ELI LILLY & Co 10-K

Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition (Tables present dollars in millions, except per-share data) General Management's discussion and analysis of results of operations and financial condition is intended to assist the reader in understanding and assessing significant changes and trends related to our results of operations and financial position. This discussion and analysis should be read in conjunction with Item 8, "Financial Statements and Supplementary Data." Certain statements in this Item 7 constitute forward-looking statements. Various risks and uncertainties, including those discussed in "Forward-Looking Statements" and Item 1A, "Risk Factors," may cause our actual results, financial position, and cash generated from operations to differ from these forward-looking statements. EXECUTIVE OVERVIEW This section provides an overview of our financial results, late-stage pipeline developments, and other matters affecting our company and the pharmaceutical industry. Financial Results The following table summarizes certain financial information: Year Ended December 31, Percent Change 2023 2022 Revenue $ 34,124.1 $ 28,541.4 20 Net income 5,240.4 6,244.8 (16) Earnings per share - diluted 5.80 6.90 (16) Revenue increased in 2023 driven by increased volume and higher realized prices. The increase in revenue in 2023 was primarily driven by sales of Mounjaro ® , Verzenio ® , and Jardiance ® , as well as the sales of the rights for the olanzapine portfolio, including Zyprexa ® , and for Baqsimi ® , partially offset by the absence of revenue from COVID-19 antibodies and lower sales of Alimta ® following the entry of multiple generics in the first half of 2022. Net income and earnings per share decreased in 2023, driven primarily by higher acquired in-process research and development (IPR&D) charges and increased research and development expenses, marketing, selling, and administrative expenses, and income taxes, partially offset by increased revenue. See "Results of Operations" for additional information. 40 Late-Stage Pipeline Our long-term success depends on our ability to continually discover or acquire, develop, and commercialize innovative medicines. We currently have approximately 50 new medicine candidates in clinical development or under regulatory review, and a larger number of projects in the discovery phase. The following select new molecular entities (NMEs) and new indication line extension (NILEX) products are currently in Phase II or Phase III clinical trials or have been submitted for regulatory review or have recently received regulatory approval in the United States (U.S.), European Union (EU), or Japan. The table reflects the status of these NMEs and NILEX products, including certain other developments, up to the time of the filing of this Annual Report on Form 10-K: Compound Indication/Study Status Developments Diabetes, Obesity, and Other Cardiometabolic Diseases Empagliflozin (Jardiance) (1) Chronic kidney disease Approved Approved in the U.S. and the EU in 2023. Submitted in Japan in 2022. Tirzepatide (Mounjaro, Zepbound ® ) Obesity Approved Approved in the U.S. and the EU in 2023. Phase III trials are ongoing. Cardiovascular outcomes in type 2 diabetes Phase III Phase III trial is ongoing. Heart failure with preserved ejection fraction Phase III Phase III trial is ongoing. Morbidity and mortality in obesity Phase III Phase III trial is ongoing. Obstructive sleep apnea (OSA) Phase III Granted U.S. Food and Drug Administration (FDA) Fast Track designation (2) . Phase III trial is ongoing. Higher doses Phase II Phase II trial initiated in 2023. Nonalcoholic steatohepatitis Phase II Announced in 2024 that a Phase II trial met its primary endpoint. Insulin Efsitora Alfa Type 1 and type 2 diabetes Phase III Phase III trials are ongoing. Orforglipron Obesity Phase III Phase III trials initiated in 2023. Type 2 diabetes Phase III Phase III trials initiated in 2023. Retatrutide Obesity, osteoarthritis, OSA Phase III Phase III trials initiated in 2023. Type 2 diabetes Phase II Phase II trial was completed. Bimagrumab Obesity Phase II Acquired in the acquisition of Versanis Bio, Inc. (Versanis) in 2023. Phase II trial is ongoing. Lepodisiran Cardiovascular disease Phase II Phase II trial is ongoing. Mazdutide Obesity Phase II Phase II trial initiated in 2023. Muvalaplin Cardiovascular disease Phase II Phase II trial is ongoing. Solbinsiran Cardiovascular disease Phase II Phase II trial is ongoing. Volenrelaxin Heart failure Phase II Phase II trial initiated in 2023. 41 Compound Indication/Study Status Developments Immunology Lebrikizumab (3) (Ebglyss ® ) Atopic dermatitis Approved Approved in the EU in 2023 and in Japan in 2024. Submitted in the U.S. in 2022. We received a complete response letter from the FDA in 2023. We anticipate regulatory action by the end of 2024. Phase III trials are ongoing. Mirikizumab Crohn's Disease Phase III Announced in 2023 that a Phase III trial met the co-primary and all major secondary endpoints compared to placebo. Phase III trials are ongoing. DC-806 Psoriasis Phase II Acquired in the acquisition of DICE Therapeutics, Inc. (DICE) in 2023. Phase II trial is ongoing. Eltrekibart Hidradenitis suppurativa Phase II Phase II trial is ongoing. KV1.3 Antagonist Psoriasis Phase II Phase II trial initiated in 2024. Ocadusertib (RIPK1 inhibitor) Rheumatoid arthritis Phase II Phase II trial initiated in 2023. Peresolimab Rheumatoid arthritis Phase II Phase II trial is ongoing. Ucenprubart Atopic dermatitis Phase II Phase II trial initiated in 2023. Neuroscience Donanemab Early Alzheimer's disease Submitted Submitted for approval in the U.S., the EU, and Japan in 2023. Granted FDA Breakthrough Therapy designation (4) . Phase III trials are ongoing. Preclinical Alzheimer's disease Phase III Phase III trial is ongoing. Remternetug Early Alzheimer's disease Phase III Phase III trial is ongoing. GBA1 Gene Therapy Gaucher disease Type 1 Phase II Phase II trial initiated in 2023. Parkinson's disease Phase II Granted FDA Fast Track designation (2) . Phase II trial is ongoing. GRN Gene Therapy Frontotemporal dementia Phase II Granted FDA Fast Track designation (2) . Phase II trial is ongoing. O-GlcNAcase Inh Alzheimer's disease Phase II Phase II trial is ongoing. OTOF Gene Therapy Hearing loss Phase II Phase II trial initiated in 2024. P2X7 Inhibitor Pain Phase II Phase II trials were completed. SSTR4 Agonist Pain Phase II Phase II trials are ongoing. 42 Compound Indication/Study Status Developments Oncology Pirtobrutinib (Jaypirca ® ) Chronic lymphocytic leukemia Approved (5) FDA granted accelerated approval (5) in the U.S. in 2023. Phase III trials are ongoing. Mantle cell lymphoma Approved (5) FDA granted accelerated approval (5) in the U.S. in 2023. Approved in the EU in 2023. Submitted in Japan in 2023. Phase III trial is ongoing. Imlunestrant Adjuvant breast cancer Phase III Phase III trial is ongoing. ER+HER2- metastatic breast cancer Phase III Phase III trial is ongoing. Olomorasib KRAS G12C-mutant NSCLC Phase II Phase II trial initiated in 2023. Abemaciclib Prostate cancer Discontinued In 2024, Phase III trials did not meet primary endpoints or were terminated for futility. (1) In collaboration with Boehringer Ingelheim. (2) Fast Track designation is designed to facilitate the development and expedite the review of medicines to treat serious conditions and fill an unmet medical need. (3) In collaboration with Almirall, S.A. in Europe. (4) Breakthrough Therapy designation is designed to expedite the development and review of potential medicines that are intended to treat a serious condition where preliminary clinical evidence indicates that the treatment may demonstrate substantial improvement over available therapy on a clinically significant endpoint. (5) Continued approval may be contingent on verification and description of clinical benefit in confirmatory Phase III trials. There are many difficulties and uncertainties inherent in pharmaceutical research and development, the introduction of new products and indications, business development activities to enhance or refine or product pipeline, and commercialization of our products. There is a high rate of failure inherent in drug discovery and development. To bring a product from the discovery phase to market takes considerable time and entails significant cost. Failure can occur at any point in the process, including in later stages after substantial investment. As a result, most funds invested in research and development programs will not generate financial returns. New product candidates that appear promising in development or prior to being acquired may fail to reach the market or may have only limited commercial success because of efficacy or safety concerns, inability to obtain or maintain necessary regulatory approvals or payer reimbursement or coverage, failure to obtain placement on guidelines or recommendations published by third-party organizations that are commensurate with clinical data, the application of pricing controls, limited scope of approved uses, label changes, changes in the relevant treatment standards or the availability of newer, better, or more cost-effective competitive products, difficulty or excessive costs to manufacture, insufficient infrastructure to support detection, diagnostic or other requisites for treatment, ineffectiveness in reaching healthcare professionals, including digitally given the increase in virtual engagements, or infringement of the patents or intellectual property rights of others. We may also fail to allocate research and development resources efficiently, fail to pursue or invest sufficiently in product candidates or indications that may have been successful, or fail to optimally balance trial design, conduct, and speed to accomplish desired outcomes. Regulatory agencies establish high hurdles for the efficacy and safety of new products and indications. Delay, uncertainty, unpredictability, and inconsistency in drug approval processes across markets and agencies can result in delays in product launches, lost market opportunities, impairment of inventories, and other negative impacts. In addition, it can be very difficult to predict revenue growth rates of, or variability in demand for, new products and indications which in some cases leads to difficulty meeting product demand or, on the other hand, excess inventory and related financial charges. 43 We manage research and development spending across our portfolio of potential new medicines and indications. A delay in, or termination of, any one project will not necessarily cause a significant change in our total research and development spending. Due to the risks and uncertainties involved in the research and development process, we cannot reliably estimate the nature, timing, and costs of the efforts necessary to complete the development of our research and development projects, nor can we reliably estimate the future potential revenue that will be generated from any successful research and development project. Each project represents only a portion of the overall pipeline, and none is individually material to our consolidated research and development expense. While we do accumulate certain research and development costs on a project level for internal reporting purposes, we must make significant cost estimations and allocations, some of which rely on data that are neither reproducible nor validated through accepted control mechanisms. Therefore, we do not have sufficiently reliable data to report on total research and development costs by project, by preclinical versus clinical spend, or by therapeutic category. Other Matters Patent Matters We depend on patents or other forms of intellectual property protection for most of our revenue, cash flows, and earnings. See Note 16 to the consolidated financial statements for a description of legal proceedings currently pending regarding certain of our patents. See Item 1, "Business—Patents, Trademarks, and Other Intellectual Property Rights" for additional discussion of the impacts of trends involving intellectual property on our business and results. Trends Affecting Pharmaceutical Pricing, Reimbursement, and Access Reforms, including those that may stem from political initiatives, periods of uneven economic growth or downturns, or as a result of high inflation, the emergence or escalation of, and responses to, international tension and conflicts, or government budgeting priorities, are expected to continue to result in added pressure on pricing and reimbursement for our products. Global concern over access to and affordability of pharmaceutical products continues to drive regulatory and legislative debate and action, as well as worldwide cost containment efforts by governmental authorities. Such measures include the use of mandated discounts, price reporting requirements, mandated reference prices, restrictive formularies, changes to available intellectual property protections, as well as other efforts. In August 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (IRA). Among other measures, the IRA requires the U.S. Department of Health and Human Services (HHS) to effectively set prices for certain single-source drugs and biologics reimbursed under Medicare Part B and Part D. Generally, these government prices apply nine years (for medicines approved under a New Drug Application) or thirteen years (for medicines approved under a Biologics License Application) following initial FDA approval and will be set at a price that is likely to represent a significant discount from existing average prices to wholesalers and direct purchasers. While the law specifies a ceiling price, it does not set a minimum or floor price. In August 2023, the HHS selected Jardiance, which is part of our collaboration with Boehringer Ingelheim, as one of the first ten medicines subject to government-set prices effective in 2026. Given our product portfolio, we expect additional significant products will be selected in future years, which would have the effect of accelerating revenue erosion prior to expiry of exclusivities. The effect of reducing prices and reimbursement for certain of our products would significantly impact our business and consolidated results of operations. Other IRA provisions require drug manufacturers to provide rebates for Medicare Part B and Part D medicines under certain circumstances. Also, the Part D benefit redesign will replace the Part D Coverage Gap Discount Program with a new manufacturer discount program. Manufacturers that fail to comply with the IRA may be subject to various penalties, including civil monetary penalties, which could be significant. The IRA has and will meaningfully influence our business strategies and those of our competitors. In particular, the nine-year timeline to set prices for medicines approved under a new drug application reduces the attractiveness of investment in small molecule innovation. The IRA can cause changes to development approach and timing and investments at-risk. The full impact of the IRA on our business and the pharmaceutical industry, including the implications to us of a competitor's product being selected for price setting, remains uncertain. 44 Additional policies, regulations, legislation, or enforcement, including those proposed or pursued by the U.S. Congress, the U.S. executive branch, and regulatory authorities worldwide, could adversely impact our business and consolidated results of operations. Consolidation and integration of private payors and pharmacy benefit managers in the U.S. has also significantly impacted the market for pharmaceuticals by increasing payor leverage in negotiating manufacturer price or rebate concessions and pharmacy reimbursement rates. Furthermore, restrictive or unfavorable pricing, coverage, or reimbursement determinations for our medicines or product candidates by governments, regulatory agencies, courts, or private payers may adversely impact our business and consolidated results of operations. We expect that these actions may intensify and could particularly affect certain products, which could adversely affect our business. In addition, we are engaged in litigation and investigations related to our 340B program, access to insulin, pricing, product safety, and other matters that, if resolved adversely to us, could negatively impact our business and consolidated results of operations. It is not currently possible to predict the overall potential adverse impact to us or the general pharmaceutical industry of continued cost containment efforts worldwide. In addition, regulatory issues concerning compliance with current Good Manufacturing Practices, quality assurance, safety signals, evolving standards, and increased scrutiny around excipients and potential impurities such as nitrosamines, and similar regulations and standards (and comparable foreign regulations and standards) for our products in some cases lead to regulatory and legal actions, product recalls and seizures, fines and penalties, interruption of production leading to product shortages, import bans or denials of import certifications, inability to realize the benefit of capital expenditures, or delays or denials in new product approvals, line extensions or supplemental approvals of current products pending resolution of the issues, or other negative impacts, any of which result in reputational harm or adversely affect our business. Moreover, increased focus on business combinations across industries and jurisdictions can lead to impediments to the completion of business combinations. See Item 1, "Business—Regulations and Private Payer Actions Affecting Pharmaceutical Pricing, Reimbursement, and Access," Item 1A, "Risk Factors," and Note 16 to the consolidated financial statements for additional information. Product Supply We have faced challenges, and expect to continue to face challenges, meeting strong demand for our incretin products. In the U.S., given the strong uptake of Mounjaro, the recent launch of Zepbound, and continuing demand for Trulicity ® , we have experienced intermittent delays in fulfilling certain orders for incretin products. Outside the U.S., we have implemented actions to manage demand amid tight supply, including measures to minimize impact to existing Trulicity patients. We have also progressed efforts to bring tirzepatide to patients via different delivery presentations outside the U.S., such as single-use vials and multi-use pens. We expect to continue to experience disruptions in our supply of incretin products and for demand and supply considerations to influence the timing of tirzepatide launches in new markets, if approved. We anticipate tight supplies of our incretin products will persist while additional manufacturing capacity is operationalized. We expect additional internal and contracted manufacturing capacity will become fully operational around the world in the next several years as part of our ongoing efforts to meet the significant demand for our incretin medicines. For example, in 2023 we began production at our Research Triangle Park site in North Carolina and expect to continue significant capacity expansion over time as we increase production at this site and others. Tax Matters We are subject to income taxes and various other taxes in the U.S. and in many foreign jurisdictions; therefore, changes in both domestic and international tax laws or regulations have affected and may affect our effective tax rate, results of operations, and cash flows. The U.S. and countries around the world are actively proposing and enacting tax law changes. Further, actions taken with respect to tax-related matters by associations such as the Organisation for Economic Co-operation and Development (OECD) and the European Commission could influence tax laws in countries in which we operate. Tax authorities in the U.S. and other jurisdictions in which we do business routinely examine our tax returns and are expected to increase their scrutiny of cross-border tax issues. Changes to existing U.S. and foreign tax laws and increased scrutiny by tax authorities in the U.S. and other jurisdictions could adversely impact our future consolidated results of operations and cash flows. 45 In response to the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (Framework), which set forth a two-pillar solution to reform the international tax framework, and the EU's adoption of Directive 2022/2523 (known as "Pillar Two") (Directive) within the EU to implement the Framework, multiple countries, both within and outside of the EU, have enacted legislation that provides for a minimum level of taxation of multinational companies. The Directive required EU member states to enact legislation effective for years beginning on or after December 31, 2023. For certain provisions within the Framework, the OECD published guidance during 2023 that extends the effective dates for enactment. While we expect an increase in future years’ tax expense as a result of the global minimum tax, we do not anticipate a material impact to our 2024 consolidated results of operations. Our assessment of the impact for 2024 and subsequent years could be affected by legislative guidance, future enactment of additional provisions within the Pillar Two framework, and U.S. tax changes scheduled to occur in 2026 as part of the Tax Cuts and Jobs Act (2017 Tax Act). A bipartisan tax bill, the Tax Relief for American Families and Workers Act, was passed by the U.S. House of Representatives in January 2024. The bill contains certain business tax provisions including the retroactive repeal for 2022 and 2023 and deferral of the requirement to capitalize U.S. research and development expenses for tax purposes that was a provision enacted in the 2017 Tax Act. Uncertainty exists as to whether the bill will be enacted into law; however, if the bill is enacted as currently drafted, we would expect our effective tax rate for 2024 to be moderately higher, and a net discrete tax detriment in the quarter of enactment related to 2022 and 2023. In addition, we would expect a decrease in cash tax payments. Acquisitions We invest in external research and technologies that we believe complement and strengthen our own efforts. These investments can take many forms, including acquisitions, collaborations, investments, and licensing arrangements. We view our business development activity as a way to enhance or refine our pipeline and strengthen our business. For investments that were accounted for as asset acquisitions, we paid $3.94 billion in 2023 for acquired IPR&D primarily related to acquisitions of DICE, Versanis, Emergence Therapeutics AG (Emergence), and Mablink Biosciences SAS (Mablink). For investments that were accounted for as business combinations, we paid $1.04 billion in 2023 primarily related to the acquisition of POINT Biopharma Global Inc. (POINT). See Note 3 to the consolidated financial statements for further discussion regarding our recent acquisitions. For discussion of risks related to business development activities, see Item 1A, "Risk Factors—Pharmaceutical research and development is very costly and highly uncertain; we may not succeed in developing, licensing, or acquiring commercially successful products sufficient in number or value to replace revenues of products that have lost or will lose intellectual property protection or are displaced by competing products or therapies." Foreign Currency Exchange Rates As a global company, we face foreign currency risk exposure from fluctuating currency exchange rates, primarily the U.S. dollar against the euro, Japanese yen, and Chinese yuan. While we seek to manage a portion of these exposures through hedging and other risk management techniques, significant fluctuations in currency rates can have a material impact, either positive or negative, on our consolidated results of operations in any given period. There is uncertainty in the future movements in foreign currency exchange rates, and fluctuations in these rates could adversely impact our consolidated results of operations and cash flows. Other Factors Other factors have had, and may continue to have, an impact on our consolidated results of operations. These factors include cost and wage inflation, availability of adequate capacity in global transportation, supply chain and labor market complexities, international tension and conflicts, uneven economic growth or downturns or uncertainty, and an increase in overall demand in our industry for certain products and materials. See Item 1A, "Risk Factors" for additional information on risk factors that could impact our business and operations. 46 RESULTS OF OPERATIONS Operating Results—2023 Revenue The following table summarizes our revenue activity by region: Year Ended December 31, 2023 2022 Percent Change U.S. $ 21,791.0 $ 18,190.0 20 Outside U.S. 12,333.1 10,351.3 19 Revenue $ 34,124.1 $ 28,541.4 20 Numbers may not add due to rounding. The following are components of the change in revenue compared with the prior year: 2023 vs. 2022 U.S. Outside U.S. Consolidated Volume 11 % 25 % 16 % Price 9 % (4) % 4 % Foreign exchange rates — % (1) % — % Percent change 20 % 19 % 20 % Numbers may not add due to rounding. In the U.S. the increase in volume in 2023 was primarily driven by Mounjaro, Verzenio, Jardiance, Trulicity, Taltz ® , and Zepbound and $579.0 million from the sale of the rights for Baqsimi, partially offset by the absence of revenue from COVID-19 antibodies and decreased volume from Alimta following the entry of multiple generics in the first half of 2022. In the U.S. the higher realized prices in 2023 were primarily driven by Mounjaro, due to decreased utilization of savings card programs as access continued to expand, partially offset by Trulicity, due to higher contracted rebates and unfavorable segment mix, as well as changes to estimates for rebates and discounts, and Humalog ® , primarily due to a one-time impact related to the implementation of list price decreases and unfavorable segment mix. Outside the U.S. the increase in volume in 2023 was primarily driven by $1.45 billion from the sale of the rights for the olanzapine portfolio, including Zyprexa, as well as increased volume for Verzenio and Jardiance. Outside the U.S. the lower realized prices in 2023 were primarily driven by a new supply arrangement associated with the sale of the rights for the olanzapine portfolio and lower realized prices from Trulicity, Verzenio, and Humalog. 47 The following table summarizes our revenue, including net product revenue and collaboration and other revenue, by product in 2023 compared with 2022: Year Ended December 31, 2023 2022 Percent Change Product U.S. Outside U.S. Total Total Trulicity $ 5,433.3 $ 1,699.2 $ 7,132.6 $ 7,439.7 (4) Mounjaro 4,834.2 328.9 5,163.1 482.5 NM Verzenio 2,509.0 1,354.3 3,863.4 2,483.5 56 Taltz 1,831.6 928.0 2,759.6 2,482.0 11 Jardiance (1) 1,600.4 1,144.2 2,744.7 2,066.0 33 Zyprexa (2) 79.4 1,615.4 1,694.8 336.9 NM Humalog (3) 863.2 800.2 1,663.3 2,060.6 (19) Cyramza ® 402.3 572.4 974.7 971.4 — Olumiant ® (4) 225.5 697.2 922.6 830.5 11 Humulin ® 610.1 242.0 852.1 1,019.4 (16) Basaglar ® (5) 443.1 285.2 728.3 760.4 (4) Emgality ® 482.2 196.0 678.3 650.9 4 Baqsimi 645.7 31.9 677.6 139.3 NM Erbitux ® 528.9 67.6 596.5 566.5 5 Forteo ® 335.5 197.7 533.2 613.1 (13) Cialis ® 26.1 355.3 381.5 587.3 (35) Alimta 72.9 144.6 217.5 927.7 (77) Zepbound 175.8 — 175.8 — NM COVID-19 antibodies (6) — — — 2,023.5 NM Other products 691.8 1,673.0 2,364.5 2,100.2 13 Revenue $ 21,791.0 $ 12,333.1 $ 34,124.1 $ 28,541.4 20 Numbers may not add due to rounding. NM - not meaningful (1) Jardiance revenue includes Glyxambi ® , Synjardy ® , and Trijardy ® XR. (2) Zyprexa revenue includes sale of the rights for the olanzapine portfolio. (3) Humalog revenue includes insulin lispro. (4) Olumiant revenue includes sales for baricitinib that were made pursuant to Emergency Use Authorization (EUA) or similar regulatory authorizations. (5) Basaglar revenue includes Rezvoglar ® . (6) COVID-19 antibodies include sales for bamlanivimab administered alone, for bamlanivimab and etesevimab administered together, and for bebtelovimab and were made pursuant to EUAs or similar regulatory authorizations. Revenue of Trulicity decreased 4 percent in the U.S., driven by lower realized prices due to higher contracted rebates and unfavorable segment mix, as well as changes to estimates for rebates and discounts, partially offset by increased demand. We have experienced and continue to expect intermittent delays fulfilling orders of Trulicity. These delays have impacted and are expected to continue to impact volume. Revenue outside the U.S. decreased 3 percent, primarily driven by lower realized prices, partially offset by increased volume. Volumes in international markets continue to be affected by actions we have taken to manage demand amid tight supply, including measures to minimize impact to existing patients. Revenue of Mounjaro in the U.S. in 2023 was $4.83 billion, compared to $366.6 million in 2022 , reflecting higher realized prices due to decreased utilization of savings card programs as access continued to expand and increased demand. We have experienced and continue to expect intermittent delays fulfilling orders of certain Mounjaro doses given significant demand, which has affected and is expected to continue to affect volume. Revenue of Verzenio increased 52 percent in the U.S., driven by increased demand, and, to a lesser extent, higher realized prices. Revenue outside the U.S. increased 63 percent, driven by increased demand, partially offset by lower realized prices and the unfavorable impact of foreign exchange rates. 48 Revenue of Taltz increased 6 percent in the U.S., driven by increased demand, partially offset by lower realized prices. Revenue outside the U.S. increased 23 percent, driven by increased volume, partially offset by lower realized prices. Revenue of Jardiance increased 34 percent in the U.S., primarily driven by increased demand. Revenue outside the U.S. increased 31 percent, primarily driven by increased volume. See Note 4 to the consolidated financial statements for information regarding our collaboration with Boehringer Ingelheim involving Jardiance. There was no worldwide revenue from COVID-19 antibodies in 2023, and we do not anticipate any future revenue from COVID-19 antibodies. Gross Margin, Costs, and Expenses The following table summarizes our gross margin, costs, and expenses: Year Ended December 31, Percent Change 2023 2022 Gross margin $ 27,041.9 $ 21,911.6 23 Gross margin as a percent of revenue 79.2 % 76.8 % Research and development $ 9,313.4 $ 7,190.8 30 Marketing, selling, and administrative 7,403.1 6,440.4 15 Acquired IPR&D 3,799.8 908.5 NM Asset impairment, restructuring, and other special charges 67.7 244.6 (72) Other—net, (income) expense (96.7) 320.9 NM Income taxes 1,314.2 561.6 NM Effective tax rate 20.1 % 8.3 % NM - not meaningful Gross margin as a percent of revenue in 2023 increased 2.4 percentage points compared with 2022, primarily driven by the absence of COVID-19 antibodies sales in 2023, higher realized prices, and the sales of the rights for the olanzapine portfolio and Baqsimi, partially offset by increased manufacturing expenses related to labor costs and investments in capacity expansion. Research and development expenses increased 30 percent in 2023, primarily driven by development expenses for late-stage assets and additional investments in early-stage research. Marketing, selling, and administrative expenses increased 15 percent in 2023, primarily driven by costs associated with launches of new products and indications, as well as compensation and benefits costs. Acquired IPR&D charges recognized in 2023 primarily related to acquisitions of DICE, Versanis, Emergence, and Mablink and from a business development transaction with Beam Therapeutics Inc. Acquired IPR&D charges recognized in 2022 included the buy-out of substantially all future obligations that were contingent upon the occurrence of certain events linked to the success of our mutant-selective PI3kα inhibitor and a purchase of a Priority Review Voucher. See Note 3 to the consolidated financial statements for additional information. Asset impairment, restructuring, and other special charges recognized in 2022 primarily related to an intangible asset impairment for GBA1 Gene Therapy due to changes in estimated launch timing. See Note 5 to the consolidated financial statements for additional information. Other—net, (income) expense included net investment losses on equity securities of $20.2 million and $410.7 million for the years ended 2023 and 2022, respectively. See Note 18 to the consolidated financial statements for additional information. Our effective tax rate was 20.1 percent in 2023, compared with an effective tax rate of 8.3 percent in 2022. The higher effective tax rate for 2023 was primarily driven by the tax impacts of non-deductible acquired IPR&D charges, the new Puerto Rico tax regime, and a lower net discrete tax benefit compared to 2022. 49 Operating Results—2022 For a discussion of our results of operations pertaining to 2022 and 2021 see Item 7, "Management's Discussion and Analysis of Results of Operations and Financial Condition" in our Annual Report on Form 10-K for the year ended December 31, 2022. FINANCIAL CONDITION AND LIQUIDITY We believe our available cash and cash equivalents, together with our ability to generate operating cash flow and our access to short-term and long-term borrowings, are sufficient to fund our existing and planned capital requirements, which include: • working capital requirements, including related to employee payroll and benefits, clinical trials, manufacturing materials, and taxes; • capital expenditures; • share repurchases and dividends; • repayment of outstanding short-term and long-term borrowings; • milestone and royalty payments; • potential business development activities, including acquisitions, collaborations, investments, and licensing arrangements; and • contributions to our defined benefit pension and retiree health benefit plans. Our management continuously evaluates our liquidity and capital resources, including our access to external capital, to ensure we can adequately and efficiently finance our capital requirements. As of December 31, 2023, our material cash requirements primarily related to purchases of goods and services to produce our products and conduct our operations, capital expenditures, dividends, repayment of outstanding borrowings, milestone and royalty payments, business development activities, and the remaining obligations for the one-time repatriation transition tax (also known as the 'Toll Tax') from the 2017 Tax Act, (see Notes 11, 4, 3, and 14 to the consolidated financial statements). We anticipate our cash requirements related to ordinary course purchases of goods and services will be consistent with our past levels relative to revenues. Capital expenditures were $3.45 billion during 2023, compared to $1.85 billion in 2022. We are making investments in new facilities in Indiana, North Carolina, Alzey, Rhineland-Palatinate, Germany, and Limerick, Ireland to manufacture existing and future products. These investments, and other capital investments that support our operations, have increased our capital expenditures and will result in higher capital expenditures over the next several years. Cash and cash equivalents increased to $2.82 billion as of December 31, 2023, compared with $2.07 billion at December 31, 2022. Net cash provided by operating activities decreased to $4.24 billion in 2023, compared with $7.59 billion in 2022. The decrease in net cash provided by operating activities was primarily driven by an increase in cash payments for income taxes. See Note 14 to the consolidated financial statements for additional information. Refer to the consolidated statements of cash flows for additional information on the significant sources and uses of cash for the years ended December 31, 2023 and 2022. In addition to our cash and cash equivalents, we held total investments of $3.16 billion and $3.05 billion as of December 31, 2023 and 2022, respectively. See Note 7 to the consolidated financial statements for additional information. In 2023, we received cash proceeds of $1.60 billion for the sale of product rights, primarily related to the sales of the rights for the olanzapine portfolio, including Zyprexa, and Baqsimi. See Note 4 to the consolidated financial statements for additional information. For investments that were accounted for as asset acquisitions, we paid $3.94 billion in 2023 for acquired IPR&D primarily related to acquisitions of DICE, Versanis, Emergence, and Mablink. For investments that were accounted for as business combinations, we paid $1.04 billion in 2023 primarily related to the acquisition of POINT. See Note 3 to the consolidated financial statements for additional information. 50 As of December 31, 2023, total debt was $25.23 billion, an increase of $8.99 billion compared with $16.24 billion at December 31, 2022. See Note 11 to the consolidated financial statements for additional information. In February 2024, we issued $1.00 billion of 4.500 percent fixed-rate notes due in 2027, $1.00 billion of 4.500 percent fixed-rate notes due in 2029, $1.50 billion of 4.700 percent fixed-rate notes due in 2034, $1.50 billion of 5.000 percent fixed-rate notes due in 2054, and $1.50 billion of 5.100 percent fixed-rate notes due in 2064, all with interest to be paid semi-annually. We used, or will be using, the net cash proceeds from the offering of $6.45 billion for general business purposes, including the repayment of outstanding commercial paper, repayment of current maturities of long-term debt, and repayment of the $750.0 million of 5.000 percent fixed-rate notes due in 2026, which are callable at par beginning February 27, 2024. As of December 31, 2023, we had a total of $7.42 billion of unused committed bank credit facilities, $7.00 billion of which is available to support our commercial paper program. See Note 11 to the consolidated financial statements for additional information. We believe that amounts accessible through existing commercial paper markets should be adequate to fund short-term borrowing needs. Dividends of $4.52 per share and $3.92 per share were paid in 2023 and 2022, respectively. The quarterly dividend was increased to $1.30 per share effective for the dividend to be paid in the first quarter of 2024, resulting in an indicated annual rate for 2024 of $5.20 per share. In 2023, we repurchased $750.0 million of shares under our $5.00 billion share repurchase program that our board authorized in May 2021. As of December 31, 2023, we had $2.50 billion remaining under this program. See Note 13 to the consolidated financial statements for additional information. See "—Executive Overview—Other Matters—Patent Matters" for information regarding losses of patent protection. Both domestically and abroad, we continue to monitor the potential impacts of the economic environment and international tension and conflicts; the creditworthiness of our wholesalers and other customers, including foreign government-backed agencies and suppliers; the uncertain impact of healthcare legislation; and various international government funding levels. In the normal course of business, our operations are exposed to fluctuations in interest rates, currency values, and fair values of equity securities. These fluctuations impact the costs of financing, investing, and operating our business. We seek to address a portion of these risks through a controlled program of risk management that includes the use of derivative financial instruments. The objective of this risk management program is to limit the impact on earnings of fluctuations in interest and currency exchange rates. All derivative activities are for purposes other than trading. Our primary interest rate risk exposure results from changes in short-term U.S. dollar interest rates. In an effort to manage interest rate exposures, we strive to achieve an acceptable balance between fixed and floating rate debt positions and in some cases we enter into interest rate derivatives to help maintain that balance. As of December 31, 2023, all of our total long-term debt is at a fixed rate. We have converted approximately 12 percent of our long-term fixed-rate notes to floating rates through the use of interest rate swaps. Based on our overall interest rate exposure at December 31, 2023 and 2022, including derivatives and other interest rate risk-sensitive instruments, a hypothetical 10 percent change in interest rates applied to the fair value of the instruments as of December 31, 2023 and 2022, respectively, would not have a material impact on earnings, cash flows, or fair values of interest rate risk-sensitive instruments over a one-year period. 51 Our foreign currency risk exposure results from fluctuating currency exchange rates, primarily the U.S. dollar against the euro, Japanese yen, and Chinese yuan. We face foreign currency exchange exposures when we enter into transactions arising from subsidiary trade and loan payables and receivables denominated in foreign currencies. We also face currency exposure that arises from translating the results of our global operations to the U.S. dollar at exchange rates that have fluctuated from the beginning of the period. We in some cases enter into foreign currency forward or option derivative contracts to reduce the effect of fluctuating currency exchange rates (primarily the euro, Chinese yuan, and Japanese yen). Our corporate risk-management policy outlines the minimum and maximum hedge coverage of such exposures. Gains and losses on these derivative contracts offset, in part, the impact of currency fluctuations on the existing assets and liabilities. We periodically analyze the fair values of the outstanding foreign currency derivative contracts to determine their sensitivity to changes in foreign exchange rates. A hypothetical 10 percent change in exchange rates (primarily against the U.S. dollar) applied to the fair values of our outstanding foreign currency derivative contracts as of December 31, 2023 and 2022, would not have a material impact on earnings, cash flows, or financial position over a one-year period. This sensitivity analysis does not consider the impact that hypothetical changes in exchange rates would have on the underlying foreign currency denominated transactions. Our fair value risk exposure relates primarily to our public equity investments and to our equity investments that do not have readily determinable fair values. As of December 31, 2023 and 2022, our carrying values of these investments were $1.32 billion and $1.16 billion, respectively. A hypothetical 20 percent change in fair value of the equity instruments would have impacted other-net, (income) expense by $263.9 million and $232.4 million as of December 31, 2023 and 2022, respectively. We have no off-balance sheet arrangements that have a material current effect or that are reasonably likely to have a material future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources. We acquire and collaborate on potential products still in development and enter into research and development arrangements with third parties that often require milestone and royalty payments to the third party contingent upon the occurrence of certain future events linked to the success of the asset in development. Milestone payments may be required contingent upon the successful achievement of an important point in the development life cycle of the pharmaceutical product (e.g., approval for marketing by the appropriate regulatory agency or upon the achievement of certain sales levels). If required by the arrangement, we may make royalty payments based upon a percentage of the sales of the product in the event that regulatory approval for marketing is obtained. Individually, these arrangements are generally not material in any one annual reporting period. However, if milestones for multiple products covered by these arrangements were reached in the same reporting period, the aggregate expense or aggregate milestone payments made could be material to our results of operations or cash flows, respectively, in that period. See Note 4 to the consolidated financial statements for additional information. These arrangements often give us the discretion to unilaterally terminate development of the product, which would allow us to avoid making the contingent payments; however, we are unlikely to cease development if the compound successfully achieves milestone objectives. We view these payments as positive because they signify that the product is successfully moving through development and is now generating or is more likely to generate cash flows from sales of products. As we expand our manufacturing capacity in order to meet existing and expected demand of our incretin products, we have entered, and expect to continue to enter, into various agreements for contract manufacturing and for supply of materials. The executed agreements could, under certain circumstances, require us to pay up to approximately $10 billion if we do not purchase specified amounts of goods or services over the durations of the agreements, which generally range from 2 to 8 years. 52 APPLICATION OF CRITICAL ACCOUNTING ESTIMATES In preparing our financial statements in accordance with accounting principles generally accepted in the U.S., we must often make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. Some of those judgments can be subjective and complex, and consequently actual results could differ from those estimates. For any given individual estimate or assumption we make, it is possible that other people applying reasonable judgment to the same facts and circumstances could develop different estimates. We believe that, given current facts and circumstances, it is unlikely that applying any such other reasonable judgment would cause a material adverse effect on our consolidated results of operations, financial position, or liquidity for the periods presented in this Annual Report on Form 10-K. Our most critical accounting estimates have been discussed with our audit committee and are described below. Revenue Recognition and Sales Return, Rebate, and Discount Accruals Background and Uncertainties We recognize revenue primarily from two different types of contracts, product sales to customers (net product revenue) and collaborations and other arrangements. For product sales to customers, provisions for returns, rebates and discounts are established in the same period the related product sales are recognized. To determine the appropriate transaction price for our product sales at the time we recognize a sale to a direct customer, we estimate any rebates or discounts that ultimately will be due to the direct customer and other customers in the distribution chain under the terms of our contracts. Significant judgments are required in making these estimates. The largest of our sales rebate and discount amounts include rebates associated with sales covered by managed care, Medicare, Medicaid, and chargeback programs, as well as reductions in revenue related to our patient assistance programs, in the U.S. In determining the appropriate accrual amount, we consider our historical rebate payments for these programs, as well as patient assistance program costs, by product as a percentage of our historical sales as well as any significant changes in sales trends (e.g., patent expiries and product launches), an evaluation of the current contracts for these programs, the percentage of our products that are sold via these programs, and our product pricing. Although we accrue a liability for revenue reductions related to these programs at the time we record the sale, the reduction related to that sale is typically paid up to six months later. Because of this time lag, in any particular period our net product revenue may incorporate revisions of accruals for several periods. Refer to Note 2 to the consolidated financial statements for further information on revenue recognition and sales return, rebate, and discount accruals. Revenue recognized from collaborations and other arrangements includes our share of profits from the collaborations, as well as royalties, upfront and milestone payments we receive under these types of contracts. Financial Statement Impact We believe that our accruals for sales returns, rebates, and discounts are reasonable and appropriate based on current facts and circumstances. Our rebate and discount liabilities are included in sales rebates and discounts on our consolidated balance sheet. Our sales return liability is included in other current liabilities and other noncurrent liabilities on our consolidated balance sheet. As of December 31, 2023, a 5 percent change in our consolidated sales return, rebate, and discount liability would result in a change in revenue of approximately $615 million. The portion of our consolidated sales return, rebate, and discount liability resulting from sales of our products in the U.S. was approximately 90 percent as of December 31, 2023 and 2022. The following represents a roll-forward of our most significant U.S. sales return, rebate, and discount liability balances, including managed care, Medicare, Medicaid, chargeback, and patient assistance programs: 2023 2022 Sales return, rebate, and discount liabilities, beginning of year $ 8,214.1 $ 6,161.6 Reduction of net sales (1) 37,866.8 28,398.4 Cash payments (35,413.4) (26,345.9) Sales return, rebate, and discount liabilities, end of year $ 10,667.5 $ 8,214.1 (1) Adjustments of the estimates for these returns, rebates, and discounts to actual results were less than 1 percent of consolidated revenue for each of the years presented. 53 The increase in reduction of net sales in 2023 was primarily driven by our incretin products due to the increase in volume of rebates for managed care, Medicare, chargebacks, and Medicaid programs. Litigation Liabilities and Other Contingencies Background and Uncertainties Litigation liabilities and other contingencies are, by their nature, uncertain and based upon complex judgments and probabilities. The factors we consider in developing our litigation liability reserves and other contingent liability amounts include the merits and jurisdiction of the litigation, the nature and the number of other similar current and past matters, the nature of the product and the current assessment of the science subject to the litigation, as applicable, and the likelihood of settlement and current state of settlement discussions, if any. In addition, we accrue for certain product liability claims incurred but not filed to the extent we can formulate a reasonable estimate of their costs based primarily on historical claims experience and data regarding product usage. We also consider the insurance coverage we have to diminish the exposure for periods covered by insurance. In assessing our insurance coverage, we consider the policy coverage limits and exclusions, the potential for denial of coverage by the insurance company, the financial condition of the insurers, and the possibility of and length of time for collection. Due to a very restrictive market for liability insurance, we are predominantly self-insured for liability losses for all our currently and previously marketed products, as well as for litigation or investigations related to our pricing practices or other similar matters. In addition to insurance coverage, we consider any third-party indemnification to which we are entitled or under which we are obligated. With respect to our third-party indemnification rights, these considerations include the nature of the indemnification, the financial condition of the indemnifying party, and the possibility of and length of time for collection. The litigation accruals and environmental liabilities and the related estimated insurance recoverables are reflected on a gross basis as liabilities and assets, respectively, on our consolidated balance sheets. Acquisitions Background and Uncertainties To determine whether acquisitions or licensing transactions should be accounted for as a business combination or as an asset acquisition, we make certain judgments, which include assessing whether the acquired set of activities and assets would meet the definition of a business under the relevant accounting rules. If the acquired set of activities and assets meets the definition of a business, assets acquired and liabilities assumed are required to be recorded at their respective fair values on our consolidated balance sheet as of the acquisition date. The excess of the purchase price over the fair value of the acquired net assets, where applicable, is recorded as goodwill. If the acquired set of activities and assets does not meet the definition of a business, the transaction is recorded as an acquisition of assets and, therefore, any acquired IPR&D that does not have an alternative future use is charged to acquired IPR&D on our consolidated statement of operations at the acquisition date, and goodwill is not recorded. See Note 3 to the consolidated financial statements for additional information. The judgments made in determining estimated fair values assigned to assets acquired and liabilities assumed in a business combination, as well as estimated asset lives, can materially affect our consolidated results of operations. The fair values of intangible assets, including acquired IPR&D, are determined using information available near the acquisition date based on estimates and assumptions that are deemed reasonable by management. Significant estimates and assumptions include, but are not limited to, probability of technical success, revenue projections, and discount rate. Depending on the facts and circumstances, we may deem it necessary to engage an independent valuation expert to assist in valuing significant assets and liabilities. The fair values of identifiable intangible assets are primarily determined using an "income method," as described in Note 8 to the consolidated financial statements. The fair value of any contingent consideration liability that results from a business combination is primarily determined using a discounted cash flow analysis, as described in Note 7 to the consolidated financial statements. Estimating the fair value of contingent consideration requires the use of significant estimates and judgments, including, but not limited to, probability of technical success, timing of the potential milestone event, and the discount rate. 54 Financial Statement Impact As of December 31, 2023, a 5 percent change in the contingent consideration liabilities would result in a change in income before income taxes of $5.2 million. Impairment of Indefinite-Lived and Long-Lived Assets Background and Uncertainties We review the carrying value of long-lived assets (both intangible and tangible) for potential impairment whenever events or changes in circumstances indicate the carrying value of an asset (or asset group) may not be recoverable. We identify impairment by comparing the projected undiscounted cash flows to be generated by the asset (or asset group) to its carrying value. If an impairment is identified, a loss is recorded equal to the excess of the asset's net book value over its fair value, and the cost basis is adjusted. Goodwill and indefinite-lived intangible assets are reviewed for impairment at least annually, or more frequently if impairment indicators are present, by first assessing qualitative factors to determine whether it is more likely than not that the fair value of the asset is less than its carrying amount. If we conclude it is more likely than not that the fair value is less than the carrying amount, a quantitative test that compares the fair value of the intangible asset to its carrying value is performed to determine the amount of any impairment. Several methods may be used to determine the estimated fair value of acquired IPR&D, all of which require multiple assumptions. We utilize the "income method," as described in Note 8 to the consolidated financial statements. For acquired IPR&D assets, the risk of failure has been factored into the fair value measure and there can be no certainty that these assets ultimately will yield a successful product, as discussed previously in "—Executive Overview—Late-Stage Pipeline." The nature of the pharmaceutical business is high-risk and requires that we invest in a large number of projects to maintain a successful portfolio of approved products. As such, it is likely that some acquired IPR&D assets will become impaired in the future. Estimates of future cash flows, based on what we believe to be reasonable and supportable assumptions and projections, require management's judgment. Actual results could vary materially from these estimates. Retirement Benefits Assumptions Background and Uncertainties Defined benefit pension plan and retiree health benefit plan costs include assumptions for the discount rate, expected return on plan assets, and retirement age. These assumptions have a significant effect on the amounts reported. In addition to the analysis below, see Note 15 to the consolidated financial statements for additional information regarding our retirement benefits. Annually, we evaluate the discount rate and the expected return on plan assets in our defined benefit pension and retiree health benefit plans. We use an actuarially determined, plan-specific yield curve of high quality, fixed income debt instruments to determine the discount rates. In evaluating the expected return on plan assets, we consider many factors, with a primary analysis of current and projected market conditions, asset returns and asset allocations (approximately 70 percent of which are growth investments), and the views of leading financial advisers and economists. We may also review our historical assumptions compared with actual results, as well as the discount rates and expected return on plan assets of other companies, where applicable. In evaluating our expected retirement age assumption, we consider the retirement ages of our past employees eligible for pension and medical benefits together with our expectations of future retirement ages. Annually, we determine the fair value of the plan assets in our defined benefit pension and retiree health benefit plans. Approximately 48 percent of our plan assets are in hedge funds and private equity-like investment funds (collectively, alternative investments). We value these alternative investments primarily using net asset values (NAVs) reported by the counterparty and adjusted for known cash flows and significant events. 55 Financial Statement Impact If the 2023 discount rate for the U.S. defined benefit pension and retiree health benefit plans (U.S. plans) were to change by a quarter percentage point, income before income taxes would change by $13.4 million. If the 2023 expected return on plan assets for U.S. plans were to change by a quarter percentage point, income before income taxes would change by $31.3 million. If our assumption regarding the 2023 expected age of future retirees for U.S. plans were adjusted by one year, our income before income taxes would be affected by $35.1 million. The U.S. plans, including Puerto Rico, represent approximately 80 percent for total projected benefit obligation and 85 percent for total plan assets at December 31, 2023. Adjustments to the fair value of plan assets are not recognized in pension and retiree health benefit expense in the year that the adjustments occur. Such changes are deferred, along with other actuarial gains and losses, and are amortized into expense over the expected remaining service life of employees. Income Taxes Background and Uncertainties We file tax returns based upon our interpretation of tax laws and regulations, and we record estimates in our financial statements based upon these interpretations at the applicable tax rates in the jurisdictions in which we operate. Our tax returns are routinely subject to examination by taxing authorities, which could result in future tax, interest, and penalty assessments. Inherent uncertainties also exist in estimates of many tax positions due to the complexity of tax laws. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate resolution. The amount of unrecognized tax benefits is adjusted for changes in facts and circumstances such as changes to existing tax law, the issuance of regulations by taxing authorities, new information obtained during a tax examination, or resolution of a tax examination. We believe our estimates for uncertain tax positions are both appropriate and sufficient to pay assessments that may result from examinations of our tax returns. We recognize both accrued interest and penalties related to unrecognized tax benefits in income tax expense. We have recorded valuation allowances against certain of our deferred tax assets, primarily those that have been generated from net operating losses, tax credits, and other tax carryforwards and carrybacks in certain taxing jurisdictions. In evaluating whether we would more likely than not recover these deferred tax assets, we have not assumed future taxable income in the jurisdictions associated with these carryforwards where history does not support such an assumption. Implementation of tax planning strategies to recover these deferred tax assets or to generate future taxable income in these jurisdictions could lead to the reversal of all or a portion of these valuation allowances and a reduction of income tax expense. Financial Statement Impact As of December 31, 2023, a 5 percent change in the amount of uncertain tax positions and the valuation allowance would result in a change in net income of $88.7 million and $45.7 million, respectively. LEGAL AND REGULATORY MATTERS Information relating to certain legal proceedings can be found in Note 16 to the consolidated financial statements and is incorporated here by reference. Item 7A. Quantitative and Qualitative Disclosures About Market Risk You can find quantitative and qualitative disclosures about market risk (e.g. , interest rate risk) at Item 7, "Management's Discussion and Analysis - Financial Condition and Liquidity." That information is incorporated by reference herein. 56