporting structure change.Pharmaceutical and Specialty Solutions SegmentOptumRx ContractsOn April 22,2024,we announced that our pharmaceutical distribution contracts with OptumRx,which expire at the end of June 2024,will not berenewed.Sales to OptumRx generated 16%of our consolidated revenue in fiscal 2023.Total sales to OptumRx generate a meaningfully loweroperating margin than the overall Pharmaceutical and Specialty Solutions segment.We expect the nonrenewal of the OptumRx contracts toadversely impact our results of operations,including segment profit,financial condition and cash flows.In particular,we expect to generate lowerthan average operating cash flow in fiscal 2025 due to the unwinding of the negative net working capital associated with the contract.Specialty Networks AcquisitionOn March 18,2024,we completed the acquisition of Specialty Networks for a purchase price of$1.2 billion in cash,subject to certainadjustments.Specialty Networks creates clinical and economic value for independent specialty providers and partners across multiple specialtygroup purchasing organizations(GPOs):UroGPO,Gastrologix and GastroGPO,and United Rheumatology.Specialty Networks PPS Analyticsplatform analyzes data from electronic medical records,practice management,imaging,and dispensing systems and transforms it intomeaningful and actionable insights for providers and other stakeholders by using artificial intelligence and modern data analytics capabilities.The acquisition further expands our offerings in key therapeutic areas,accelerates our upstream data and research opportunities with biopharmamanufacturers,and creates a platform for our expansion across therapeutic areas.We expect the Specialty Networks acquisition to positivelyimpact Pharmaceutical and Specialty Solutions segment revenue and profit while increasing amortization and other acquisition-related costsduring the remainder of fiscal 2024 and fiscal 2025.COVID-19 Vaccine DistributionPharmaceutical and Specialty Solutions segment profit was favorably impacted during the nine months ended March 31,2024 and on a year-over-year basis in part due to the company beginning to distribute the commercially available COVID-19 vaccines following U.S.Food and DrugAdministration approval of updated vaccines in September 2023.The timing,magnitude and profit impact of vaccine distribution volume for theremainder of fiscal 2024 and beyond remains uncertain.Generics ProgramThe performance of our Pharmaceutical and Specialty Solutions segment generics program positively impacted the year-over-year comparisonof Pharmaceutical and Specialty Solutions segment profit during the three and nine months ended March 31,2024.The Pharmaceutical andSpecialty Solutions segment generics program includes,among other things,the impact of generic pharmaceutical product launches,customervolumes,pricing changes,the Red Oak Sourcing,LLC venture(Red Oak Sourcing)with CVS Health Corporation(CVS Health)and genericpharmaceutical contract manufacturing and sourcing costs.5Cardinal Health|Q3 Fiscal 2024 Form 10-QMD&AOverviewThe frequency,timing,magnitude and profit impact of generic pharmaceutical customer volumes,pricing changes,customer contract renewals,generic pharmaceutical manufacturer pricing changes and generic pharmaceutical contract manufacturing and sourcing costs all impactPharmaceutical and Specialty Solutions segment profit and are subject to risks and uncertainties.These risks and uncertainties may impactPharmaceutical and Specialty Solutions segment profit and consolidated operating earnings during the remainder of fiscal 2024.Global Medical Products and Distribution SegmentInflationary ImpactsBeginning in fiscal 2022,GMPD segment profit was negatively affected by incremental inflationary impacts,primarily related to transportation(including ocean and domestic freight),commodities and labor,and global supply chain constraints.Since that time,we have taken actions topartially mitigate these impacts,including implementing certain price increases and evolving our pricing and commercial contracting processes toprovide us with greater pricing flexibility.In addition,decreases in some product-related costs have been recognized as the higher-cost inventorymoved through our supply chain and was replaced by lower-cost inventory.These net inflationary impacts negatively affected the GMPDsegment profit during fiscal 2023.The net inflationary impacts were less significant during the three and nine months ended March 31,2024 andhad a favorable impact on GMPD segment profit on a year-over-year basis.We expect these net inflationary impacts to continue to affect GMPD segment profit during the remainder of fiscal 2024,but to a significantlylesser extent than in fiscal 2023 and prior periods due to our mitigation actions,together with continued decreases in certain product-relatedcosts.However,these inflationary costs are difficult to predict and may be greater than we expect or continue longer than our currentexpectations.Our actions to increase prices and evolve our contracting strategies are subject to contingencies and uncertainties and it ispossible that our results of operations will be adversely impacted to a greater extent than we currently anticipate or that we may not be able tomitigate the negative impact to the extent or on the timeline we anticipate.VolumesThe GMPD segment profit was adversely impacted during fiscal 2023 in part due to lower volumes,which includes our Cardinal Health brandedmedical products.We have experienced Cardinal Health branded medical products sales growth during fiscal 2024 and expect further growth forthe remainder of fiscal 2024 and beyond.The timing,magnitude and profit impact of this anticipated sales growth is subject to risks anduncertainties,which may impact GMPD segment profit.GoodwillThe change in segment structure as discussed above resulted in changes to the composition of our reporting units.Accordingly,we are requiredto reallocate the goodwill in reporting units affected by the change using a relative fair value approach and assess goodwill for impairment bothbefore and after the reallocation.During the three months ended March 31,2024,we allocated$90 million and$48 million of goodwill from the former Medical segment excludingour at-Home Solutions division(the Medical Unit)to the GMPD reporting unit and the OptiFreight Logistics reporting unit,respectively.Wealso assessed GMPDs goodwill for impairment and determined there was an impairment of GMPDs remaining goodwill balance of$90 million.See Critical Accounting Policies and Sensitive Accounting Estimates section of this MD&A and Note 5 of the Notes to CondensedConsolidated Financial Statements for additional detail.Shareholder Cooperation AgreementIn September 2022,we entered into a Cooperation Agreement(the Cooperation Agreement)with Elliott Associates,L.P.and ElliottInternational,L.P.(together,Elliott)under which our Board of Directors(the Board),among other things,(1)appointed four new independentdirectors,including a representative from Elliott,and(2)formed an advisory Business Review Committee of the Board,which is tasked withundertaking a comprehensive review of our strategy,portfolio,capital-allocation framework and operations.In May 2023,we extended the termof the Cooperation Agreement until the later of July 15,2024 or until Elliotts representative ceases to serve on,or resigns from,the Board.Inconnection with this extension,the Board has extended the term of the Business Review Committee until July 15,2024.The evaluation and implementation of any actions recommended by the Business Review Committee and the Board have impacted and maycontinue to impact our business,financial position and results of operations during the remainder of fiscal 2024 and beyond.We have incurred,and may incur additional legal,consulting and other expenses related to the Cooperation Agreement and the activities of the Business ReviewCommittee.6Cardinal Health|Q3 Fiscal 2024 Form 10-QMD&AResults of OperationsResults of OperationsRevenueThree Months Ended March 31,Nine Months Ended March 31,(in millions)20242023Change20242023ChangePharmaceutical and Specialty Solutions$50,651$46,496 9%$154,524$139,441 11%Global Medical Products and Distribution3,113 2,989 4%9,264 9,140 1%Other1,167 1,025 14%3,392 3,038 12%Total segment revenue54,931 50,510 97,180 151,619 10%Corporate(20)(23)N.M.(61)(60)N.M.Total revenue$54,911$50,487 9%$167,119$151,559 10%Pharmaceutical and Specialty SolutionsPharmaceutical and Specialty Solutions segment revenue increased$4.2 billion and$15.1 billion during the three and nine months endedMarch 31,2024,respectively,due to branded and specialty pharmaceutical sales growth from existing customers.Global Medical Products and DistributionGMPD segment revenue increased during the three and nine months ended March 31,2024,driven by higher volumes from existing customers.Additionally,during the nine months ended March 31,2024 GMPD segment revenue was adversely impacted by personal protective equipment(PPE)volumes and pricing,partially offset by price increases to mitigate inflationary impacts.OtherOther revenue increased during the three and nine months ended March 31,2024 due to growth across the three operating segments:at-HomeSolutions,Nuclear and Precision Health Solutions and OptiFreight Logistics.Cost of Products SoldCost of products sold for the three and nine months ended March 31,2024 increased 9 percent and 10 percent to$53.0 billion and$161.6billion,respectively,compared to the prior-year periods due to the factors affecting the changes in revenue and gross margin.7Cardinal Health|Q3 Fiscal 2024 Form 10-QMD&AResults of OperationsGross MarginThree Months Ended March 31,Nine Months Ended March 31,(in millions)20242023Change20242023ChangeGross margin$1,947$1,785 9%$5,561$5,062 10%Gross margin increased during the three and nine months ended March 31,2024 primarily due to the beneficial comparison of the prior-year netinflationary impacts in the GMPD segment and the performance of our generics program in the Pharmaceutical and Specialty Solutionssegment.Gross margin also increased during the nine months ended March 31,2024 due to increased contribution from brandedpharmaceutical and specialty pharmaceutical products in the Pharmaceutical and Specialty Solutions segment,which includes the favorableimpact of COVID-19 vaccine distribution.Gross margin rates were relatively flat during the three and nine months ended March 31,2024 with the impact of the overall product mix mostlyoffset by the beneficial comparison to the prior-year net inflationary impacts in the GMPD segment.The changes in overall product mix wereprimarily driven by increased pharmaceutical distribution branded sales,which have a dilutive impact on our overall gross margin rate.Distribution,Selling,General and Administrative(SG&A)ExpensesThree Months Ended March 31,Nine Months Ended March 31,(in millions)20242023Change20242023ChangeSG&A expenses$1,282$1,179 9%$3,762$3,567 5%During the three and nine months ended March 31,2024,SG&A expenses increased primarily due to investment projects,higher costs tosupport sales growth,and compensation-related costs.8Cardinal Health|Q3 Fiscal 2024 Form 10-QMD&AResults of OperationsSegment ProfitWe evaluate segment performance based on segment profit,among other measures.See Note 13 of the Notes to Condensed ConsolidatedFinancial Statements for additional information on segment profit.Three Months Ended March 31,Nine Months Ended March 31,(in millions)20242023Change20242023ChangePharmaceutical and Specialty Solutions$580$560 4%$1,541$1,394 11%Global Medical Products and Distribution20(46)N.M.18(175)N.M.Other111 106 519 305 5%Total segment profit711 620 15%1,878 1,524 23%Corporate(344)(48)N.M.(1,043)(934)N.M.Total consolidated operating earnings$367$572(36)%$835$590(31)%Pharmaceutical and Specialty SolutionsPharmaceutical and Specialty Solutions segment profit increased during the three and nine months ended March 31,2024 primarily due to theperformance of our generics program.During the nine months ended March 31,2024,Pharmaceutical and Specialty Solutions segment profitalso increased due to the increased contribution from branded pharmaceutical and specialty pharmaceutical products,which includes thefavorable impact of COVID-19 vaccine distribution,partially offset by higher costs to support sales growth.Global Medical Products and DistributionGlobal Medical Product and Distribution segment profit increased during the three and nine months ended March 31,2024 primarily due tobeneficial comparison to the prior-year inflationary impacts,net of the effects of mitigation actions.OtherOther segment profit increased during the three and nine months ended March 31,2024 primarily due to the performance of OptiFreightLogistics.CorporateThe changes in Corporate during the three and nine months ended March 31,2024 were due to the factors discussed in the Other Componentsof Consolidated Operating Earnings section that follows.9Cardinal Health|Q3 Fiscal 2024 Form 10-QMD&AResults of OperationsOther Components of Consolidated Operating EarningsIn addition to revenue,gross margin and SG&A expenses discussed previously,consolidated operating earnings were impacted by the following:Three Months Ended March 31,Nine Months Ended March 31,(in millions)2024202320242023Restructuring and employee severance$53$16$106$62 Amortization and other acquisition-related costs80 74 207 216 Impairments and(gain)/loss on disposal of assets,net84 20 622 883 Litigation(recoveries)/charges,net81(76)29(256)Restructuring and Employee SeveranceRestructuring and employee severance costs during the three and nine months ended March 31,2024 and 2023 include costs related to theimplementation of certain enterprise-wide cost-savings measures,which include certain initiatives to rationalize our manufacturing operations.The increase in restructuring costs during the three and nine months ended March 31,2024 was primarily due to these initiatives and certainprojects resulting from the review of our strategy portfolio,capital-allocation framework and operations.During the three and nine months endedMarch 31,2023,restructuring and employee severance costs also included costs related to the divestiture of the Cordis business.Amortization and Other Acquisition-Related CostsAmortization of acquisition-related intangible assets was$64 million and$69 million for the three months ended March 31,2024 and 2023,respectively,and$191 million and$211 million for the nine months ended March 31,2024 and 2023,respectively.Impairments and(Gain)/Loss on Disposal of Assets,NetWe recognized a$90 million pre-tax non-cash goodwill impairment charge related to the GMPD segment during the three months endedMarch 31,2024 and charges of$671 million and$863 million during the nine months ended March 31,2024 and 2023,respectively,asdiscussed further in the Critical Accounting Policies and Sensitive Accounting Estimates section of this MD&A and Note 5 of the Notes toCondensed Consolidated Financial Statements.Litigation(Recoveries)/Charges,NetDuring the three months ended March 31,2024,we recognized expense of$193 million in connection with opioid-related matters,which wasoffset by a benefit of$105 million related to prepayments at a prenegotiated discount of certain future payment amounts totaling$344 million.During the nine months ended March 31,2024,we also recognized a$22 million charge related to an agreement in principle with the AlabamaAttorney General.See Note 7 of the Notes to Condensed Consolidated Financial Statements for additional information.We recognized income for net recoveries in class action antitrust lawsuit in which we were a class member or plaintiff of$6 million and$77 million during the three and nine months ended March 31,2024,respectively,and$66 million during the nine months ended March 31,2023.During the three and nine months ended March 31,2023,we recognized income of$71 million and$95 million,respectively,primarily related toa reduction of the reserve for the estimated settlement and defense costs for the Cordis OptEase and TrapEase inferior vena cava(IVC)product liability due to the execution of certain settlement agreements.During the nine months ended March 31,2023,we recognized income of$93 million due to net proceeds from the settlement of a shareholderderivative litigation matter.Earnings Before Income TaxesIn addition to the items discussed above,earnings before income taxes were impacted by the following:Three Months Ended March 31,Nine Months Ended March 31,(in millions)20242023Change20242023ChangeOther(income)/expense,net$(7)$N.M.$(25)$(5)N.M.Interest expense,net33 28 18U 78(29)Cardinal Health|Q3 Fiscal 2024 Form 10-QMD&AResults of OperationsInterest Expense,NetDuring the nine months ended March 31,2024,interest expense decreased by 29 percent primarily due to increased interest income from cashand equivalents.Provision for Income TaxesThe effective tax rate was 24.2 percent and 36.3 percent during the three months ended March 31,2024 and 2023,respectively,and 23.2percent and 36.7 percent during the nine months ended March 31,2024 and 2023,respectively.These tax rates reflect the impact of the taxeffects of goodwill impairment charges as well as certain other discrete items.See Note 8 of the Notes to Condensed Consolidated FinancialStatements for additional information,during the three and nine months ended March 31,2024 and 2023.Tax Effects of Goodwill Impairment ChargesDuring the nine months ended March 31,2024,we recognized cumulative pre-tax goodwill impairment charges of$671 million related to theGMPD segment.The net tax benefit related to these charges is$56 million for fiscal 2024.Unless an item is considered discrete because it is unusual or infrequent,the tax impact of the item is included in our estimated annual effectivetax rate.When items are recognized through our estimated annual effective tax rate,we apply our estimated annual effective tax rate to theearnings before income taxes for the year-to-date period to compute our impact from income taxes for the current quarter and year-to-dateperiod.The tax impacts of discrete items are recognized in their entirety in the period in which they occur.The tax effect of the goodwill impairment charges recorded during the nine months ended March 31,2024 was included in our estimated annualeffective tax rate because it was not considered unusual or infrequent,given that we recorded goodwill impairments in prior fiscal years.Theimpact of the non-deductible goodwill increased the estimated annual effective tax rate for fiscal 2024.Applying the higher tax rate to the pre-taxincome for the nine months ended March 31,2024 resulted in recognizing an incremental interim tax benefit of approximately$36 million,whichimpacted the provision for income taxes in the condensed consolidated statements of earnings during the nine months ended March 31,2024and prepaid expenses and other assets in the condensed consolidated balance sheet at March 31,2024.The incremental interim tax benefit willreverse in the fourth quarter of fiscal 2024.11Cardinal Health|Q3 Fiscal 2024 Form 10-QMD&ALiquidity and Capital ResourcesLiquidity and Capital ResourcesWe currently believe that,based on available capital resources and projected operating cash flow,we have adequate capital resources to fundour operations and expected future cash needs as described below.If we decide to engage in one or more acquisitions we may need to accesscapital markets for additional financing,depending on the size and timing of such transactions.Cash and EquivalentsOur cash and equivalents balance was$3.7 billion at March 31,2024compared to$4.0 billion at June 30,2023.During the nine months ended March 31,2024,net cash provided byoperating activities was$1.7 billion,which includes the impact of ourannual payment of$378 million and prepayments of$239 millionprimarily related to the National Opioid Settlement Agreement.Duringthe three months ended March 31,2024,we issued additional long-term debt and received net proceeds of$1.14 billion,of which$589 million were classified as cash and equivalents in ourcondensed consolidated balance sheets as of March 31,2024.Theremaining proceeds were invested in short-term time deposits withinitial effective maturities of more than three months and classified asprepaid expenses and other.In addition,we deployed cash of$750million for share repurchases,$377 million for cash dividends and$318 million for capital expenditures.On March 18,2024,we completed the acquisition of SpecialtyNetworks for a purchase price of$1.2 billion in cash,subject tocertain adjustments.See Note 2 of the Notes to CondensedConsolidated Financial Statements for additional information.At March 31,2024,our cash and equivalents were held in cashdepository accounts with major banks or invested in high quality,short-term liquid investments.Changes in working capital,which impact operating cash flow,canvary significantly depending on factors such as the timing of customerpayments,inventory purchases,payments to vendors and taxpayments in the regular course of business,as well as fluctuatingworking capital needs driven by customer and product mix.The cash and equivalents balance at March 31,2024 includes$650million of cash held by subsidiaries outside of the United States.Other Financing Arrangements and Financial InstrumentsCredit Facilities and Commercial PaperIn addition to cash and equivalents and operating cash flow,othersources of liquidity at March 31,2024 include a$2.0 billioncommercial paper program,backed by a$2.0 billion revolving creditfacility.We also have a$1.0 billion committed receivables salesfacility.At March 31,2024,we had no amounts outstanding under ourcommercial paper program,revolving credit facility,or our committedreceivables sales facility.In February 2023,we extended our$2.0 billion revolving credit facilitythrough February 25,2028.In September 2022,we renewed ourcommitted receivables sales facility program through Cardinal HealthFunding,LLC(CHF)through September 30,2025.In September2023,Cardinal Health 23 Funding,LLC was added as a seller underour committed receivables sales facility.Our revolving credit and committed receivables sales facilities requireus to maintain a consolidated net leverage ratio of no more than 3.75-to-1.As of March 31,2024,we were in compliance with this financialcovenant.Long-Term Debt and Other Short-Term BorrowingsWe had total long-term obligations,including the current portion andother short-term borrowings,of$5.9 billion and$4.7 billion atMarch 31,2024 and June 30,2023,respectively.In February 2024,we issued additional debt with the aggregateprincipal amount of$1.15 billion to fund the repayment of all of theaggregate principal amount outstanding of our 3.5%Notes due 2024and 3.079%Notes due 2024,at their respective maturities,and forgeneral corporate purposes.The notes issued are$650 millionaggregate principal amount of 5.125%Notes that mature on February15,2029 and$500 million aggregate principal amount of 5.45%Notes that mature on February 15,2034.The proceeds of the notesissued,net of discounts,premiums,and debt issuance costs were$1.14 billion.A portion of the proceeds were invested in short-termtime deposits of$550 million with initial effective maturities of morethan three months and classified as prepaid expenses and other inour condensed consolidated balance sheets as of March 31,2024.The remaining proceeds of$589 million were invested in short-termtime deposits classified as cash and equivalents in our condensedconsolidated balance sheets as of March 31,2024.12Cardinal Health|Q3 Fiscal 2024 Form 10-QMD&ALiquidity and Capital ResourcesCapital DeploymentOpioid Litigation Settlement AgreementWe had$5.3 billion accrued at March 31,2024 related to certainopioid litigation,as further described within Note 7 of the Notes toCondensed Consolidated Financial Statements.We expect themajority of the remaining payment amounts to occur through 2038.During the nine months ended March 31,2024,we made our thirdannual payment of$378 million under the National Opioid SettlementAgreement.The amounts of future annual payments may differ fromthe payments that we have already made.In January 2024,we made additional payments of approximately$239 million to prepay at a prenegotiated discount of certain futurepayment amounts totaling approximately$344 million owed undereach of the National Opioid Settlement Agreement,West VirginiaSubdivisions Settlement Agreement and settlement agreements withNative American tribes and Cherokee Nation.The majority of theprepayment relates to the seventh annual payment due under theNational Opioid Settlement Agreement.As a result of theseprepayments,we recognized income of$105 million in litigationcharges/(recoveries),net in our condensed consolidated statementsof earnings during the nine months ended March 31,2024.Capital ExpendituresCapital expenditures during the nine months ended March 31,2024and 2023 were$318 million and$264 million,respectively.DividendsOn each of May 11,2023,August 9,2023,November 14,2023 andFebruary 6,2024,our Board of Directors approved a quarterlydividend of$0.5006 per share,or$2.00 per share on an annualizedbasis,which were paid on July 15,2023,October 15,2023,January15,2024 and April 15,2024 to shareholders of record on July 3,2023,October 3,2023,January 2,2024 and April 1,2024,respectively.Share RepurchasesDuring the nine months ended March 31,2024,we deployed$750 million of our common shares,in the aggregate,underaccelerated share repurchase(ASR)programs.We funded the ASRprograms with available cash.See Note 11 of the Notes toCondensed Consolidated Financial Statements for additionalinformation.As of March 31,2024,we have$3.5 billion remaining under ourexisting share repurchase authorization.Specialty Networks AcquisitionOn March 18,2024,we completed the acquisition of SpecialtyNetworks for a purchase price of$1.2 billion in cash,subject tocertain adjustments.See Note 2 of the Notes to CondensedConsolidated Financial Statements for additional information.13Cardinal Health|Q3 Fiscal 2024 Form 10-QMD&AOther ItemsOther ItemsThe MD&A in our 2023 Form 10-K addresses our contractual obligations and cash requirements,as of and for the fiscal year ended June 30,2023.Other than the acquisition of Specialty Networks and our debt issuance,there have been no subsequent material changes outside of theordinary course of business to those items.See Note 2 and Note 6 of the Notes to Condensed Consolidated Financial Statements foradditional information.Critical Accounting Policies and Sensitive Accounting EstimatesThe discussion and analysis presented below is a supplemental disclosure to the critical accounting policies and sensitive accounting estimatesspecified in our consolidated balance sheet at June 30,2023.This discussion and analysis should be read in conjunction with the CriticalAccounting Policies and Sensitive Accounting Estimates included in our 2023 Form 10-K and our Form 10-Q for the quarters ended September30,2023 and December 31,2023.Critical accounting policies are those accounting policies that(i)can have a significant impact on our financial condition and results of operationsand(ii)require the use of complex and subjective estimates based upon past experience and managements judgment.Other people applyingreasonable judgment to the same facts and circumstances could develop different estimates.Because estimates are inherently uncertain,actualresults may differ,including due to the risks discussed in Risk Factors and other risks discussed in our 2023 Form 10-K and our other filingswith the SEC since June 30,2023.GoodwillPurchased goodwill is tested for impairment annually or whenindicators of impairment exist.Goodwill impairment testing involves acomparison of the estimated fair value of reporting units to therespective carrying amount,which may be performed utilizing either aqualitative or quantitative assessment.Qualitative factors are firstassessed to determine if it is more likely than not that the fair value ofa reporting unit is less than its carrying amount.If it is determined thatit is more likely than not that the fair value does not exceed thecarrying amount,then a quantitative test is performed.Thequantitative goodwill impairment test involves a comparison of theestimated fair value of the reporting unit to the respective carryingamount.A reporting unit is defined as an operating segment or onelevel below an operating segment(also known as a component).Goodwill impairment testing involves judgment,including theidentification of reporting units,qualitative evaluation of events andcircumstances to determine if it is more likely than not that animpairment exists,and,if necessary,the estimation of the fair value ofthe applicable reporting unit.Our qualitative evaluation considers theweight of evidence and significance of all identified events andcircumstances and most relevant drivers of fair value,both positiveand negative,in determining whether it is more likely than not that thefair value of a reporting unit is less than its carrying amount.As discussed in the Overview section of this MD&A,effective January1,2024,we implemented a new enterprise operating and segmentreporting structure.The updated structure is comprised of tworeportable segments:Pharmaceutical and Specialty Solutionssegment and Global Medical Products and Distribution segment.Allremaining operating segments that are not significant enough torequire separate reportable segment disclosures are included inOther.This change in segment structure resulted in changes to thecomposition of our former Medical operating segment excluding at-Home Solutions reporting unit(Medical Unit).Effective January 1,2024,our reporting units are:Pharmaceutical and SpecialtySolutions,GMPD,Nuclear and Precision Health Solutions,at-HomeSolutions and OptiFreight Logistics.GMPD and OptiFreightLogistics comprised our former Medical Unit.Accordingly,we allocated$90 million and$48 million of goodwill fromthe former Medical Unit to GMPD and OptiFreight Logistics,respectively,based on the estimated relative fair values of thereporting units.We also assessed goodwill for impairment for thesereporting units before and after the reallocation and determined therewas no impairment for the Medical Unit and OptiFreight Logisticsduring the three months ended March 31,2024 as their fair valuessubstantially exceeded their carrying values.However,thequantitative test resulted in an impairment of GMPDs remaininggoodwill balance of$90 million.Our previously reported goodwill balances have been recast toconform to the new structure.Prior-period goodwill impairmentcharges related to the former Medical Unit were primarily driven bythe performance and long-term financial plan assumptions of GMPDand have been fully allocated to GMPD under the new structure.Global Medical Products and Distribution GoodwillOur determinations of the estimated fair value of GMPD was basedon a combination of the income-based approach(using a discountrate of 11 percent and a terminal growth rate of 2 percent)andmarket-based approaches at January 1,2024.Additionally,we 14Cardinal Health|Q3 Fiscal 2024 Form 10-QMD&AOther Itemsassigned a weighting of 80 percent to the discounted cash flowmethod,10 percent to the guideline public company method,and 10percent to the guideline transaction method.During the three months ended September 30,2023,we elected tobypass the qualitative assessment and perform quantitative goodwillimpairment testing for the former Medical Unit.The carrying amountexceeded the fair value,which resulted in a pre-tax impairmentcharge of$581 million for the three months ended September 30,2023.We did not identify any indicators of impairment during thethree months ended December 31,2023.During the three months ended December 31,2022 and September30,2022,we performed quantitative goodwill impairment testing forthe former Medical Unit and recorded impairment charges of$709 million and$154 million,respectively.We also performedinterim quantitative goodwill impairment testing at March 31,2023and concluded that there was no impairment as of March 31,2023 asthe estimated fair value of the former Medical Unit exceeded itscarrying value by approximately 4 percent.15Cardinal Health|Q3 Fiscal 2024 Form 10-QExplanation and Reconciliation of Non-GAAP Financial MeasuresExplanation and Reconciliation of Non-GAAP Financial MeasuresThe Overview of Consolidated Results section within MD&A in this Form 10-Q contains financial measures that are not calculated inaccordance with GAAP.In addition to analyzing our business based on financial information prepared in accordance with GAAP,we use these non-GAAP financialmeasures internally to evaluate our performance,engage in financial and operational planning,and determine incentive compensation becausewe believe that these measures provide additional perspective on and,in some circumstances are more closely correlated to,the performanceof our underlying,ongoing business.We provide these non-GAAP financial measures to investors as supplemental metrics to assist readers inassessing the effects of items and events on our financial and operating results on a year-over-year basis and in comparing our performance tothat of our competitors.However,the non-GAAP financial measures that we use may be calculated differently from,and therefore may not becomparable to,similarly titled measures used by other companies.The non-GAAP financial measures disclosed by us should not be considereda substitute for,or superior to,financial measures calculated in accordance with GAAP,and the financial results calculated in accordance withGAAP and reconciliations to those financial statements set forth below should be carefully evaluated.Exclusions from Non-GAAP Financial MeasuresManagement believes it is useful to exclude the following items from the non-GAAP measures presented in this report for its own and forinvestors assessment of the business for the reasons identified below:LIFO charges and credits are excluded because the factors that drive last-in first-out(LIFO)inventory charges or credits,such aspharmaceutical manufacturer price appreciation or deflation and year-end inventory levels(which can be meaningfully influenced bycustomer buying behavior immediately preceding our fiscal year-end),are largely out of our control and cannot be accurately predicted.The exclusion of LIFO charges and credits from non-GAAP metrics facilitates comparison of our current financial results to our historicalfinancial results and to our peer group companies financial results.We did not recognize any LIFO charges or credits during the periodspresented.State opioid assessments related to prior fiscal years is the portion of state assessments for prescription opioid medications that weresold or distributed in periods prior to the period in which the expense is incurred.This portion is excluded from non-GAAP financialmeasures because it is retrospectively applied to sales in prior fiscal years and inclusion would obscure analysis of the current fiscalyear results of our underlying,ongoing business.Additionally,while states laws may require us to make payments on an ongoing basis,the portion of the assessment related to sales in prior periods are contemplated to be one-time,nonrecurring items.Income from stateopioid assessments related to prior fiscal years represents reversals of accruals due to changes in estimates or when the underlyingassessments were invalidated by a Court or reimbursed by manufacturers.Shareholder cooperation agreement costs includes costs such as legal,consulting and other expenses incurred in relation to theagreement(the Cooperation Agreement)entered into among Elliott Associates,L.P.,Elliott International,L.P.(together,Elliott)andCardinal Health,including costs incurred to negotiate and finalize the Cooperation Agreement and costs incurred by the BusinessReview Committee of the Board of Directors,which was formed under this Cooperation Agreement.We have excluded these costs fromour non-GAAP metrics because they do not occur in or reflect the ordinary course of our ongoing business operations and may obscureanalysis of trends and financial performance.Restructuring and employee severance costs are excluded because they are not part of the ongoing operations of our underlyingbusiness and include,but are not limited to,costs related to divestitures,closing and consolidating facilities,changing the way wemanufacture or distribute our products,moving manufacturing of a product to another location,changes in production or businessprocess outsourcing or insourcing,employee severance and realigning operations.Amortization and other acquisition-related costs,which include transaction costs,integration costs,and changes in the fair value ofcontingent consideration obligations,are excluded because they are not part of the ongoing operations of our underlying business and tofacilitate comparison of our current financial results to our historical financial results and to our peer group companies financial results.Additionally,costs for amortization of acquisition-related intangible assets are non-cash amounts,which are variable in amount andfrequency and are significantly impacted by the timing and size of acquisitions,so their exclusion facilitates comparison of historical,current and forecasted financial results.We also exclude other acquisition-related costs,which are directly related to an acquisition butdo not meet the criteria to be recognized on the acquired entitys initial balance sheet as part of the purchase price allocation.Thesecosts are also significantly impacted by the timing,complexity and size of acquisitions.16Cardinal Health|Q3 Fiscal 2024 Form 10-QExplanation and Reconciliation of Non-GAAP Financial MeasuresImpairments and gain or loss on disposal of assets,net are excluded because they do not occur in or reflect the ordinary course of ourongoing business operations and are inherently unpredictable in timing and amount,and in the case of impairments,are non-cashamounts,so their exclusion facilitates comparison of historical,current and forecasted financial results.Litigation recoveries or charges,net are excluded because they often relate to events that may have occurred in prior or multipleperiods,do not occur in or reflect the ordinary course of our business and are inherently unpredictable in timing and amount.Loss on early extinguishment of debt is excluded because it does not typically occur in the normal course of business and may obscureanalysis of trends and financial performance.Additionally,the amount and frequency of this type of charge is not consistent and issignificantly impacted by the timing and size of debt extinguishment transactions.The tax effect for each of the items listed above is determined using the tax rate and other tax attributes applicable to the item and thejurisdiction(s)in which the item is recorded.The gross,tax and net impact of each item are presented with our GAAP to non-GAAPreconciliations.DefinitionsGrowth rate calculation:growth rates in this report are determined by dividing the difference between current-period results and prior-periodresults by prior-period results.Non-GAAP operating earnings:operating earnings excluding(1)LIFO charges/(credits),(2)state opioid assessment related to prior fiscalyears,(3)shareholder cooperation agreement costs,(4)restructuring and employee severance,(5)amortization and other acquisition-relatedcosts,(6)impairments and(gain)/loss on disposal of assets,net and(7)litigation(recoveries)/charges,net.Non-GAAP earnings before income taxes:earnings before income taxes excluding(1)LIFO charges/(credits),(2)state opioid assessmentrelated to prior fiscal years,(3)shareholder cooperation agreement costs,(4)restructuring and employee severance,(5)amortization and otheracquisition-related costs,(6)impairments and(gain)/loss on disposal of assets,net,(7)litigation(recoveries)/charges,net and(8)loss on earlyextinguishment of debt.Non-GAAP net earnings attributable to Cardinal Health,Inc.:net earnings attributable to Cardinal Health,Inc.excluding(1)LIFOcharges/(credits),(2)state opioid assessment related to prior fiscal years,(3)shareholder cooperation agreement costs,(4)restructuring andemployee severance,(5)amortization and other acquisition-related costs,(6)impairments and(gain)/loss on disposal of assets,net,(7)litigation(recoveries)/charges,net and(8)loss on early extinguishment of debt,each net of tax.Non-GAAP effective tax rate:provision for income taxes adjusted for the tax impacts of(1)LIFO charges/(credits),(2)state opioid assessmentrelated to prior fiscal years,(3)shareholder cooperation agreement costs,(4)restructuring and employee severance,(5)amortization and otheracquisition-related costs,(6)impairments and(gain)/loss on disposal of assets,net,(7)litigation(recoveries)/charges,net and(8)loss on earlyextinguishment of debt divided by(earnings before income taxes adjusted for the eight items above).Non-GAAP diluted earnings per share attributable to Cardinal Health,Inc.:non-GAAP net earnings attributable to Cardinal Health,Inc.divided by diluted weighted-average shares outstanding.17Cardinal Health|Q3 Fiscal 2024 Form 10-QExplanation and Reconciliation of Non-GAAP Financial MeasuresGAAP to Non-GAAP Reconciliation(in millions,except per common share amounts)OperatingEarningsOperatingEarningsGrowth RateEarnings BeforeIncome TaxesProvision forIncome TaxesNetEarningsNet EarningsGrowth RateDilutedEPSDilutedEPSGrowthRateThree Months Ended March 31,2024GAAP$367(36)%$341$82$258(25)%$1.05(22)%Shareholder cooperation agreement costs1 1 1 Restructuring and employee severance53 53 14 39 0.16 Amortization and other acquisition-related costs80 80 21 59 0.24 Impairments and(gain)/loss on disposal of assets,net 84 84(21)105 0.44 Litigation(recoveries)/charges,net81 81 34 47 0.19 Non-GAAP$666 10%$640$130$509 14%$2.08 20%Three Months Ended March 31,2023GAAP$572 N.M.$544$197$345 N.M.$1.34 N.M.Restructuring and employee severance16 16 4 12 0.05 Amortization and other acquisition-related costs74 74 19 55 0.21 Impairments and(gain)/loss on disposal of assets,net20 20(69)89 0.35 Litigation(recoveries)/charges,net(76)(76)(22)(54)(0.21)Non-GAAP$606 11%$578$129$447 11%$1.74 20%Nine Months Ended March 31,2024GAAP$835 42%$805$186$616 90%$2.49 N.M.Shareholder cooperation agreement costs1 1 1 Restructuring and employee severance106 106 28 78 0.32 Amortization and other acquisition-related costs207 207 54 153 0.62 Impairments and(gain)/loss on disposal of assets,net 622 622 92 530 2.14 Litigation(recoveries)/charges,net29 29 17 12 0.05 Non-GAAP$1,799 20%$1,769$377$1,389 24%$5.62 33%Nine Months Ended March 31,2023GAAP$590 N.M.$517$189$325 N.M.$1.23 N.M.State opioid assessment related to prior fiscal years(6)(6)(2)(4)0.02 Shareholder cooperation agreement costs8 8 2 6(0.02)Restructuring and employee severance62 62 14 48 0.18 Amortization and other acquisition-related costs216 216 56 160 0.61 Impairments and(gain)/loss on disposal of assets,net 883 883 138 745 2.82 Litigation(recoveries)/charges,net(256)(256)(98)(158)(0.60)Non-GAAP$1,497(3)%$1,424$299$1,122(1)%$4.24 6%Attributable to Cardinal Health,Inc.For the three and nine months ended March 31,2024,impairments and(gain)/loss on disposal of assets,net includes pre-tax goodwill impairment charges of$90 million and$671 million,respectively,related to the GMPD segment.For fiscal 2024,the estimated net tax benefit related to the impairments is$56million and is included in the annual effective tax rate.The incremental interim tax benefit recognized during the nine months ended March 31,2024 is$36million and will reverse in the fourth quarter of the fiscal year.For the nine months ended March 31,2023,impairments and(gain)/loss on disposal of assets,net included cumulative pre-tax goodwill impairment chargesof$863 million related to the former Medical segment.For fiscal 2023,the net tax benefit related to the impairment was$68 million and was included in theannual effective tax rate.The incremental interim tax benefit recognized during the nine months ended March 31,2023 was$66 million and reversed in thefourth quarter of fiscal 2023.The sum of the components and certain computations may reflect rounding adjustments.We apply varying tax rates depending on the items nature and tax jurisdiction where it is incurred.11112221 2 18Cardinal Health|Q3 Fiscal 2024 Form 10-QOtherQuantitative and Qualitative Disclosures About Market RiskThere have been no material changes in the quantitative and qualitative market risk disclosures included in our 2023 Form 10-K since the end offiscal 2023 through March 31,2024.Controls and ProceduresEvaluation of Disclosure Controls and ProceduresWe evaluated,with the participation of our principal executive officer and principal financial officer,the effectiveness of our disclosure controlsand procedures(as defined in Rule 13a-15(e)under the Securities Exchange Act of 1934(the Exchange Act)as of March 31,2024.Based onthis evaluation,our principal executive officer and principal financial officer have concluded that as of March 31,2024,our disclosure controlsand procedures were effective to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Actis recorded,processed,summarized,and reported within the time periods specified in the SEC rules and forms and that such information isaccumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.Changes in Internal Control Over Financial ReportingThere were no changes in our internal control over financial reporting during the quarter ended March 31,2024 that have materially affected,orare reasonably likely to materially affect,our internal control over financial reporting.19Cardinal Health|Q3 Fiscal 2024 Form 10-QOtherLegal ProceedingsThe legal proceedings described in Note 7 of the Notes to Condensed Consolidated Financial Statements are incorporated in this LegalProceedings section by reference.Risk FactorsYou should carefully consider the information in this Form 10-Q including the Risk Factors below and the risk factors discussed in Risk Factorsand other risks discussed in our 2023 Form 10-K,our Forms 10-Q for the quarters ended December 31,2023 and September 30,2023,and ourother filings with the SEC since June 30,2023.These risks could materially and adversely affect our results of operations,financial condition,liquidity,and cash flows.Our business also could be affected by risks that we are not presently aware of or that we currently consider immaterialto our operations.Changes to the U.S.healthcare environment may not befavorable to us.Over a number of years,the U.S.healthcare industry has undergonesignificant changes designed to increase access to medical care,improve safety and patient outcomes,contain costs and increaseefficiencies.These changes include a general decline in Medicareand Medicaid reimbursement levels,efforts by healthcare insurancecompanies to limit or reduce payments to pharmacies and providers,the basis for payments beginning to transition from a fee-for-servicemodel to value-based payments and risk-sharing models and theindustry shifting away from traditional healthcare venues likehospitals and into clinics,physician offices and patients homes.We expect the U.S.healthcare industry to continue to changesignificantly in the future.Possible changes include changes inlegislation or regulations governing prescription pharmaceuticalpricing,healthcare services,U.S.-based medical productmanufacturing,mandated benefits,efforts to promote increasedtransparency in the pharmaceutical supply chain,drug shortages,further reduction of or limitations on governmental funding at the stateor federal level or efforts by healthcare insurance companies tofurther limit payments for products and services.For example,theFederal Trade Commission has issued public requests for informationrelated to pharmaceutical wholesalers and group purchasingorganizations impacts on generic drug shortages and the impact ofpharmacy benefits managers on drug affordability and access.Thesepossible changes,and the uncertainty surrounding these possiblechanges,may directly or indirectly adversely affect us.Unregistered Sales of Equity Securities and Use of ProceedsIssuer Purchases of Equity SecuritiesPeriodTotal Numberof SharesPurchased(1)Average Price Paid per ShareTotal Number of SharesPurchasedas Part of Publicly AnnouncedPrograms(2)ApproximateDollar Value ofShares That MayYet be PurchasedUnder the Program(2)(in millions)January 2024106$105.98$3,493 February 2024157 107.33 3,493 March 202451 110.14 3,493 Total314$107.33$3,493(1)Reflects 106,157 and 51 common shares purchased in January,February,and March 2024,respectively,through a rabbi trust as investments of participants in our DeferredCompensation Plan.(2)On June 7,2023,our Board of Directors approved a new$3.5 billion share repurchase program,which will expire on December 31,2027.As of March 31,2024,we had$3.5 billion authorized for share repurchases remaining under this program.Other InformationRule 10b5-1 Plan Adoptions and ModificationsDuring the three months ended March 31,2024,no director or officer adopted,modified or terminated a Rule 10b5-1 trading arrangement ornon-Rule10b5-1 trading arrangement as each term is defined in Section 408(a)of Regulation S-K under the Exchange Act.20Cardinal Health|Q3 Fiscal 2024 Form 10-QFinancial StatementsCondensed Consolidated Statements of Earnings(Unaudited)Three Months Ended March 31,Nine Months Ended March 31,(in millions,except per common share amounts)2024202320242023Revenue$54,911$50,487$167,119$151,559 Cost of products sold52,964 48,702 161,558 146,497 Gross margin1,947 1,785 5,561 5,062 Operating expenses:Distribution,selling,general and administrative expenses1,282 1,179 3,762 3,567 Restructuring and employee severance53 16 106 62 Amortization and other acquisition-related costs80 74 207 216 Impairments and(gain)/loss on disposal of assets,net84 20 622 883 Litigation(recoveries)/charges,net81(76)29(256)Operating earnings367 572 835 590 Other(income)/expense,net(7)(25)(5)Interest expense,net33 28 55 78 Earnings before income taxes341 544 805 517 Provision for income taxes82 197 186 189 Net earnings259 347 619 328 Less:Net earnings attributable to noncontrolling interests(1)(2)(3)(3)Net earnings attributable to Cardinal Health,Inc.$258$345$616$325 Earnings per common share attributable to Cardinal Health,Inc.:Basic$1.06$1.35$2.51$1.24 Diluted1.05 1.34 2.49 1.23 Weighted-average number of common shares outstanding:Basic243256245263Diluted245258247264Cash dividends declared per common share$0.5006$0.4957$1.5018$1.4871 See notes to condensed consolidated financial statements.21Cardinal Health|Q3 Fiscal 2024 Form 10-QFinancial StatementsCondensed Consolidated Statements of Comprehensive Income(Unaudited)Three Months Ended March 31,Nine Months Ended March 31,(in millions)2024202320242023Net earnings$259$347$619$328 Other comprehensive income/(loss):Foreign currency translation adjustments and other1 4(4)(34)Net unrealized gain/(loss)on derivative instruments,net of tax(6)(5)6 Total other comprehensive income/(loss),net of tax(5)4(9)(28)Total comprehensive income254 351 610 300 Less:comprehensive income attributable to noncontrolling interests(1)(2)(3)(3)Total comprehensive income attributable to Cardinal Health,Inc.$253$349$607$297 See notes to condensed consolidated financial statements.22Cardinal Health|Q3 Fiscal 2024 Form 10-QFinancial StatementsCondensed Consolidated Balance Sheets(in millions)March 31,2024June 30,2023(Unaudited)AssetsCurrent assets:Cash and equivalents$3,718$4,043 Trade receivables,net11,566 11,344 Inventories,net17,277 15,940 Prepaid expenses and other3,161 2,362 Assets held for sale12 144 Total current assets35,734 33,833 Property and equipment,net2,470 2,462 Goodwill and other intangibles,net6,507 6,081 Other assets1,169 1,041 Total assets$45,880$43,417 Liabilities and Shareholders DeficitCurrent liabilities:Accounts payable$32,089$29,813 Current portion of long-term obligations and other short-term borrowings1,187 792 Other accrued liabilities3,030 3,059 Liabilities related to assets held for sale 42 Total current liabilities36,306 33,706 Long-term obligations,less current portion4,667 3,909 Deferred income taxes and other liabilities8,169 8,653 Shareholders deficit:Preferred shares,without par value:Authorized500 thousand shares,Issuednone Common shares,without par value:Authorized755 million shares,Issued327 million shares at March 31,2024 and June 30,20232,887 2,747 Accumulated deficit(289)(534)Common shares in treasury,at cost:83 million shares and 76 million shares at March 31,2024 and June 30,2023,respectively(5,703)(4,914)Accumulated other comprehensive loss(160)(151)Total Cardinal Health,Inc.shareholders deficit(3,265)(2,852)Noncontrolling interests3 1 Total shareholders deficit(3,262)(2,851)Total liabilities and shareholders deficit$45,880$43,417 See notes to condensed consolidated financial statements.23Cardinal Health|Q3 Fiscal 2024 Form 10-QFinancial StatementsCondensed Consolidated Statements of Shareholders Deficit(Unaudited)Common SharesAccumulatedDeficitTreasury SharesAccumulatedOtherComprehensiveLossNoncontrollingInterestsTotalShareholdersDeficit(in millions)SharesIssuedAmountSharesAmountThree Months Ended March 31,2024Balance at December 31,2023327$2,855$(425)(83)$(5,724)$(155)$2$(3,447)Net earnings258 1 259 Other comprehensive loss,net of tax(5)(5)Employee stock plans activity,net of shareswithheld for employee taxes 32 21 53 Dividends declared(123)(123)Other1 1 Balance at March 31,2024327$2,887$(289)(83)$(5,703)$(160)$3$(3,262)Three Months Ended March 31,2023Balance at December 31,2022327$2,747$(560)(68)$(4,254)$(146)$1$(2,212)Net earnings345 2 347 Other comprehensive income,net of tax4 4 Employee stock plans activity,net of shares withheldfor employee taxes 21 3 24 Share repurchase program activity50(4)(303)(253)Dividends declared(128)(128)Other1(1)Balance at March 31,2023327$2,818$(342)(72)$(4,554)$(142)$2$(2,218)Nine Months Ended March 31,2024Balance at June 30,2023327$2,747$(534)(76)$(4,914)$(151)$1$(2,851)Net earnings616 3 619 Other comprehensive loss,net of tax(9)(9)Employee stock plans activity,net of shares withheldfor employee taxes 40 1 70 110 Share repurchase program activity100(9)(859)(759)Dividends declared(372)(372)Other1 1(1)Balance at March 31,2024327$2,887$(289)(83)$(5,703)$(160)$3$(3,262)Nine Months Ended March 31,2023Balance at June 30,2022327$2,813$(280)(54)$(3,128)$(114)$3$(706)Net earnings325 3 328 Other comprehensive loss,net of tax(28)(28)Purchase of noncontrolling interests(2)(2)Employee stock plans activity,net of shares withheldfor employee taxes 5 2 77 82 Share repurchase program activity(20)(1,503)(1,503)Dividends declared(388)(388)Other1(2)(1)Balance at March 31,2023327$2,818$(342)(72)$(4,554)$(142)$2$(2,218)See notes to condensed consolidated financial statements.24Cardinal Health|Q3 Fiscal 2024 Form 10-QFinancial StatementsCondensed Consolidated Statements of Cash Flows(Unaudited)Nine Months Ended March 31,(in millions)20242023Cash flows from operating activities:Net earnings$619$328 Adjustments to reconcile net earnings to net cash provided by operating activities:Depreciation and amortization524 516 Impairments and(gain)/loss on disposal of assets,net622 883 Share-based compensation88 69 Provision for bad debts59 79 Change in operating assets and liabilities,net of effects from acquisitions and divestitures:Increase in trade receivables(262)(510)Increase in inventories(1,371)(1,012)Increase in accounts payable2,276 2,473 Other accrued liabilities and operating items,net(870)(845)Net cash provided by operating activities1,685 1,981 Cash flows from investing activities:Acquisition of subsidiaries,net of cash acquired(1,192)(10)Proceeds from divestitures,net of cash sold9 Additions to property and equipment(318)(264)Proceeds from disposal of property and equipment10 2 Purchases of investments(3)(6)Proceeds from investments1 1 Proceeds from net investment hedge terminations28 29 Purchases of short-term time deposits(550)Net cash used in investing activities(2,015)(248)Cash flows from financing activities:Proceeds from long-term obligations,net of issuance costs1,139 Reduction of long-term obligations(23)(571)Net tax proceeds from share-based compensation23 11 Dividends on common shares(377)(399)Purchase of treasury shares(750)(1,500)Net cash provided by/(used in)financing activities12(2,459)Effect of exchange rate changes on cash and equivalents(7)(1)Net decrease in cash and equivalents(325)(727)Cash and equivalents at beginning of period4,043 4,717 Cash and equivalents at end of period$3,718$3,990 See notes to condensed consolidated financial statements.25Cardinal Health|Q3 Fiscal 2024 Form 10-QNotes to Financial StatementsNotes to Condensed Consolidated Financial Statements1.Basis of Presentation and Summary ofSignificant Accounting PoliciesBasis of PresentationOur condensed consolidated financial statements include theaccounts of all majority-owned or consolidated subsidiaries,and allsignificant intercompany transactions and amounts have beeneliminated.The results of businesses acquired or disposed of areincluded in the condensed consolidated financial statements from thedate of the acquisition or up to the date of disposal,respectively.References to we,our,and similar pronouns in this QuarterlyReport on Form 10-Q for the quarter ended March 31,2024(thisForm 10-Q)are to Cardinal Health,Inc.and its majority-owned orconsolidated subsidiaries unless the context requires otherwise.Our fiscal year ends on June 30.References to fiscal 2024 and 2023in these condensed consolidated financial statements are to the fiscalyears ending or ended June 30,2024 and June 30,2023,respectively.Our condensed consolidated financial statements have beenprepared in accordance with the U.S.Securities and ExchangeCommission(SEC)instructions to Quarterly Reports on Form 10-Qand include the information and disclosures required by accountingprinciples generally accepted in the United States(GAAP)forinterim financial reporting.The preparation of financial statements inconformity with GAAP requires us to make estimates,judgments andassumptions that affect amounts reported in the condensedconsolidated financial statements and accompanying notes.Actualamounts may differ from these estimated amounts.In our opinion,all adjustments necessary for a fair presentation of thecondensed consolidated financial statements have been included.Except as disclosed elsewhere in this Form 10-Q,all suchadjustments are of a normal and recurring nature.In addition,financial results presented for this fiscal 2024 interim period are notnecessarily indicative of the results that may be expected for the fullfiscal year ending June 30,2024.These condensed consolidatedfinancial statements are unaudited and,accordingly,should be readin conjunction with the audited consolidated financial statements andrelated notes contained in our Annual Report on Form 10-K for thefiscal year ended June 30,2023(our 2023 Form 10-K).Major CustomersOn April 22,2024,we announced that our pharmaceutical distributioncontracts with OptumRx,which expire at the end of June 2024,willnot be renewed.Sales to OptumRx generated 16%of ourconsolidated revenue in fiscal 2023.Recently Issued Financial Accounting Standardsand Disclosure Rules Not Yet AdoptedWe assess the adoption impacts of recently issued accountingstandards by the Financial Accounting Standards Board(FASB)onour condensed consolidated financial statements as well as materialupdates to previous assessments,if any,from our fiscal 2023 Form10-K.Segment ReportingIn November 2023,the FASB issued Accounting Standards Update(ASU)2023-07 Segment Reporting(Topic 280):Improvements toReportable Segment Disclosures,which enhances reportablesegment disclosure requirements,primarily through disclosures ofsignificant segment expenses.This guidance will be effective for us inour fiscal 2025 Form 10-K and the guidance must be appliedretrospectively to all prior periods presented.We are currentlyevaluating the impact of adoption of this guidance on our disclosures.Income Tax DisclosureIn December 2023,the FASB issued ASU 2023-09 Income Taxes(Topic 740):Improvements to Income Tax Disclosures,whichenhances income tax disclosures primarily related to the ratereconciliation and income taxes paid information.This guidance alsoincludes certain other amendments to improve the effectiveness ofincome tax disclosures.This guidance will be effective for us in ourfiscal 2026 Form 10-K and should be applied on a prospective basis,with retrospective application permitted.We are currently evaluatingthe impact of adoption of this guidance on our disclosures.Climate-Related DisclosuresIn March 2024,the SEC issued final rules on climate-relateddisclosures that will require annual disclosure of material climate-related risks and material direct greenhouse gas emissions fromoperations owned or controlled(Scope 1)and material indirectgreenhouse gas emissions from purchased energy consumed inowned or controlled operations(Scope 2).Additionally,the rulesrequire disclosure in the notes to the financial statements of theeffects of severe weather events and other natural conditions,subjectto certain financial thresholds,as well as amounts related to carbonoffsets and renewable energy credits or certificates.These rules alsorequire disclosure of climate risk oversight practices of the Board ofDirectors and management,and the disclosure of governance,riskmanagement and strategy related to material climate-related risks.InApril 2024,the SEC voluntarily stayed the new rules pending thecompletion of judicial review.The disclosure requirements,ifultimately upheld as adopted,will begin phasing in for reports andregistration statements including financial information with respect toannual periods beginning in our fiscal 2026.We are currentlyevaluating the impact of adoption of these final rules on ourdisclosures.26Cardinal Health|Q3 Fiscal 2024 Form 10-QNotes to Financial StatementsRecently Adopted Financial Accounting StandardsThere were no new material accounting standards adopted during thenine months ended March 31,2024.Updated Segment Reporting StructureEffective January 1,2024,we operated under an updatedorganizational structure and re-aligned our reporting structure undertwo reportable segments:Pharmaceutical and Specialty Solutionssegment and Global Medical Products and Distribution(GMPD)segment.The remaining operating segments,Nuclear and PrecisionHealth Solutions,at-Home Solutions and OptiFreight Logistics,arenot significant enough to require separate reportable disclosures andare included in Other.The Pharmaceutical and Specialty Solutionsreportable segment consists of all businesses formerly within ourPharmaceutical segment,excluding Nuclear and Precision HealthSolutions.The Global Medical Products and Distribution reportablesegment consists of all businesses formerly within our Medicalsegment,excluding at-Home Solutions and OptiFreight Logistics.Our previously reported segment results have been recast to conformto this re-aligned reporting structure and reflect changes in theelimination of inter-segment revenue and allocated corporatetechnology and shared function expenses,which are driven by thereporting structure change.See Note 13 for segment results underthe new reporting structure.2.AcquisitionsOn March 18,2024,we completed the acquisition of SpecialtyNetworks for a purchase price of$1.2 billion in cash,subject tocertain adjustments.Specialty Networks creates clinical andeconomic value for providers and partners across multiple specialtygroup purchasing organizations(GPOs):UroGPO,Gastrologix andGastroGPO,and United Rheumatology.Specialty Networks PPS Analytics platform analyzes data fromelectronic medical records,practice management,imaging,anddispensing systems and transforms it into meaningful and actionableinsights for providers and other stakeholders by using artificialintelligence and modern data analytics capabilities.The acquisitionfurther expands our offering in key therapeutic areas,accelerates ourupstream data and research opportunities with biopharmamanufacturers,and creates a platform for our expansion acrosstherapeutic areas.The pro forma results of operations and the results of operations forSpecialty Networks have not been separately disclosed because theeffects were not significant compared to the condensed consolidatedfinancial statements.Transaction costs associated with the Specialty Networks acquisitionwere$15 million during the three and nine months ended March 31,2024,and are included in amortization and other acquisition-relatedcosts in the condensed consolidated statements of earnings.Fair Value of Assets Acquired and LiabilitiesAssumedThe allocation of the purchase price for the acquisition of SpecialtyNetworks is not yet finalized and is subject to adjustment as wecomplete the valuation analysis of the acquisition.The purchase priceis also subject to adjustment based on working capital requirementsas set forth in the acquisition agreement.The valuation of identifiable intangible assets utilizes significantunobservable inputs and thus represents a Level 3 nonrecurring fairvalue measurement.The estimated fair value of the identifiableintangible assets was determined using an income-based approach,which includes market participant expectations of the cash flows thatan asset could generate over its remaining useful life,discountedback to present value using an appropriate rate of return.Thediscount rate used to arrive at the present value of the identifiableintangible assets was 10 percent,and reflects the internal rate ofreturn and uncertainty in the cash flow projections.The following table summarizes the estimated fair values of theassets acquired and liabilities assumed as of the acquisition date forSpecialty Networks:(in millions)Specialty NetworksIdentifiable intangible assets:Customer relationships(1)$404 Trade names(2)15 Developed technology(3)20 Total identifiable intangible assets acquired439 Identifiable net assets/(liabilities):Cash and equivalents23 Trade receivables,net19 Prepaid expenses and other2 Other accrued liabilities(15)Deferred income taxes and other liabilities(109)Total identifiable net assets/(liabilities)acquired359 Goodwill856 Total net assets acquired$1,215(1)The weighted-average useful life of customer relationships is 14 years.(2)The weighted-average useful life of trade names is 8 years.(3)The weighted-average useful life of developed technology is 9 years.27Cardinal Health|Q3 Fiscal 2024 Form 10-QNotes to Financial Statements3.DivestituresOn June 5,2023 we signed a definitive agreement to contribute theOutcomes business to Transaction Data Systems(TDS),aportfolio company of BlackRock Long Term Private Capital andGTCR,in exchange for a 16 percent equity interest in the combinedentity.The transaction closed on July 10,2023 and we recognized apre-tax gain of$53 million during the nine months ended March 31,2024,which was included in impairments and(gain)/loss on disposalof assets,net in our condensed consolidated statements of earnings.This gain includes our initial recognition of an equity methodinvestment in the combined entity for$147 million.We determined that the divestiture of the Outcomesbusiness doesnot meet the criteria to be classified as discontinued operations.TheOutcomes business operated within our former Pharmaceuticalsegment.4.Restructuring and Employee SeveranceThe following tables summarize restructuring and employeeseverance:Three Months Ended March 31,(in millions)20242023Employee-related$36$3 Facility exit and other17 13 Total restructuring and employeeseverance$53$16 Nine Months Ended March 31,(in millions)20242023Employee-related$51$32 Facility exit and other55 30 Total restructuring and employeeseverance$106$62 Employee-related costs primarily consist of termination benefitsprovided to employees who have been involuntarily terminated,duplicate payroll costs and retention bonuses incurred duringtransition periods.Facility exit and other costs primarily consist ofproject consulting fees,accelerated depreciation,professional,project management and other service fees to support divestitures,costs associated with vacant facilities,and certain other divestiture-related costs.Restructuring and employee severance costs during the three andnine months ended March 31,2024 and 2023 include costs related tothe implementation of certain enterprise-wide cost-savings measures,which include certain initiatives to rationalize our manufacturingoperations.The increase in restructuring costs during the three andnine months ended March 31,2024 was primarily due to theseinitiatives and certain projects resulting from the review of ourstrategy portfolio,capital-allocation framework and operations.Duringthe three and nine months ended March 31,2023,restructuring andemployee severance costs also included costs related to thedivestiture of the Cordis business.The following table summarizes activity related to liabilitiesassociated with restructuring and employee severance:(in millions)Employee-Related CostsFacility Exitand OtherCostsTotalBalance at June 30,2023$44$2$46 Additions38 13 51 Payments and other adjustments(21)(6)(27)Balance at March 31,2024$61$9$70 TMTM TM 28Cardinal Health|Q3 Fiscal 2024 Form 10-QNotes to Financial Statements5.Goodwill and Other Intangible AssetsGoodwillThe following table summarizes the changes in the carrying amountof goodwill by segment and in total:(in millions)Pharmaceuticaland SpecialtySolutionsGlobalMedicalProducts andDistribution(1)Other(2)(3)TotalBalance at June 30,2023(4)$2,762$677$1,170$4,609 Goodwill acquired,net ofpurchase priceadjustments856(3)853 Foreign currencytranslation adjustmentsand other(3)(3)Goodwill impairment(671)(671)Balance at March 31,2024$3,618$1,170$4,788(1)Prior-period goodwill impairment charges related to the former Medical segmentwere allocated to the GMPD segment.At March 31,2024 and June 30,2023,theGMPD segment accumulated goodwill impairment loss was$5.4 billion and$4.7billion,respectively.(2)Comprised of the remaining operating segments,Nuclear and Precision HealthSolutions,at-Home Solutions and OptiFreight Logistics.(3)Reflects$48 million allocated to OptiFreight Logistics.(4)Reflects a$110 million reclassification between Pharmaceutical and SpecialtySolutions and Other,which does not impact our previously reported condensedconsolidated financial statements or results of our impairment tests.The increase in the Pharmaceutical and Specialty Solutions segmentgoodwill is due to the Specialty Networks acquisition.Goodwillrecognized in connection with this acquisition primarily represents theexpected benefits from anticipated growth from new technologycapabilities,synergies of integrating this business and the existingworkforce of the acquired entity.As a result of the segment change discussed in Note 1,we allocated$90 million and$48 million of goodwill from the former Medical Unit toGMPD and OptiFreight Logistics,respectively,based on theestimated relative fair values of the reporting units.We also assessedgoodwill for impairment for these reporting units before and after thereallocation and determined there was no impairment for the MedicalUnit and OptiFreight Logistics during the three months ended March31,2024 as their fair values substantially exceeded their carryingvalues.However,the quantitative test resulted in an impairment ofGMPDs remaining goodwill balance of$90 million.Our determination of the estimated fair value of the GMPD reportingunit is based on a combination of the income-based approach(usinga discount rate of 11 percent and a terminal growth rate of 2 percent),and market-based approaches.Additionally,we assigned a weightingof 80 percent to the discounted cash flow method,10 percent to theguideline publiccompany method,and 10 percent to the guideline transactionmethod.During the three months ended December 31,2023,we did notidentify any indicators of impairment within our reporting units.Duringthe three months ended September 30,2023,we elected to bypassthe qualitative assessment and perform quantitative goodwillimpairment testing for the former Medical Unit due to an increase inthe risk-free interest rate used in the discount rate.The carryingamount exceeded the fair value,which resulted in a pre-taximpairment charge of$581 million for the former Medical Unit,whichwas recognized during the three months ended September 30,2023and is included in impairments and(gain)/loss on disposal of assets,net in our condensed consolidated statements of earnings.Thisimpairment charge was driven by an increase of 1 percent in thediscount rate primarily due to an increase in the risk-free interest rate.During the three months ended December 31,2022 and September30,2022,we performed quantitative goodwill impairment testing forthe former Medical Unit.This quantitative testing resulted in thecarrying amount of the former Medical Unit exceeding the fair value,resulting in pre-tax goodwill impairment charges of$709 million and$154 million recorded during the three months ended December 31,2022 and September 30,2022,respectively.We also performedinterim quantitative goodwill impairment testing at March 31,2023and concluded that there was no impairment as of March 31,2023 asthe estimated fair value of the former Medical Unit exceeded itscarrying value by approximately 4 percent.The impairment chargerecognized in the second quarter of fiscal 2023 was driven by certainreductions in our long-term financial plan assumptions,and theimpairment charge recognized in the first quarter of fiscal 2023 wasdriven by an increase in the discount rate primarily due to an increasein the risk-free interest rate.29Cardinal Health|Q3 Fiscal 2024 Form 10-QNotes to Financial StatementsOther Intangible AssetsThe following tables summarize other intangible assets by class at:March 31,2024(in millions)GrossIntangibleAccumulatedAmortizationNetIntangibleWeighted-AverageRemainingAmortizationPeriod(Years)Indefinite-lifeintangibles:Trademarks andpatents$11$11 N/ATotal indefinite-lifeintangibles11 11 N/ADefinite-lifeintangibles:Customerrelationships3,564 2,387 1,177 10Trademarks,tradenames and patents561 401 160 7Developedtechnology andother1,043 672 371 7Total definite-lifeintangibles5,168 3,460 1,708 9Total otherintangibleassets$5,179$3,460$1,719 N/AJune 30,2023(in millions)GrossIntangibleAccumulatedAmortizationNetIntangibleIndefinite-life intangibles:Trademarks and patents$11$11 Total indefinite-life intangibles11 11 Definite-life intangibles:Customer relationships3,174 2,274 900 Trademarks,trade names andpatents546 380 166 Developed technology and other1,021 626 395 Total definite-life intangibles4,741 3,280 1,461 Total other intangible assets$4,752$3,280$1,472 The increase in definite-life intangibles is due to the SpecialtyNetworks acquisition.Total amortization of intangible assets was$64million and$69 million for the three months ended March 31,2024and 2023,respectively,and$191 million and$211 million for the ninemonths ended March 31,2024 and 2023,respectively.Estimatedannual amortization of intangible assets for the remainder of fiscal2024 through 2028 is as follows:$69 million,$256 million,$241million,$213 million and$186 million.6.Long-Term Obligations and Other Short-TermBorrowingsThe following table summarizes long-term obligations and othershort-term borrowings at:(in millions)(1)March 31,2024June 30,20233.079%Notes due 2024$753$764 3.5%Notes due 2024402 404 3.75%Notes due 2025508 513 3.41%Notes due 20271,192 1,184 5.125%Notes due 2029644 5.45%Notes due 2034494 4.6%Notes due 2043311 306 4.5%Notes due 2044330 331 4.9%Notes due 2045428 428 4.368%Notes due 2047564 561 7.0bentures due 2026124 124 Other Obligations104 86 Total5,854 4,701 Less:current portion of long-term obligationsand other short-term borrowings1,187 792 Long-term obligations,less currentportion$4,667$3,909(1)Maturities are presented on a calendar year basis.Maturities of existing long-term obligations and other short-termborrowings for the remainder of fiscal 2024 through 2028 andthereafter are as follows:$762 million,$436 million,$535 million,$1.3billion,$11 million and$2.8 billion.Long-Term DebtWe had total long-term obligations,including the current portion andother short-term borrowings,of$5.9 billion and$4.7 billion atMarch 31,2024 and June 30,2023,respectively.All the notesrepresent unsecured obligations of Cardinal Health,Inc.and rankequally in right of payment with all of our existing and futureunsecured and unsubordinated indebtedness.Interest is paidpursuant to the terms of the obligations.These notes are effectivelysubordinated to the liabilities of our subsidiaries,including tradepayables of$32.1 billion and$29.8 billion at March 31,2024 andJune 30,2023,respectively.In February 2024,we issued additional debt with the aggregateprincipal amount of$1.15 billion to fund the repayment of all of theaggregate principal amount outstanding of our 3.5%Notes due 2024and 3.079%Notes due 2024,at their respective maturities,and forgeneral corporate purposes.The notes issued are$650 millionaggregate principal amount of 5.125%Notes that mature on February15,2029 and$500 million aggregate principal amount of 5.45%Notes that mature on February 15,2034.The proceeds of the notesissued,net of discounts,premiums,and debt issuance costs,were$1.14 billion.A portion of the proceeds were invested in short-termtime deposits of$550 million with initial effective maturities of morethan three months and classified as prepaid 30Cardinal Health|Q3 Fiscal 2024 Form 10-QNotes to Financial Statementsexpenses and other in our condensed consolidated balance sheetsas of March 31,2024.The remaining proceeds of$589 million wereinvested in short-term time deposits classified as cash andequivalents in our condensed consolidated balance sheets as ofMarch 31,2024.If we undergo a change of control,as defined in the notes,and if thenotes receive specified ratings below investment grade by each ofStandard&Poors Ratings Services,Moodys Investors Services andFitch Ratings,any holder of the notes,excluding the debentures,canrequire with respect to the notes owned by such holder,or we canoffer,to repurchase the notes at 101%of the principal amount plusaccrued and unpaid interest.Other Financing ArrangementsIn addition to cash and equivalents and operating cash flow,othersources of liquidity include a$2.0 billion commercial paper programbacked by a$2.0 billion revolving credit facility.We also have a$1.0billion committed receivables sales facility.During the nine monthsended March 31,2024,under our commercial paper program and ourcommitted receivables program,we had maximum combined totaldaily amounts outstanding of$1.3 billion and an average combineddaily amount outstanding of$25 million.At March 31,2024,we hadno amounts outstanding under our commercial paper program,revolving credit facility or our committed receivables sales facility.In February 2023,we extended our$2.0 billion revolving credit facilitythrough February 25,2028.In September 2022,we renewed ourcommitted receivables sales facility program through Cardinal HealthFunding,LLC(“CHF”)through September 30,2025.In September2023,Cardinal Health 23 Funding,LLC(CH-23 Funding)wasadded as a seller under our committed receivables sales facility.Eachof CHF and CH-23 Funding was organized for the sole purpose ofbuying receivables and selling undivided interests in thosereceivables to third-party purchasers.Although consolidated withCardinal Health,Inc.in accordance with GAAP,each of CHF and CH-23 Funding is a separate legal entity from Cardinal Health,Inc.andfrom our respective subsidiary that sells receivables to CHF or CH-23Funding,as applicable.Each of CHF and CH-23 Funding is designedto be a special purpose,bankruptcy-remote entity whose assets areavailable solely to satisfy the claims of its respective creditors.Our revolving credit and committed receivables sales facilities requireus to maintain a consolidated net leverage ratio of no more than 3.75-to-1.As of March 31,2024,we were in compliance with this financialcovenant.7.Commitments,Contingent Liabilities andLitigationCommitmentsGeneric Sourcing Venture with CVS HealthIn July 2014,we established Red Oak Sourcing,LLC(Red OakSourcing),a U.S.-based generic pharmaceutical sourcing venturewith CVS Health for an initial term of 10 years.Red Oak Sourcingnegotiates generic pharmaceutical supply contracts on behalf of itsparticipants.In August 2021,we amended our agreement to extendthe term through June 2029.We are required to make quarterlypayments to CVS Health for the term of the arrangement.ContingenciesNew York Opioid Stewardship ActIn April 2018,the State of New York passed a budget which includedthe Opioid Stewardship Act(the OSA).The OSA created anaggregate$100 million annual assessment on all manufacturers anddistributors licensed to sell or distribute opioids in New York.Underthe OSA,each licensed manufacturer and distributor would berequired to pay a portion of the assessment based on its share of thetotal morphine milligram equivalents sold or distributed in New Yorkduring the applicable calendar year,beginning in 2017.Subsequently,New York passed a new statute that modified the assessment goingforward and limited the OSA to two years(2017 and 2018).We accrue contingencies if it is probable that a liability has beenincurred and the amount can be estimated.During the fiscal year2023,we recorded$6 million of income to reduce the previouslyestimated accrual to the invoiced amount for the calendar year 2018assessment.At June 30,2023,we had an outstanding liability of$3 million,which was paid in full during the first quarter of fiscal year2024.Legal ProceedingsWe become involved from time to time in disputes,litigation andregulatory matters.From time to time,we determine that products we distribute,source,manufacture or market do not meet our specifications,regulatoryrequirements,or published standards.When we or a regulatoryagency identify a potential quality or regulatory issue,we investigateand take appropriate corrective action.Such actions have led toproduct recalls,costs to repair or replace affected products,temporary interruptions in product sales,restrictions on importation,product liability claims and lawsuits and can lead to action byregulators.Even absent an identified regulatory or quality issue orproduct recall,we can become subject to product liability claims andlawsuits.From time to time,we become aware through employees,internalaudits or other parties of possible compliance matters,such ascomplaints or concerns relating to accounting,internal accountingcontrols,financial reporting,auditing,or other ethical matters orrelating to compliance with laws such as healthcare fraud and 31Cardinal Health|Q3 Fiscal 2024 Form 10-QNotes to Financial Statementsabuse,anti-corruption or anti-bribery laws.When we become awareof such possible compliance matters,we investigate internally andtake appropriate corrective action.In addition,from time to time,wereceive subpoenas or requests for information from various federal orstate agencies relating to our business or to the business of acustomer,supplier or other industry participants.Internalinvestigations,subpoenas or requests for information could directly orindirectly lead to the assertion of claims or the commencement oflegal proceedings against us or result in sanctions.We have been named from time to time in qui tam actions initiated byprivate third parties.In such actions,the private parties purport to acton behalf of federal or state governments,allege that false claimshave been submitted for payment by the government and mayreceive an award if their claims are successful.After a private partyhas filed a qui tam action,the government must investigate theprivate partys clai
2024-08-02
84页
5星级
1.desu smr e t n i a t r ec no sno i t i n i f ed de l i a t ed rof 4 egaP no ”SNOITINIFED YEK“no i .
2024-08-01
10页
5星级
UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549_ FORM 10-Q _ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 30,2024 orTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _ to _Commission File Number:1-10864 _ UnitedHealth Group Incorporated(Exact name of registrant as specified in its charter)_ Delaware41-1321939(State or other jurisdiction ofincorporation or organization)(I.R.S.EmployerIdentification No.)9900 Bren Road East55343655 New York Avenue NW20001Minnetonka,MinnesotaWashington,DC(Address of principal executive offices)(Zip Code)(Address of principal executive offices)(Zip Code)(800)328-5979(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,$.01 par valueUNHNew 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 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 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 July 31,2024,there were 923,418,150 shares of the registrants Common Stock,$.01 par value per share,issued and outstanding.UNITEDHEALTH GROUPTable of Contents PagePart I.Financial InformationItem 1.Financial Statements(unaudited).1Condensed Consolidated Balance Sheets as of June 30,2024 and December 31,2023 .1Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30,2024 and 2023 .2Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30,2024 and 2023 .3Condensed Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30,2024 and 2023 .4Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30,2024 and 2023 .6Notes to the Condensed Consolidated Financial Statements .71.Basis of Presentation .72.Investments .83.Fair Value .104.Medical Costs Payable .115.Short-Term Borrowings and Long-Term Debt .126.Shareholders Equity .127.Commitments and Contingencies .138.Disposition and Held for Sale .149.Segment Financial Information .15Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations .17Item 3.Quantitative and Qualitative Disclosures About Market Risk .26Item 4.Controls and Procedures .26Part II.Other InformationItem 1.Legal Proceedings .26Item 1A.Risk Factors .26Item 2.Unregistered Sales of Equity Securities and Use of Proceeds .27Item 5.Other Information .27Item 6.Exhibits .27Signatures .28PART I ITEM 1.FINANCIAL STATEMENTSUnitedHealth GroupCondensed Consolidated Balance Sheets(Unaudited)(in millions,except per share data)June 30,2024December 31,2023AssetsCurrent assets:Cash and cash equivalents .$26,286$25,427 Short-term investments .5,037 4,201 Accounts receivable,net .23,115 21,276 Other current receivables,net .26,762 17,694 Assets under management .3,414 3,755 Prepaid expenses and other current assets .7,424 6,084 Total current assets .92,038 78,437 Long-term investments .46,113 47,609 Property,equipment and capitalized software,net .9,801 11,450 Goodwill .105,436 103,732 Other intangible assets,net .14,729 15,194 Other assets .17,939 17,298 Total assets .$286,056$273,720 Liabilities,redeemable noncontrolling interests and equityCurrent liabilities:Medical costs payable .$32,547$32,395 Accounts payable and accrued liabilities .30,886 31,958 Short-term borrowings and current maturities of long-term debt .11,371 4,274 Unearned revenues .2,572 3,355 Other current liabilities .27,294 27,072 Total current liabilities .104,670 99,054 Long-term debt,less current maturities .63,727 58,263 Deferred income taxes .3,631 3,021 Other liabilities .14,794 14,463 Total liabilities .186,822 174,801 Commitments and contingencies(Note 7)Redeemable noncontrolling interests .4,558 4,498 Equity:Preferred stock,$0.001 par value-10 shares authorized;no shares issued or outstanding .Common stock,$0.01 par value-3,000 shares authorized;921 and 924 issued and outstanding.9 9 Additional paid-in capital .373 Retained earnings .92,400 95,774 Accumulated other comprehensive loss .(3,423)(7,027)Nonredeemable noncontrolling interests .5,317 5,665 Total equity .94,676 94,421 Total liabilities,redeemable noncontrolling interests and equity .$286,056$273,720 See Notes to the Condensed Consolidated Financial Statements 1UnitedHealth GroupCondensed Consolidated Statements of Operations(Unaudited)Three Months Ended June 30,Six Months Ended June 30,(in millions,except per share data)2024202320242023Revenues:Premiums .$76,897$72,474$154,885$145,260 Products .12,211 10,651 24,120 20,918 Services .8,750 8,663 17,638 16,743 Investment and other income .997 1,115 2,008 1,913 Total revenues .98,855 92,903 198,651 184,834 Operating costs:Medical costs .65,458 60,268 131,193 120,113 Operating costs .13,162 13,809 27,239 27,434 Cost of products sold .11,340 9,748 22,396 19,153 Depreciation and amortization .1,020 1,021 2,017 1,991 Total operating costs .90,980 84,846 182,845 168,691 Earnings from operations .7,875 8,057 15,806 16,143 Interest expense .(985)(828)(1,829)(1,582)Loss on sale of subsidiary and subsidiaries held for sale .(1,225)(8,311)Earnings before income taxes .5,665 7,229 5,666 14,561 Provision for income taxes .(1,244)(1,572)(2,466)(3,130)Net earnings .4,421 5,657 3,200 11,431 Earnings attributable to noncontrolling interests .(205)(183)(393)(346)Net earnings attributable to UnitedHealth Group common shareholders .$4,216$5,474$2,807$11,085 Earnings per share attributable to UnitedHealth Group common shareholders:.Basic .$4.58$5.89$3.05$11.91 Diluted .$4.54$5.82$3.02$11.77 Basic weighted-average number of common shares outstanding .921 930 921 931 Dilutive effect of common share equivalents .7 10 8 11 Diluted weighted-average number of common shares outstanding .928 940 929 942 Anti-dilutive shares excluded from the calculation of dilutive effect of common share equivalents .8 7 7 6 See Notes to the Condensed Consolidated Financial Statements 2UnitedHealth GroupCondensed Consolidated Statements of Comprehensive Income(Unaudited)Three Months Ended June 30,Six Months Ended June 30,(in millions)2024202320242023Net earnings .$4,421$5,657$3,200$11,431 Other comprehensive income(loss):Gross unrealized(losses)gains on investment securities during the period .(75)(431)(365)209 Income tax effect .17 99 85 (48)Total unrealized(losses)gains,net of tax .(58)(332)(280)161 Gross reclassification adjustment for net realized gains included in net earnings .(26)(47)(58)(34)Income tax effect .6 11 13 8 Total reclassification adjustment,net of tax .(20)(36)(45)(26)Foreign currency translation gains(losses).8 267 (285)608 Reclassification adjustment for translation losses included in net earnings .86 4,214 Total foreign currency translation gains .94 267 3,929 608 Other comprehensive income(loss).16 (101)3,604 743 Comprehensive income .4,437 5,556 6,804 12,174 Comprehensive income attributable to noncontrolling interests .(205)(183)(393)(346)Comprehensive income attributable to UnitedHealth Group common shareholders .$4,232$5,373$6,411$11,828 See Notes to the Condensed Consolidated Financial Statements 3UnitedHealth GroupCondensed Consolidated Statements of Changes in Equity(Unaudited)Common StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossNonredeemable Noncontrolling InterestsTotal EquityThree months ended June 30,(in millions)SharesAmountNet Unrealized(Losses)Gains on InvestmentsForeign Currency Translation(Losses)GainsBalance at March 31,2024.920$9$90,118$(2,218)$(1,221)$5,682$92,370 Net earnings.4,216 158 4,374 Other comprehensive(loss)income .(78)94 16 Issuances of common stock,and related tax effects .1 196 196 Share-based compensation .210 210 Common share repurchases .3 1 4 Cash dividends paid on common shares($2.10 per share).(1,935)(1,935)Redeemable noncontrolling interests fair value and other adjustments .(36)(36)Acquisition and other adjustments of nonredeemable noncontrolling interests.(338)(338)Distribution to nonredeemable noncontrolling interests .(185)(185)Balance at June 30,2024 .921$9$373$92,400$(2,296)$(1,127)$5,317$94,676 Balance at March 31,2023.932$9$88,852$(2,275)$(5,274)$4,509$85,821 Net earnings.5,474 139 5,613 Other comprehensive(loss)income .(368)267 (101)Issuances of common stock,and related tax effects .1 218 218 Share-based compensation .232 232 Common share repurchases .(6)(442)(2,585)(3,027)Cash dividends paid on common shares($1.88 per share).(1,747)(1,747)Redeemable noncontrolling interests fair value and other adjustments .(8)(8)Acquisition and other adjustments of nonredeemable noncontrolling interests.478 478 Distribution to nonredeemable noncontrolling interests .(111)(111)Balance at June 30,2023 .927$9$89,994$(2,643)$(5,007)$5,015$87,368 See Notes to the Condensed Consolidated Financial Statements 4UnitedHealth GroupCondensed Consolidated Statements of Changes in Equity(Unaudited)Common StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossNonredeemable Noncontrolling InterestsTotal EquitySix months ended June 30,(in millions)SharesAmountNet Unrealized(Losses)Gains on InvestmentsForeign Currency Translation(Losses)GainsBalance at January 1,2024.924$9$95,774$(1,971)$(5,056)$5,665$94,421 Net earnings.2,807 307 3,114 Other comprehensive(loss)income .(325)3,929 3,604 Issuances of common stock,and related tax effects .3 438 438 Share-based compensation .562 562 Common share repurchases .(6)(571)(2,517)(3,088)Cash dividends paid on common shares($3.98 per share).(3,664)(3,664)Redeemable noncontrolling interests fair value and other adjustments .(56)(56)Acquisition and other adjustments of nonredeemable noncontrolling interests.(319)(319)Distribution to nonredeemable noncontrolling interests .(336)(336)Balance at June 30,2024 .921$9$373$92,400$(2,296)$(1,127)$5,317$94,676 Balance at January 1,2023.934$9$86,156$(2,778)$(5,615)$3,678$81,450 Net earnings.11,085 252 11,337 Other comprehensive income .135 608 743 Issuances of common stock,and related tax effects .3 568 568 Share-based compensation .598 598 Common share repurchases .(10)(1,075)(3,963)(5,038)Cash dividends paid on common shares($3.53 per share).(3,284)(3,284)Redeemable noncontrolling interests fair value and other adjustments .(91)(91)Acquisition and other adjustments of nonredeemable noncontrolling interests.1,297 1,297 Distribution to nonredeemable noncontrolling interests .(212)(212)Balance at June 30,2023 .927$9$89,994$(2,643)$(5,007)$5,015$87,368 See Notes to the Condensed Consolidated Financial Statements 5UnitedHealth GroupCondensed Consolidated Statements of Cash Flows(Unaudited)Six Months Ended June 30,(in millions)20242023Operating activitiesNet earnings.$3,200$11,431 Noncash items:Depreciation and amortization .2,017 1,991 Deferred income taxes .(358)(482)Share-based compensation .594 604 Loss on sale of subsidiary and subsidiaries held for sale .8,311 Other,net .459 (91)Net change in other operating items,net of effects from acquisitions,dispositions and changes in AARP balances:Accounts receivable .(2,471)197 Other assets .(4,121)(2,001)Medical costs payable .777 2,408 Accounts payable and other liabilities .36 1,547 Unearned revenues .(554)11,755 Cash flows from operating activities .7,890 27,359 Investing activitiesPurchases of investments .(10,130)(9,225)Sales of investments .5,288 3,188 Maturities of investments .4,621 4,463 Cash paid for acquisitions,net of cash assumed .(3,031)(8,161)Purchases of property,equipment and capitalized software .(1,596)(1,589)Loans to providers-cyberattack .(8,100)Other,net .(809)(424)Cash flows used for investing activities .(13,757)(11,748)Financing activitiesCommon share repurchases .(3,072)(5,000)Cash dividends paid .(3,664)(3,284)Proceeds from common stock issuances .744 628 Repayments of long-term debt .(1,750)(2,125)Proceeds from short-term borrowings,net .8,615 3,426 Proceeds from issuance of long-term debt .5,925 6,394 Customer funds administered .990 4,069 Other,net .(753)(1,377)Cash flows from financing activities .7,035 2,731 Effect of exchange rate changes on cash and cash equivalents .(44)106 Increase in cash and cash equivalents,including cash within businesses held for sale .1,124 18,448 Less:cash within businesses held for sale .(265)Net increase in cash and cash equivalents .859 18,448 Cash and cash equivalents,beginning of period.25,427 23,365 Cash and cash equivalents,end of period .$26,286$41,813 See Notes to the Condensed Consolidated Financial Statements 6UnitedHealth GroupNotes to the Condensed Consolidated Financial Statements(Unaudited)1.Basis of Presentation UnitedHealth Group Incorporated(individually and together with its subsidiaries,“UnitedHealth Group”and the“Company”)is a health care and well-being company with a mission to help people live healthier lives and help make the health system work better for everyone.The Companys two distinct,yet complementary businesses Optum and UnitedHealthcare are working to help build a modern,high-performing health system through improved access,affordability,outcomes and experiences for the individuals and organizations the Company is privileged to serve.The Company has prepared the Condensed Consolidated Financial Statements according to U.S.Generally Accepted Accounting Principles(GAAP)and has included the accounts of UnitedHealth Group and its subsidiaries.The year-end condensed consolidated balance sheet was derived from audited financial statements,but does not include all disclosures required by GAAP.In accordance with the rules and regulations of the U.S.Securities and Exchange Commission(SEC),the Company has omitted certain footnote disclosures that would substantially duplicate the disclosures contained in its annual audited Consolidated Financial Statements.Therefore,these Condensed Consolidated Financial Statements should be read together with the Consolidated Financial Statements and the Notes included in Part II,Item 8,“Financial Statements and Supplementary Data”in the Companys Annual Report on Form 10-K for the year ended December 31,2023 as filed with the SEC(2023 10-K).The accompanying Condensed Consolidated Financial Statements include all normal recurring adjustments necessary to present the interim financial statements fairly.Use of EstimatesThese Condensed Consolidated Financial Statements include certain amounts based on the Companys best estimates and judgments.The Companys most significant estimates relate to estimates and judgments for medical costs payable and goodwill.Certain of these estimates require the application of complex assumptions and judgments,often because they involve matters that are inherently uncertain and will likely change in subsequent periods.The impact of any change in estimates is included in earnings in the period in which the estimate is adjusted.Revenues-Products and ServicesAs of June 30,2024 and December 31,2023,accounts receivable related to products and services were$9.0 billion and$8.6 billion,respectively.As of June 30,2024,revenue expected to be recognized in any future year related to remaining performance obligations,excluding revenue pertaining to contracts having an original expected duration of one year or less,contracts where revenue is recognized as invoiced and contracts with variable consideration related to undelivered performance obligations,was$14.0 billion,of which approximately half is expected to be recognized in the next three years.72.InvestmentsA summary of debt securities by major security type is as follows:(in millions)AmortizedCostGrossUnrealizedGainsGrossUnrealizedLossesFairValueJune 30,2024Debt securities-available-for-sale:U.S.government and agency obligations .$5,007$(264)$4,743 State and municipal obligations .7,299 4 (397)6,906 Corporate obligations .23,193 14 (1,222)21,985 U.S.agency mortgage-backed securities .9,320 3 (899)8,424 Non-U.S.agency mortgage-backed securities .2,894 (218)2,676 Total debt securities-available-for-sale .47,713 21 (3,000)44,734 Debt securities-held-to-maturity:U.S.government and agency obligations .413 (4)409 State and municipal obligations .28 (3)25 Corporate obligations .124 124 Total debt securities-held-to-maturity .565 (7)558 Total debt securities.$48,278$21$(3,007)$45,292 December 31,2023Debt securities-available-for-sale:U.S.government and agency obligations .$4,674$3$(234)$4,443 State and municipal obligations .7,636 39 (322)7,353 Corporate obligations .23,136 67 (1,186)22,017 U.S.agency mortgage-backed securities .8,982 22 (708)8,296 Non-U.S.agency mortgage-backed securities .3,023 3 (240)2,786 Total debt securities-available-for-sale .47,451 134 (2,690)44,895 Debt securities-held-to-maturity:U.S.government and agency obligations .506 1 (6)501 State and municipal obligations .28 (2)26 Corporate obligations .69 69 Total debt securities-held-to-maturity .603 1 (8)596 Total debt securities.$48,054$135$(2,698)$45,491 The Company held$4.2 billion and$4.9 billion of equity securities as of June 30,2024 and December 31,2023,respectively.The Companys investments in equity securities primarily consist of venture investments and employee savings plan related investments.Additionally,the Companys investments included$1.7 billion and$1.4 billion of equity method investments primarily in operating businesses in the health care sector as of June 30,2024 and December 31,2023,respectively.The allowance for credit losses on held-to-maturity securities at June 30,2024 and December 31,2023 was not material.8The amortized cost and fair value of debt securities as of June 30,2024,by contractual maturity,were as follows:Available-for-SaleHeld-to-Maturity(in millions)AmortizedCostFairValueAmortizedCostFairValueDue in one year or less .$5,172$5,137$363$362 Due after one year through five years .14,656 14,021 171 168 Due after five years through ten years .10,930 10,044 14 13 Due after ten years .4,741 4,432 17 15 U.S.agency mortgage-backed securities .9,320 8,424 Non-U.S.agency mortgage-backed securities .2,894 2,676 Total debt securities .$47,713$44,734$565$558 The fair value of available-for-sale debt securities with gross unrealized losses by major security type and length of time that individual securities have been in a continuous unrealized loss position were as follows:Less Than 12 Months12 Months or Greater Total(in millions)FairValueGrossUnrealizedLossesFairValueGrossUnrealizedLossesFairValueGrossUnrealizedLossesJune 30,2024Debt securities-available-for-sale:U.S.government and agency obligations .$1,187$(9)$2,773$(255)$3,960$(264)State and municipal obligations .1,942 (30)4,584 (367)6,526 (397)Corporate obligations .5,334 (49)13,570 (1,173)18,904 (1,222)U.S.agency mortgage-backed securities .2,511 (45)5,757 (854)8,268 (899)Non-U.S.agency mortgage-backed securities .403 (4)2,157 (214)2,560 (218)Total debt securities-available-for-sale .$11,377$(137)$28,841$(2,863)$40,218$(3,000)December 31,2023Debt securities-available-for-sale:U.S.government and agency obligations .$1,270$(7)$2,077$(227)$3,347$(234)State and municipal obligations .907 (7)4,063 (315)4,970 (322)Corporate obligations .1,826 (17)14,696 (1,169)16,522 (1,186)U.S.agency mortgage-backed securities .1,337 (12)5,069 (696)6,406 (708)Non-U.S.agency mortgage-backed securities .279 (6)2,202 (234)2,481 (240)Total debt securities-available-for-sale .$5,619$(49)$28,107$(2,641)$33,726$(2,690)The Companys unrealized losses from debt securities as of June 30,2024 were generated from approximately 33,000 positions out of a total of 40,000 positions.The Company believes that it will timely collect the principal and interest due on its debt securities that have an amortized cost in excess of fair value.The unrealized losses were primarily caused by interest rate increases and not by unfavorable changes in the credit quality associated with these securities which impacted the Companys assessment on collectability of principal and interest.At each reporting period,the Company evaluates available-for-sale debt securities for any credit-related impairment when the fair value of the investment is less than its amortized cost.The Company evaluated the expected cash flows,the underlying credit quality and credit ratings of the issuers,noting no significant credit deterioration since purchase.As of June 30,2024,the Company did not have the intent to sell any of the available-for-sale debt securities in an unrealized loss position.Therefore,the Company believes these losses to be temporary.The allowance for credit losses on available-for-sale debt securities at June 30,2024 and December 31,2023 was not material.93.Fair ValueCertain assets and liabilities are measured at fair value in the Condensed Consolidated Financial Statements or have fair values disclosed in the Notes to the Condensed Consolidated Financial Statements.These assets and liabilities are classified into one of three levels of a hierarchy defined by GAAP.For a description of the methods and assumptions that are used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument,see Note 4 of Notes to the Consolidated Financial Statements included in Part II,Item 8,“Financial Statements and Supplementary Data”in the 2023 10-K.The following table presents a summary of fair value measurements by level and carrying values for items measured at fair value on a recurring basis in the Condensed Consolidated Balance Sheets:(in millions)Quoted Pricesin ActiveMarkets(Level 1)OtherObservableInputs(Level 2)UnobservableInputs(Level 3)TotalFair and CarryingValueJune 30,2024Cash and cash equivalents .$26,070$216$26,286 Debt securities-available-for-sale:U.S.government and agency obligations .4,571 172 4,743 State and municipal obligations .6,906 6,906 Corporate obligations .20 21,768 197 21,985 U.S.agency mortgage-backed securities .8,424 8,424 Non-U.S.agency mortgage-backed securities .2,676 2,676 Total debt securities-available-for-sale .4,591 39,946 197 44,734 Equity securities .1,701 16 69 1,786 Assets under management .1,414 1,893 107 3,414 Total assets at fair value .$33,776$42,071$373$76,220 Percentage of total assets at fair value .44U%10cember 31,2023Cash and cash equivalents .$25,345$82$25,427 Debt securities-available-for-sale:U.S.government and agency obligations .4,167 276 4,443 State and municipal obligations .7,353 7,353 Corporate obligations .15 21,800 202 22,017 U.S.agency mortgage-backed securities .8,296 8,296 Non-U.S.agency mortgage-backed securities .2,786 2,786 Total debt securities-available-for-sale .4,182 40,511 202 44,895 Equity securities .2,468 16 69 2,553 Assets under management .1,505 2,140 110 3,755 Total assets at fair value .$33,500$42,749$381$76,630 Percentage of total assets at fair value .44U%10%There were no transfers in or out of Level 3 financial assets or liabilities during the six months ended June 30,2024 or 2023.10The following table presents a summary of fair value measurements by level and carrying values for certain financial instruments not measured at fair value on a recurring basis in the Condensed Consolidated Balance Sheets:(in millions)Quoted Pricesin ActiveMarkets(Level 1)OtherObservableInputs(Level 2)UnobservableInputs(Level 3)TotalFairValueTotal Carrying ValueJune 30,2024Debt securities-held-to-maturity .$531$27$558$565 Long-term debt and other financing obligations .$61,144$61,144$65,186 December 31,2023Debt securities-held-to-maturity .$524$72$596$603 Long-term debt and other financing obligations .$59,851$59,851$61,449 Nonfinancial assets and liabilities or financial assets and liabilities that are measured at fair value on a nonrecurring basis are subject to fair value adjustments only in certain circumstances,such as when the Company records an impairment.The assets and liabilities within our South American operations held for sale as of June 30,2024 were measured at the lower of carrying value or fair value less cost to sell.Fair value is measured based upon unobservable amounts,such as estimated selling price derived from Company-specific information and market conditions.There were no other significant fair value adjustments for assets and liabilities recorded during the six months ended June 30,2024 or 2023.4.Medical Costs PayableThe following table shows the components of the change in medical costs payable for the six months ended June 30:(in millions)20242023Medical costs payable,beginning of period .$32,395$29,056 Acquisitions(dispositions),net .(687)1 Reported medical costs:Current year .131,583 120,773 Prior years .(390)(660)Total reported medical costs .131,193 120,113 Medical payments:Payments for current year .(102,288)(91,621)Payments for prior years .(27,887)(25,602)Total medical payments .(130,175)(117,223)Less:medical costs payable included within businesses held for sale .(179)Medical costs payable,end of period .$32,547$31,947 For the six months ended June 30,2024 and 2023,prior years medical cost reserve development included no individual factors that were significant.Medical costs payable included reserves for claims incurred by consumers but not yet reported to the Company of$23.6 billion and$22.3 billion at June 30,2024 and December 31,2023,respectively.115.Short-Term Borrowings and Long-Term Debt In March 2024,the Company issued$6.0 billion of senior unsecured notes consisting of the following:(in millions,except percentages)Par Value4.600%notes due April 2027 .$500 4.700%notes due April 2029 .400 4.900%notes due April 2031 .1,000 5.000%notes due April 2034 .1,250 5.375%Notes due April 2054 .1,750 5.500%Notes due April 2064 .1,100 In July 2024,the Company issued$12.0 billion of senior unsecured notes consisting of the following:(in millions,except percentages)Par ValueFloating rate notes due July 2026 .$500 4.750%notes due July 2026 .650 4.800%notes due January 2030 .1,250 4.950%notes due January 2032 .1,500 5.150%notes due July 2034 .2,000 5.500%notes due July 2044 .1,500 5.625%notes due July 2054 .2,750 5.750%notes due July 2064 .1,850 As of June 30,2024,the Company had$9.9 billion of commercial paper outstanding,with a weighted-average annual interest rate of 5.4%.In May 2024,the Company entered into an additional$3 billion 364-day revolving bank credit facility and a$5 billion 364-day delayed draw term loan.As of June 30,2024 no amount had been drawn on any of the bank credit facilities.For more information on the Companys short-term borrowings,debt covenants and long-term debt,see Note 8 of Notes to the Consolidated Financial Statements included in Part II,Item 8,“Financial Statements and Supplementary Data”in the 2023 10-K.6.Shareholders EquityShare Repurchase ProgramIn June 2024,the Companys Board of Directors amended the Companys share repurchase program to authorize the repurchase of up to 35 million shares of Common Stock,in addition to all remaining shares authorized to be repurchased under the Boards 2018 renewal of the program.As of June 30,2024,the Company had 44 million shares remaining available under its share repurchase authorization.DividendsIn June 2024,the Companys Board of Directors increased the Companys quarterly cash dividend to shareholders to an annual rate of$8.40 compared to$7.52 per share,which the Company had paid since June 2023.Declaration and payment of future quarterly dividends is at the discretion of the Board of Directors and may be adjusted as business needs or market conditions change.The following table provides details of the Companys dividend payments during the six months ended June 30,2024:Payment DateAmount per ShareTotal Amount Paid(in millions)March 19 .$1.88$1,729 June 25 .2.10 1,935 127.Commitments and ContingenciesPending TransactionsAs of June 30,2024,the Company had entered into transaction agreements in the health care sector,subject to regulatory approval and/or other customary closing conditions.The total anticipated consideration required for these transactions,excluding the payoff of acquired indebtedness,was approximately$6 billion.In July,2024,the Company completed transactions in the health care sector for total consideration of approximately$10 billion.Legal MattersThe Company is frequently made party to a variety of legal actions and regulatory inquiries,including class actions and suits brought by members,care providers,consumer advocacy organizations,customers and regulators,relating to the Companys businesses,including management and administration of health benefit plans and other services.These matters include medical malpractice,employment,intellectual property,antitrust,privacy and contract claims and claims related to health care benefits coverage and other business practices.The Company records liabilities for its estimates of probable costs resulting from these matters where appropriate.Estimates of costs resulting from legal and regulatory matters involving the Company are inherently difficult to predict,particularly where the matters:involve indeterminate claims for monetary damages or may involve fines,penalties or punitive damages;present novel legal theories or represent a shift in regulatory policy;involve a large number of claimants or regulatory bodies;are in the early stages of the proceedings;or could result in a change in business practices.Accordingly,the Company is often unable to estimate the losses or ranges of losses for those matters where there is a reasonable possibility or it is probable a loss may be incurred.Government Investigations,Audits and ReviewsThe Company has been involved or is currently involved in various governmental investigations,audits and reviews.These include routine,regular and special investigations,audits and reviews by the Centers for Medicare and Medicaid Services(CMS),state insurance and health and welfare departments,state attorneys general,the Office of the Inspector General,the Office of Personnel Management,the Office of Civil Rights,the Government Accountability Office,the Federal Trade Commission,U.S.Congressional committees,the U.S.Department of Justice(DOJ),the SEC,the Internal Revenue Service,the U.S.Drug Enforcement Administration,the U.S.Department of Labor,the Federal Deposit Insurance Corporation,the Consumer Financial Protection Bureau(CFPB),the Defense Contract Audit Agency and other governmental authorities.Similarly,the Companys international businesses are also subject to investigations,audits and reviews by applicable foreign governments.The Company has also been responding to subpoenas,information requests and investigations from governmental entities.The Company can provide no assurance as to the scope and outcome of these matters and no assurance as to whether its business,financial condition or results of operations will be materially adversely affected.Certain of the Companys businesses have been reviewed or are currently under review,including for,among other matters,compliance with coding and other requirements under the Medicare risk-adjustment model.CMS has selected certain of the Companys local plans for risk adjustment data validation(RADV)audits to validate the coding practices of and supporting documentation maintained by health care providers and such audits may result in retrospective adjustments to payments made to the Companys health plans.On February 14,2017,the DOJ announced its decision to pursue certain claims within a lawsuit initially asserted against the Company and filed under seal by a whistleblower in 2011.The whistleblowers complaint,which was unsealed on February 15,2017,alleges the Company made improper risk adjustment submissions and violated the False Claims Act.On February 12,2018,the court granted in part and denied in part the Companys motion to dismiss.In May 2018,the DOJ moved to dismiss the Companys counterclaims,which were filed in March 2018,and moved for partial summary judgment.In March 2019,the court denied the governments motion for partial summary judgment and dismissed the Companys counterclaims without prejudice.The Company cannot reasonably estimate the outcome which may result from this matter given its procedural status.138.Disposition and Held for SaleOn February 6,2024,the Company completed the sale of its Brazil operations.During the six months ended June 30,2024,the Company recorded a loss of$7.1 billion within the Condensed Consolidated Statement of Operations,of which$4.1 billion related to the impact of cumulative foreign currency translation losses previously included in accumulated other comprehensive loss.In the second quarter of 2024,the Company initiated a plan to sell its remaining South American operations.The sales are expected to close within a year,subject to regulatory and other customary closing conditions.The Company determined that the businesses are classified as held for sale.Assets and liabilities held for sale have been included within prepaid and other current assets and other current liabilities on the Condensed Consolidated Balance Sheet,respectively.In the second quarter of 2024,the Company recorded a loss of$1.2 billion within the Condensed Consolidated Statements of Operations,of which$867 million related to the impact of cumulative foreign currency translation losses.The assets and liabilities of the Brazil and held for sale disposal groups as of the date of the sale and as of June 30,2024,respectively,were as follows:(in millions)Brazil DispositionBusinesses Held for SaleAssetsCash and cash equivalents .$778$265 Accounts receivable and other current assets .515 608 Long-term investments .788 39 Property,equipment and capitalized software .1,052 633 Deferred tax assets .1,035 Goodwill and other intangible assets .317 445 Other long-term assets .439 246 Remeasurement of assets of businesses held for sale to fair value less cost to sell(1).(1,225)Total assets .$4,924$1,011 LiabilitiesMedical costs payable .$701$179 Accounts payable and other current liabilities .834 378 Other long-term liabilities .136 524 Total liabilities .$1,671$1,081(1)Includes the effect of$867 million of cumulative foreign currency translation losses and$52 million of noncontrolling interests.149.Segment Financial InformationThe Companys four reportable segments are UnitedHealthcare,Optum Health,Optum Insight and Optum Rx.For more information on the Companys segments,see Part I,Item I,“Business”and Note 14 of Notes to the Consolidated Financial Statements included in Part II,Item 8,“Financial Statements and Supplementary Data”in the 2023 10-K.The following tables present reportable segment financial information:Optum (in millions)UnitedHealthcareOptum HealthOptum InsightOptum RxOptum EliminationsOptumCorporate andEliminationsConsolidatedThree Months Ended June 30,2024Revenues-unaffiliated customers:Premiums .$70,950$5,947$5,947$76,897 Products .62 41 12,108 12,211 12,211 Services .2,388 4,083 1,405 874 6,362 8,750 Total revenues-unaffiliated customers .73,338 10,092 1,446 12,982 24,520 97,858 Total revenues-affiliated customers .16,576 3,070 19,373 (1,129)37,890 (37,890)Investment and other income.528 382 27 60 469 997 Total revenues .$73,866$27,050$4,543$32,415$(1,129)$62,879$(37,890)$98,855 Earnings from operations .$4,004$1,919$546$1,406$3,871$7,875 Interest expense .(985)(985)Loss on sale of subsidiary and subsidiaries held for sale .(1,225)(1,225)Earnings before income taxes .$2,779$1,919$546$1,406$3,871$(985)$5,665 Three Months Ended June 30,2023Revenues-unaffiliated customers:Premiums .$67,047$5,427$5,427$72,474 Products .51 39 10,561 10,651 10,651 Services .2,584 3,541 1,995 543 6,079 8,663 Total revenues-unaffiliated customers .69,631 9,019 2,034 11,104 22,157 91,788 Total revenues-affiliated customers .14,454 2,615 17,496 (893)33,672 (33,672)Investment and other income.600 444 25 46 515 1,115 Total revenues .$70,231$23,917$4,674$28,646$(893)$56,344$(33,672)$92,903 Earnings from operations .$4,358$1,525$968$1,206$3,699$8,057 Interest expense .(828)(828)Earnings before income taxes .$4,358$1,525$968$1,206$3,699$(828)$7,229 15 Optum (in millions)UnitedHealthcareOptum HealthOptum InsightOptum RxOptum EliminationsOptumCorporate andEliminationsConsolidatedSix Months Ended June 30,2024Revenues-unaffiliated customers:Premiums .$143,243$11,642$11,642$154,885 Products .121 82 23,917 24,120 24,120 Services .4,917 8,053 3,107 1,561 12,721 17,638 Total revenues-unaffiliated customers .148,160 19,816 3,189 25,478 48,483 196,643 Total revenues-affiliated customers .33,193 5,801 37,654 (2,145)74,503 (74,503)Investment and other income.1,063 772 55 118 945 2,008 Total revenues .$149,223$53,781$9,045$63,250$(2,145)$123,931$(74,503)$198,651 Earnings from operations .$8,399$3,818$1,036$2,553$7,407$15,806 Interest expense .(1,829)(1,829)Loss on sale of subsidiary and subsidiaries held for sale .(8,311)(8,311)Earnings before income taxes .$88$3,818$1,036$2,553$7,407$(1,829)$5,666 Six Months Ended June 30,2023Revenues-unaffiliated customers:Premiums .$134,505$10,755$10,755$145,260 Products .95 79 20,744 20,918 20,918 Services .5,139 6,630 3,921 1,053 11,604 16,743 Total revenues-unaffiliated customers .139,644 17,480 4,000 21,797 43,277 182,921 Total revenues-affiliated customers .28,720 5,125 34,175 (1,752)66,268 (66,268)Investment and other income.1,055 721 45 92 858 1,913 Total revenues .$140,699$46,921$9,170$56,064$(1,752)$110,403$(66,268)$184,834 Earnings from operations .$8,701$3,301$1,875$2,266$7,442$16,143 Interest expense .(1,582)(1,582)Earnings before income taxes .$8,701$3,301$1,875$2,266$7,442$(1,582)$14,561 16ITEM 2.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion should be read together with the accompanying Condensed Consolidated Financial Statements and Notes and with our 2023 10-K,including the Consolidated Financial Statements and Notes included in Part II,Item 8,“Financial Statements and Supplementary Data”in that report.Unless the context indicates otherwise,references to the terms“UnitedHealth Group,”the“Company,”“we,”“our”or“us”used throughout this Managements Discussion and Analysis of Financial Condition and Results of Operations refer to UnitedHealth Group Incorporated and its consolidated subsidiaries.Readers are cautioned that the statements,estimates,projections or outlook contained in this Managements Discussion and Analysis of Financial Condition and Results of Operations,including discussions regarding financial prospects,economic conditions,trends and uncertainties contained in this Item 2,may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995(PSLRA).These forward-looking statements involve risks and uncertainties that may cause our actual results to differ materially from the results discussed or implied in the forward-looking statements.A description of some of the risks and uncertainties is set forth in Part I,Item 1A,“Risk Factors”in our 2023 10-K and in the discussion below.EXECUTIVE OVERVIEW GeneralUnitedHealth Group is a health care and well-being company with a mission to help people live healthier lives and help make the health system work better for everyone.Our two distinct,yet complementary businesses Optum and UnitedHealthcare are working to help build a modern,high-performing health system through improved access,affordability,outcomes and experiences for the individuals and organizations we are privileged to serve.We have four reportable segments:Optum Health;Optum Insight;Optum Rx;andUnitedHealthcare,which includes UnitedHealthcare Employer&Individual,UnitedHealthcare Medicare&Retirement and UnitedHealthcare Community&State.Further information on our business is presented in Part I,Item 1,“Business”and Part II,Item 7,“Managements Discussion and Analysis of Financial Condition and Results of Operations”in our 2023 10-K and additional information on our segments can be found in this Item 2 and in Note 9 of Notes to the Condensed Consolidated Financial Statements included in Part I,Item 1 of this report.Change Healthcare CyberattackAs previously announced,on February 21,2024,we identified that cybercrime threat actors had gained access to certain Change Healthcare information technology systems.Upon detection of this outside threat,we isolated the impacted systems to protect our partners and customers.We have made substantial progress in mitigating the impact to consumers and care providers of the unprecedented cyberattack on the U.S.health system and have restored the majority of the affected Change Healthcare services.To support care providers,we accelerated funding and provided interest-free loans of more than$9 billion through June 30,2024.For the three and six months ended June 30,2024,we incurred$776 million and$1.4 billion of direct response costs,respectively,including network restoration and increased medical care expenditures,as we suspended some care management activities to help care providers with their workflow processes.Optum Insight also experienced estimated business disruption impacts of$334 million and$613 million for the three and six months ended June 30,2024,respectively,reflecting lost revenue while maintaining full readiness of the affected Change Healthcare services.We expect to continue to incur direct response costs and experience business disruption impacts over the remainder of the year,including costs to continue to restore Change Healthcares services.Based upon our ongoing review of the impacted data,we have found files containing protected health information(PHI)or personally identifiable information(PII),which cover a substantial proportion of people in America.In June 2024,Change Healthcare gave public notice of the breach under HIPAA and began notifying affected customer entities in June and individuals in late July.The investigation of impacted data is ongoing.It is possible that future risks and uncertainties resulting from the Change Healthcare cyberattack,including risks related to impacted data,litigation,reputational harm,and regulatory actions could adversely affect our financial condition or results of operations.17Business TrendsOur businesses participate in the United States and certain other international health markets.We expect overall spending on health care to continue to grow in the future,due to inflation,medical technology and pharmaceutical advancement,regulatory requirements,demographic trends in the population and national interest in health and well-being.The rate of market growth may be affected by a variety of factors,including macroeconomic conditions and regulatory changes,which could impact our results of operations,including our continued efforts to control health care costs.Pricing Trends.To price our health care benefits,products and services,we start with our view of expected future costs,including medical cost trends,inflation and labor market dynamics.We frequently evaluate and adjust our approach in each of the local markets we serve,considering all relevant factors,such as product positioning,price competitiveness and environmental,competitive,legislative and regulatory considerations,including minimum medical loss ratio thresholds and similar revenue adjustments.We will continue seeking to balance growth and profitability across all these dimensions.The commercial risk market remains highly competitive in the small group,large group and individual segments.We expect broad-based competition to continue as the industry adapts to individual and employer needs.Government programs in the community and senior sector tend to receive lower rates of increase than the commercial market due to governmental budget pressures and lower cost trends.Medical Cost Trends.Our medical cost trends primarily relate to changes in unit costs,care activity and prescription drug costs.As expected and contemplated in our benefits design,we have continued to observe increased care patterns,primarily related to outpatient procedures for seniors,which may continue in future periods.We endeavor to mitigate those increases by engaging physicians and consumers with information and helping them make clinically sound choices,with the objective of helping them achieve quality,affordable care.As a result of the Change Healthcare cyberattack,we incurred medical costs related to the impact of the temporary suspension of some care management activities,impacting our UnitedHealthcare and Optum Health businesses,to help care providers with their workflow processes.Early in the second quarter we resumed these activities.For the three and six months June 30,2024,medical costs related to the temporary suspension of some care management activities were$290 million and$630 million,respectively.Medicaid Redeterminations.Medicaid redeterminations have continued to impact the number of people served through our Medicaid offerings,partially offset by an increase in consumers served through our commercial offerings as we endeavor to ensure that people and families have continued access to care.Regulatory Trends and UncertaintiesMedicare Advantage Rates.Medicare Advantage rate notices over the years have at times resulted in industry base rates well below the industry forward medical trend.For example,the Final Notices for 2024 and 2025 rates resulted in an industry base rate decrease,both well short of an increasing industry forward medical cost trend,creating continued pressure in the Medicare Advantage program.Further,substantial revisions to the risk adjustment model,which serves to adjust rates to reflect a patients health status and care resource needs,will result in reduced funding and potentially benefits for people,especially those with some of the greatest health and social challenges.As a result of ongoing Medicare funding pressures,there are adjustments we can make to partially offset these rate pressures and reductions for a particular period.For example,we can seek to intensify our medical and operating cost management,make changes to the size and composition of our care provider networks,adjust member benefits and implement or increase the member premiums supplementing the monthly payments we receive from the government.Additionally,we decide annually on a county-by-county basis where we will offer Medicare Advantage plans.18SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMSThe following summarizes select second quarter 2024 year-over-year operating comparisons to second quarter 2023 and other financial results.Consolidated revenues grew 6%,UnitedHealthcare revenues grew 5%and Optum revenues grew 12%.UnitedHealthcare served 1.6 million more people domestically,driven by growth in commercial offerings,partially offset by the impact of Medicaid redeterminations.Consolidated earnings from operations of$7.9 billion compared to$8.1 billion last year,impacted by the Change Healthcare cyberattack.Diluted earnings per common share was$4.54,impacted by the loss on our South American subsidiaries held for sale and the Change Healthcare cyberattack.Cash flows from operations for the six months ended June 30,2024 were$7.9 billion.RESULTS SUMMARYThe following table summarizes our consolidated results of operations and other financial information:(in millions,except percentages and per share data)Three Months Ended June 30,Increase/(Decrease)Six Months EndedJune 30,Increase/(Decrease)202420232024 vs.2023202420232024 vs.2023Revenues:Premiums .$76,897$72,474$4,423 6%$154,885$145,260$9,625 7%Products .12,211 10,651 1,560 15 24,120 20,918 3,202 15 Services .8,750 8,663 87 1 17,638 16,743 895 5 Investment and other income .997 1,115 (118)(11)2,008 1,913 95 5 Total revenues .98,855 92,903 5,952 6 198,651 184,834 13,817 7 Operating costs:Medical costs .65,458 60,268 5,190 9 131,193 120,113 11,080 9 Operating costs .13,162 13,809 (647)(5)27,239 27,434 (195)(1)Cost of products sold .11,340 9,748 1,592 16 22,396 19,153 3,243 17 Depreciation and amortization .1,020 1,021 (1)2,017 1,991 26 1 Total operating costs .90,980 84,846 6,134 7 182,845 168,691 14,154 8 Earnings from operations .7,875 8,057 (182)(2)15,806 16,143 (337)(2)Interest expense .(985)(828)(157)19 (1,829)(1,582)(247)16 Loss on sale of subsidiary and subsidiaries held for sale .(1,225)(1,225)nm(8,311)(8,311)nmEarnings before income taxes .5,665 7,229 (1,564)(22)5,666 14,561 (8,895)(61)Provision for income taxes .(1,244)(1,572)328 (21)(2,466)(3,130)664 (21)Net earnings.4,421 5,657 (1,236)(22)3,200 11,431 (8,231)(72)Earnings attributable to noncontrolling interests.(205)(183)(22)12 (393)(346)(47)14 Net earnings attributable to UnitedHealth Group common shareholders .$4,216$5,474$(1,258)(23)$2,807$11,085$(8,278)(75)Diluted earnings per share attributable to UnitedHealth Group common shareholders .$4.54$5.82$(1.28)$3.02$11.77$(8.75)Medical care ratio(a).85.1.2%1.9.7.7%2.0%Operating cost ratio .13.3 14.9 (1.6)13.7 14.8 (1.1)Operating margin .8.0 8.7 (0.7)8.0 8.7 (0.7)Tax rate .22.0 21.7 0.3 43.5 21.5 22.0 Net earnings margin(b).4.3 5.9 (1.6)1.4 6.0 (4.6)Return on equity(c).19.2&.8%(7.6)6.4.5%(21.1)nm=not meaningful(a)Medical care ratio(MCR)is calculated as medical costs divided by premium revenue.(b)Net earnings margin attributable to UnitedHealth Group shareholders.(c)Return on equity is calculated as annualized net earnings attributable to UnitedHealth Group common shareholders divided by average shareholders equity.Average shareholders equity is calculated using the shareholders equity balance at the end of the preceding year and the shareholders equity balances at the end of each of the quarters in the year presented.192024 RESULTS OF OPERATIONS COMPARED TO 2023 RESULTS OF OPERATIONSConsolidated Financial ResultsRevenuesThe increases in revenues were primarily driven by growth in Optum Rx and Optum Health,growth across our UnitedHealthcare domestic offerings and pricing trends,partially offset by decreased UnitedHealthcare international revenue due to the sale of our Brazil operations.Medical Costs and MCRMedical costs increased primarily due to growth in people served through Medicare Advantage,those with higher acuity needs and domestic commercial offerings.The MCR increased as a result of the revenue effects of the Medicare funding reductions,incremental medical costs for accommodations made to care providers as a result of the Change Healthcare cyberattack,South American impacts and decreased favorable reserve development.Operating Cost RatioThe operating cost ratio decreased primarily due to operating cost management,partially offset by the impact of our direct response efforts to the Change Healthcare cyberattack and investments to support future growth.Loss on Sale of Subsidiary and Subsidiaries Held for SaleOn February 6,2024,the Company completed the sale of its Brazil operations.During the six months ended June 30,2024,we recorded a loss of$7.1 billion,of which$4.1 billion related to the impact of cumulative foreign currency translation losses previously included in accumulated other comprehensive loss.In the second quarter of 2024,the Company initiated a plan to sell its remaining South American operations,which were classified as held for sale as of June 30,2024.As a result,the Company recorded a loss of$1.2 billion,of which$867 million related to the impact of cumulative foreign currency translation losses.Reportable SegmentsSee Note 9 of Notes to the Condensed Consolidated Financial Statements included in Part I,Item 1 of this report for more information on our segments.We utilize various metrics to evaluate and manage our reportable segments,including people served by UnitedHealthcare by major market segment and funding arrangement,people served by Optum Health and adjusted scripts for Optum Rx.These metrics are the main drivers of revenue,earnings and cash flows at each business.The metrics also allow management and investors to evaluate and understand business mix,including the level and scope of services provided to people,and pricing trends when comparing the metrics to revenue by segment.20The following table presents a summary of the reportable segment financial information:Three Months Ended June 30,Increase/(Decrease)Six Months Ended June 30,Increase/(Decrease)(in millions,except percentages)202420232024 vs.2023202420232024 vs.2023RevenuesUnitedHealthcare .$73,866$70,231$3,635 5%$149,223$140,699$8,524 6%Optum Health .27,050 23,917 3,133 13 53,781 46,921 6,860 15 Optum Insight .4,543 4,674 (131)(3)9,045 9,170 (125)(1)Optum Rx .32,415 28,646 3,769 13 63,250 56,064 7,186 13 Optum eliminations .(1,129)(893)(236)26 (2,145)(1,752)(393)22 Optum .62,879 56,344 6,535 12 123,931 110,403 13,528 12 Eliminations .(37,890)(33,672)(4,218)13 (74,503)(66,268)(8,235)12 Consolidated revenues .$98,855$92,903$5,952 6%$198,651$184,834$13,817 7rnings from operationsUnitedHealthcare .$4,004$4,358$(354)(8)%$8,399$8,701$(302)(3)%Optum Health .1,919 1,525 394 26 3,818 3,301 517 16 Optum Insight .546 968 (422)(44)1,036 1,875 (839)(45)Optum Rx .1,406 1,206 200 17 2,553 2,266 287 13 Optum .3,871 3,699 172 5 7,407 7,442 (35)Consolidated earnings from operations .$7,875$8,057$(182)(2)%$15,806$16,143$(337)(2)%Operating marginUnitedHealthcare .5.4%6.2%(0.8)%5.6%6.2%(0.6)%Optum Health .7.1 6.4 0.7 7.1 7.0 0.1 Optum Insight .12.0 20.7 (8.7)11.5 20.4 (8.9)Optum Rx .4.3 4.2 0.1 4.0 4.0 Optum .6.2 6.6 (0.4)6.0 6.7 (0.7)Consolidated operating margin .8.0%8.7%(0.7)%8.0%8.7%(0.7)%UnitedHealthcareThe following table summarizes UnitedHealthcare revenues by business:Three Months Ended June 30,Increase/(Decrease)Six Months Ended June 30,Increase/(Decrease)(in millions,except percentages)202420232024 vs.2023202420232024 vs.2023UnitedHealthcare Employer&Individual-Domestic .$18,646$16,759$1,887 11%$36,485$33,303$3,182 10%UnitedHealthcare Employer&Individual-Global .591 2,325 (1,734)(75)2,123 4,488 (2,365)(53)UnitedHealthcare Employer&Individual-Total.19,237 19,084 153 1 38,608 37,791 817 2 UnitedHealthcare Medicare&Retirement .34,904 32,440 2,464 8 70,390 65,446 4,944 8 UnitedHealthcare Community&State .19,725 18,707 1,018 5 40,225 37,462 2,763 7 Total UnitedHealthcare revenues .$73,866$70,231$3,635 5%$149,223$140,699$8,524 6!The following table summarizes the number of people served by our UnitedHealthcare businesses,by major market segment and funding arrangement:June 30,Increase/(Decrease)(in thousands,except percentages)202420232024 vs.2023Commercial-Domestic:Risk-based .8,735 8,035 700 9e-based .20,835 19,140 1,695 9 Total Commercial-Domestic .29,570 27,175 2,395 9 Medicare Advantage .7,770 7,590 180 2 Medicaid .7,410 8,355 (945)(11)Medicare Supplement(Standardized).4,335 4,330 5 Total Community and Senior .19,515 20,275 (760)(4)Total UnitedHealthcare-Domestic Medical .49,085 47,450 1,635 3 Commercial-Global .1,330 5,385 (4,055)(75)Total UnitedHealthcare-Medical.50,415 52,835 (2,420)(5)%Supplemental Data:Medicare Part D stand-alone .3,065 3,355 (290)(9)%UnitedHealthcares revenues increased due to growth in the number of people served through Medicare Advantage,domestic commercial offerings and those with higher acuity needs,partially offset by decreased people served globally due to the sale of our Brazil operations and Medicaid offerings due to continued redeterminations.Earnings from operations increased due to the factors impacting revenue,partially offset by Medicare Advantage funding reductions and incremental medical costs for accommodations to support care providers as a result of the Change Healthcare cyberattack.OptumTotal revenues increased due to growth at Optum Rx and Optum Health.Earnings from operations increased for the three months ended June 30,2024 and were consistent for the six months ended June 30,2024,with growth at Optum Rx and Optum Health offset by the impacts of the Change Healthcare cyberattack.The results by segment were as follows:Optum HealthRevenues at Optum Health increased primarily due to organic growth in patients served under value-based care arrangements.Earnings from operations increased due to cost management initiatives,partially offset by costs associated with serving newly added patients under value-based care arrangements.For the six months ended June 30,2024,earnings from operations increases were also partially offset by incremental medical costs for accommodations to support care providers as a result of the Change Healthcare cyberattack.Optum Health served approximately 104 million people and 103 million people as of June 30,2024 and June 30,2023,respectively.Optum InsightRevenues at Optum Insight decreased due the business disruption impacts from the Change Healthcare cyberattack,partially offset by growth in technology services.Earnings from operations decreased primarily due to the business disruption impacts and direct response costs related to the Change Healthcare cyberattack.Optum RxRevenues and earnings from operations at Optum Rx increased due to higher script volumes from both new clients and growth in existing clients and growth in pharmacy services.Optum Rx fulfilled 399 million and 381 million adjusted scripts in the second quarters of 2024 and 2023,respectively.22LIQUIDITY,FINANCIAL CONDITION AND CAPITAL RESOURCESLiquiditySummary of our Major Sources and Uses of Cash and Cash Equivalents Six Months Ended June 30,Increase/(Decrease)(in millions)202420232024 vs.2023Sources of cash:Cash provided by operating activities .$7,890$27,359$(19,469)Issuances of short-term borrowings and long-term debt,net of repayments .12,790 7,695 5,095 Proceeds from common stock issuances .744 628 116 Customer funds administered .990 4,069 (3,079)Total sources of cash.22,414 39,751 (17,337)Uses of cash:Common stock repurchases .(3,072)(5,000)1,928 Cash paid for acquisitions,net of cash assumed .(3,031)(8,161)5,130 Purchases of investments,net of sales and maturities .(221)(1,574)1,353 Purchases of property,equipment and capitalized software .(1,596)(1,589)(7)Cash dividends paid .(3,664)(3,284)(380)Loans to providers-cyberattack .(8,100)(8,100)Other .(1,562)(1,801)239 Total uses of cash .(21,246)(21,409)163 Effect of exchange rate changes on cash and cash equivalents .(44)106 (150)Increase in cash and cash equivalents,including cash classified within assets held for sale .$1,124$18,448$(17,324)Less:net increase in cash classified within assets held for sale .(265)(265)Net increase in cash and cash equivalents .$859$18,448$(17,589)2024 Cash Flows Compared to 2023 Cash FlowsDecreased cash flows provided by operating activities were primarily driven by the receipt of the July CMS premium payment of$11.8 billion in June 2023 and Change Healthcare cyberattack response actions,including the acceleration of provider payments.Other significant changes in sources or uses of cash year-over-year included decreased cash paid for acquisitions,increased net issuances of short-term borrowings and long-term debt,decreased share repurchases and net purchases of investments,offset by loans to care providers in response to the Change Healthcare cyberattack and decreased customer funds administered.Financial ConditionAs of June 30,2024,our cash,cash equivalent,available-for-sale debt securities and equity securities balances of$75.2 billion included approximately$26.3 billion of cash and cash equivalents(of which$4.1 billion was available for general corporate use),$44.7 billion of debt securities and$4.2 billion of investments in equity securities.Given the significant portion of our portfolio held in cash and cash equivalents,we do not anticipate fluctuations in the aggregate fair value of our financial assets to have a material impact on our liquidity or capital position.Our available-for-sale debt securities portfolio had a weighted-average duration of 4.0 years and a weighted-average credit rating of“Double A”as of June 30,2024.When multiple credit ratings are available for an individual security,the average of the available ratings is used to determine the weighted-average credit rating.23Capital Resources and Uses of LiquidityIn addition to cash flows from operations and cash and cash equivalent balances available for general corporate use,our capital resources and uses of liquidity are as follows:Cash Requirements.A summary of our cash requirements as of December 31,2023 was disclosed in Part II,Item 7,“Managements Discussion and Analysis of Financial Condition and Results of Operations”in our 2023 10-K.During the six months ended June 30,2024,there were no material changes to this previously disclosed information outside the ordinary course of business.We believe our capital resources are sufficient to meet future,short-term and long-term,liquidity needs.We continually evaluate opportunities to expand our operations,including through internal development of new products,programs and technology applications and business combinations.Short-Term Borrowings.Our revolving bank credit facilities provide liquidity support for our commercial paper borrowing program,which facilitates the private placement of unsecured debt through independent broker-dealers,and are available for general corporate purposes.For more information on our commercial paper and bank credit facilities,see Note 5 of Notes to the Condensed Consolidated Financial Statements included in Part I,Item 1 of this report and Note 8 of Notes to the Consolidated Financial Statements included in Part II,Item 8,“Financial Statements and Supplementary Data”in our 2023 10-K.Our revolving bank credit facilities contain various covenants,including covenants requiring us to maintain a defined debt to debt-plus-shareholders equity ratio of not more than 60%.As of June 30,2024,our debt to debt-plus-shareholders equity ratio,as defined and calculated under the credit facilities,was approximately 43%.Long-Term Debt.Periodically,we access capital markets and issue long-term debt for general corporate purposes,such as to meet our working capital requirements,to refinance debt,to finance acquisitions or for share repurchases.For more information on our long-term debt,see Note 5 of Notes to the Condensed Consolidated Financial Statements included in Part I,Item 1 of this report and Note 8 of Notes to the Consolidated Financial Statements included in Part II,Item 8,“Financial Statements and Supplementary Data”in our 2023 10-K.Credit Ratings.Our credit ratings as of June 30,2024 were as follows:MoodysS&P GlobalFitchA.M.Best RatingsOutlookRatingsOutlookRatingsOutlookRatingsOutlookSenior unsecured debt .A2StableA StableAStableAStableCommercial paper .P-1n/aA-1n/aF1n/aAMB-1 n/aThe availability of financing in the form of debt or equity is influenced by many factors,including our profitability,operating cash flows,debt levels,credit ratings,debt covenants and other contractual restrictions,regulatory requirements and economic and market conditions.A significant downgrade in our credit ratings or adverse conditions in the capital markets may increase the cost of borrowing for us or limit our access to capital.Share Repurchase Program.During the six months ended June 30,2024,we repurchased approximately 6 million shares at an average price of$505.46 per share.In June 2024,our Board of Directors amended our share repurchase program to authorize the repurchase of up to 35 million shares of Common Stock,in addition to all remaining shares authorized to be repurchased under the Boards 2018 renewal of the program.As of June 30,2024,we had Board of Directors authorization to purchase up to 44 million shares of our common stock.The Board of Directors from time to time may further amend the share repurchase program in order to increase the authorized number of shares which may be repurchased under the program.Dividends.In June 2024,our Board of Directors increased our quarterly cash dividend to an annual rate of$8.40 compared to$7.52 per share,which we had paid since June 2023.For more information on our dividend,see Note 6 of Notes to the Condensed Consolidated Financial Statements included in Part I,Item 1 of this report.Pending Transactions.As of June 30,2024,the Company had entered into transaction agreements in the health care sector,subject to regulatory approval and/or other customary closing conditions.The total anticipated consideration required for these transactions,excluding the payoff of acquired indebtedness,was approximately$6 billion.In July,2024,the Company completed transactions in the health care sector for total consideration of approximately$10 billion.For additional liquidity discussion,see Note 10 of Notes to the Consolidated Financial Statements included in Part II,Item 8,“Financial Statements and Supplementary Data”and“Managements Discussion and Analysis of Financial Condition and Results of Operations”included in Part II,Item 7 in our 2023 10-K.24RECENTLY ISSUED ACCOUNTING STANDARDS There are no recently issued accounting standards that are expected to have a material impact on our Condensed Consolidated Financial Statements.CRITICAL ACCOUNTING ESTIMATESIn preparing our Condensed Consolidated Financial Statements,we are required to make judgments,assumptions and estimates,which we believe are reasonable and prudent based on the available facts and circumstances.These judgments,assumptions and estimates affect certain of our revenues and expenses and their related balance sheet accounts and disclosure of our contingent liabilities.We base our assumptions and estimates primarily on historical experience and consider known and projected trends.On an ongoing basis,we re-evaluate our selection of assumptions and the method of calculating our estimates.Actual results,however,may materially differ from our calculated estimates,and this difference would be reported in our current operations.Our critical accounting estimates include medical costs payable and goodwill.For a detailed description of our critical accounting estimates,see“Managements Discussion and Analysis of Financial Condition and Results of Operations”included in Part II,Item 7 in our 2023 10-K.For a detailed discussion of our significant accounting policies,see Note 2 of Notes to the Consolidated Financial Statements included in Part II,Item 8,“Financial Statements and Supplementary Data”in our 2023 10-K.FORWARD-LOOKING STATEMENTSThe statements,estimates,projections,guidance or outlook contained in this document include“forward-looking”statements which are intended to take advantage of the“safe harbor”provisions of the federal securities laws.The words“believe,”“expect,”“intend,”“estimate,”“anticipate,”“forecast,”“outlook,”“plan,”“project,”“should”and similar expressions identify forward-looking statements.These statements may contain information about financial prospects,economic conditions and trends and involve risks and uncertainties.Actual results could differ materially from those that management expects,depending on the outcome of certain factors including:our ability to effectively estimate,price for and manage medical costs;new or changes in existing health care laws or regulations,or their enforcement or application;cyberattacks,other privacy/data security incidents,or our failure to comply with related regulations;reductions in revenue or delays to cash flows received under government programs;changes in Medicare,the CMS star ratings program or the application of risk adjustment data validation audits;the DOJs legal action relating to the risk adjustment submission matter;our ability to maintain and achieve improvement in quality scores impacting revenue;failure to maintain effective and efficient information systems or if our technology products do not operate as intended;risks and uncertainties associated with our businesses providing pharmacy care services;competitive pressures,including our ability to maintain or increase our market share;changes in or challenges to our public sector contract awards;failure to achieve targeted operating cost productivity improvements;failure to develop and maintain satisfactory relationships with health care payers,physicians,hospitals and other service providers;the impact of potential changes in tax laws and regulations;increases in costs and other liabilities associated with litigation,government investigations,audits or reviews;failure to complete,manage or integrate strategic transactions;risk and uncertainties associated with the continuing sale of operations in South America;risks associated with public health crises arising from large-scale medical emergencies,pandemics,natural disasters and other extreme events;failure to attract,develop,retain,and manage the succession of key employees and executives;our investment portfolio performance;impairment of our goodwill and intangible assets;failure to protect proprietary rights to our databases,software and related products;downgrades in our credit ratings;and our ability to obtain sufficient funds from our regulated subsidiaries or from external financings to fund our obligations,reinvest in our business,maintain our debt to total capital ratio at targeted levels,maintain our quarterly dividend payment cycle,or continue repurchasing shares of our common stock.This above list is not exhaustive.We discuss these matters,and certain risks that may affect our business operations,financial condition and results of operations,more fully in our filings with the SEC,including our reports on Forms 10-K,10-Q and 8-K.By their nature,forward-looking statements are not guarantees of future performance or results and are subject to risks,uncertainties and assumptions that are difficult to predict or quantify.Actual results may vary materially from expectations expressed or implied in this document or any of our prior communications.You should not place undue reliance on forward-looking statements,which speak only as of the date they are made.We do not undertake to update or revise any forward-looking statements,except as required by law.25ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKWe manage exposure to market interest rates by diversifying investments across different fixed-income market sectors and debt across maturities,as well as by matching a portion of our floating-rate assets and liabilities,either directly or through the use of interest rate swap contracts.Unrealized gains and losses on investments in available-for-sale debt securities are reported in comprehensive income.The following table summarizes the impact of hypothetical changes in market interest rates across the entire yield curve by 1%point or 2%points as of June 30,2024 on our investment income and interest expense per annum,and the fair value of our investments and debt(in millions,except percentages):June 30,2024Increase(Decrease)in Market Interest RateInvestmentIncome PerAnnumInterestExpense PerAnnumFair Value ofFinancial AssetsFair Value ofFinancial Liabilities2%.$701$592$(3,634)$(7,939)1 .351 296 (1,869)(4,329)(1).(351)(279)1,959 5,239(2).(701)(557)3,989 11,641 Note:The impact of hypothetical changes in interest rates may not reflect the full 100 or 200 basis point change on interest income and interest expense or on the fair value of financial assets and liabilities as the rates are assumed to not fall below zero.ITEM 4.CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURESWe maintain disclosure controls and procedures as defined in Rules 13a-15(e)and 15d-15(e)under the Securities Exchange Act of 1934(Exchange Act)that are designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is(i)recorded,processed,summarized and reported within the time periods specified in SEC rules and forms;and(ii)accumulated and communicated to our management,including our principal executive officer and principal financial officer,as appropriate to allow timely decisions regarding required disclosure.In connection with the filing of this quarterly report on Form 10-Q,management evaluated,under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer,the effectiveness of the design and operation of our disclosure controls and procedures as of June 30,2024.Based upon that evaluation,our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30,2024.CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTINGThere have been no changes in our internal control over financial reporting during the quarter ended June 30,2024 that have materially affected,or are reasonably likely to materially affect,our internal control over financial reporting.PART II.OTHER INFORMATIONITEM 1.LEGAL PROCEEDINGSA description of our legal proceedings is included in and incorporated by reference to Note 7 of Notes to the Condensed Consolidated Financial Statements included in Part I,Item 1 of this report.ITEM 1A.RISK FACTORS In addition to the other information set forth in this report,you should carefully consider the factors discussed in Part I,Item 1A,“Risk Factors”of our 2023 10-K,which could materially affect our business,financial condition or future results.The risks described in our 2023 10-K are not the only risks facing us.Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business,financial condition or future results.There have been no material changes to the risk factors as disclosed in our 2023 10-K.26ITEM 2.UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDSIn November 1997,our Board of Directors adopted a share repurchase program,which the Board of Directors evaluates periodically.In June 2024,the Board of Directors amended our share repurchase program to authorize the repurchase of up to 35 million shares of our common stock in open market purchases or other types of transactions(including prepaid or structured repurchase programs),in addition to all remaining shares authorized to be repurchased under the Boards 2018 renewal of the program.There is no established expiration date for the program.The Board of Directors from time to time may further amend the share repurchase program in order to increase the authorized number of shares which may be repurchased under the program.There were no repurchases of the Companys Common Stock during the three months ended June 30,2024.As of June 30,2024,the Company had 44 million shares remaining available under its share repurchase authorization.ITEM 5.OTHER INFORMATIONTrading Arrangements During the quarter ended June 30,2024,none of the Companys directors or officers(as defined in Rule 16a-1(f)under the Exchange Act)adopted or terminated any contract,instruction or written plan for the purchase or sale of Company securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c)under the Exchange Act or any non-Rule 10b5-1 trading arrangement.ITEM 6.EXHIBITS*The following exhibits are filed or incorporated by reference herein in response to Item 601 of Regulation S-K.The Company files Annual Reports on Form 10-K,Quarterly Reports on Form 10-Q and Current Reports on Form 8-K pursuant to the Securities Exchange Act of 1934 under Commission File No.1-10864.3.1Certificate of Incorporation of UnitedHealth Group Incorporated(incorporated by reference to Exhibit 3.1 to the Companys Registration Statement on Form 8-A/A filed on July 1,2015)3.2Amended and Restated Bylaws of UnitedHealth Group Incorporated,effective February 23,2021(incorporated by reference to Exhibit 3.2 to UnitedHealth Group Incorporateds Current Report on Form 8-K filed on February 26,2021)4.1Amended and Restated Indenture,dated as of April 27,2023,between UnitedHealth Group Incorporated and Wilmington Trust Company,as successor trustee(incorporated by reference to Exhibit 4.1 to UnitedHealth Group Incorporateds Current Report on Form 8-K filed on April 28,2023)4.2Indenture,dated as of February 4,2008,between UnitedHealth Group Incorporated and U.S.Bank National Association(incorporated by reference to Exhibit 4.1 to the Companys Registration Statement on Form S-3,SEC File Number 333-149031,filed on February 4,2008)4.3Supplemental Indenture,dated as of April 18,2023,between UnitedHealth Group Incorporated and U.S.Bank Trust Company,National Association,as trustee,relating to the 6.875%Senior Notes due 2038(incorporated by reference to Exhibit 4.1 to UnitedHealth Group Incorporateds Current Report on Form 8-K filed on April 24,2023)31.1Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002101.INS XBRL Instance Document-the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.101.SCH Inline XBRL Taxonomy Extension Schema Document.101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.104 Cover Page Interactive Data File(formatted as Inline XBRL and embedded within Exhibit 101)._*Pursuant to Item 601(b)(4)(iii)of Regulation S-K,copies of instruments defining the rights of certain holders of long-term debt are not filed.The Company will furnish copies thereof to the SEC upon request.27SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.UNITEDHEALTH GROUP INCORPORATED/s/ANDREW WITTYChief Executive Officer(principal executive officer)Dated:August 9,2024Andrew Witty /s/JOHN REXPresident and Chief Financial Officer(principal financial officer)Dated:August 9,2024John Rex /s/THOMAS ROOSSenior Vice President and Chief Accounting Officer(principal accounting officer)Dated:August 9,2024Thomas Roos 28
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