You should read the following discussion together with our consolidated financial statements and the related notes included elsewhere in this annual report on Form 20-F. This discussion may contain forward-looking statements about the Group’s business and operations based upon current expectations that involve risks and uncertainties. The Group’s actual results may differ materially from those currently anticipated as a result of many factors, including those described under “Item 3. Key Information—3.D. Risk Factors” and elsewhere in this annual report on Form 20-F. 5.A. Operating Results Major Factors Affecting Results of Operations The Group operates in China’s adult online education market and adult personal interest learning market, and the 82 Group’s results of operations and financial condition are significantly affected by general factors affecting this market. Drivers for the Group’s growth include China’s rapid economic growth, continued urbanization, and rising per capita disposable income, all of which have allowed Chinese households, particularly working adults, to spend more disposable income on education. In addition, driven by a strong desire for employment, career promotion, salary increases and local residence qualification, adult online education and adult personal interest learning education in China have grown rapidly in the past several years and are expected to continue to grow in the future. Changes to China’s economy and GDP growth also have a material impact on the adult online education market and the adult personal interest learning market. In addition, the industry the Group operates in is fragmented, and the Group faces competition from traditional offline players. At the same time, the Group’s results are subject to changes in the regulatory regime governing China’s education industry, particularly uncertainties relating to online education services. The PRC government regulates various aspects of the Group’s business and operations, including the qualification and licensing requirements for entities that provide online education services and limitations on foreign investments in the online education industry. Additionally, we believe that the Group’s results of operations and financial condition are also affected by company-specific factors, including the factors discussed below. Ability to respond to the evolving industry landscape and drive student acceptance of online education format As an online service provider, the Group benefited significantly from the increasing proliferation of the internet, in particular the mobile internet, in China. In recent years, driven by the increasing number of internet users and mobile penetration rates, China’s online education industry has developed rapidly. We believe that the online education format, as compared to traditional in-person classroom teaching, is superior as it breaks down the time and location barriers of offline education format and offers students more a flexible, convenient and cost-effective alternative. As a result, online education format has become increasingly popular among students, taking away market share from traditional offline players. For this reason, we believe the ability to continue to grow net revenues and gross billings significantly depends on the Group’s ability to continue to convert students to embrace online education formats over traditional offline education format. Ability to increase the number of students and new student enrollments at optimal pricing The Group’s net revenues and gross billings primarily consist of tuition payments from students and are therefore affected by the number of students and new student enrollments and the pricing of the Group’s educational services. In 2023, 2024 and 2025, the Group’s new student enrollments were 616,341, 674,649 and 579,788, respectively, and the numbers of students were 1,131,435, 1,067,128 and 979,741, respectively. The Group’s new student enrollments remained relatively stable in 2023 and 2024, followed by a decrease in 2025. This trend was primarily attributable to the Group’s disciplined customer acquisition strategies and continued optimization of its business focus. The Group is seeking to offer a broader range of courses, foster a more a social and entertaining learning experience, and use cutting-edge technologies to improve students’ learning experience and outcomes which we believe would help to achieve positive results in the Group’s new student enrollments in the long run. See “Item 3. Key Information—3.D. Risk Factors—Risks Related to the Group’s Business—If the Group fails to manage its business growth effectively, the success of the Group’s business model will be compromised.” The Group’s ability to increase the number of students and new student enrollments is primarily driven by factors including the quality of the Group’s education services, the range and attractiveness of the Group’s course offerings, the brand reputation, the ability to convert leads into student enrollments cost-effectively, and the availability of loans from third-party credit providers to students. See “Item 3. Key Information—3.D. Risk Factors—Risks Related to the Group’s Business—The Group may face risks associated with the installment tuition payment plan the Group offers to its students.” The Group’s ability to attract prospective students in target markets and expand course offerings has a direct impact on maintaining growths in the number of students and new student enrollments, which in turn is subject to several other factors largely beyond the Group’s control, including the perception of the effectiveness of online education as compared to offline, classroom-based courses and the popularity of the degrees, diplomas, certifications, professions, professional skills or interests students are pursuing. The Group’s pricing is affected by the overall demand, the prices and availability of competing courses, perception of the quality and effectiveness of course offerings, and the income levels that students expect to achieve upon passing the exams that they are pursuing through taking courses. Ability to maintain an optimal mix of course length The Group typically receives tuition from students (or third-party credit providers in the case of students taking loans for their tuition) upfront at the time of sale of the Group’s course packages. The tuition the Group collects from a student is initially recorded as deferred revenue and is generally recognized proportionally throughout the duration of the programs 83 that student has enrolled in. For the year ended December 31, 2025, the weighted average service period of the Group’s interest, professional skills and professional certification preparation courses was approximately 4 months, and the weighted average service period of the Group’s degree- or diploma-oriented post-secondary courses was approximately 16 months. As of December 31, 2023, 2024 and 2025, the Group’s deferred revenues were RMB1,113.9 million, RMB916.5 million and RMB585.3 million (US$83.7 million), respectively. The Group continually evaluates the mix of course length. As the Group makes these evaluations, the Group may market and sell courses with shorter or longer durations in order to balance among various goals, including satisfying student needs, driving revenue growth, and improving visibility of future earnings, which may affect the Group’s ability to increase net revenues on a continuous basis. For example, if the Group increases the percentage of courses with longer durations in total course offerings, the Group’s net revenues for a given period may reduce as an increasing part of the Group’s revenues may be deferred and recognized across longer periods. Any material change in the mix of course length could have a significant impact on the Group’s results of operations. Ability to sell and market the Group’s services cost-effectively The Group depends on the ability to sell and market the Group’s services in a cost-effective manner to maintain and improve the operating margins. Sales and marketing expenses have historically represented a substantial portion of the Group’s total operating expenses. In 2023, 2024 and 2025, the Group’s sales and marketing expenses were RMB1,142.2 million, RMB1,216.9 million and RMB1,137.6 million (US$162.7 million), respectively. The decrease in the sales and marketing expenses from 2024 to 2025 was mainly due to the decreases in compensation for sales personnel and the spending on branding and marketing activities focused on interest courses offerings. The Group’s sales and marketing expenses are primarily composed of marketing spending and expenses incurred in relation to sales and marketing personnel. The Group’s ability to lower the sales and marketing expenses as a percentage of gross billings depends on the Group’s ability to improve sales and marketing efficiency and leverage the Group’s existing brand value and word-of-mouth referrals in the sales and marketing efforts. In 2023, 2024 and 2025, the percentage of the Group’s sales and marketing expenses divided by the Group’s gross billings was 75.9%, 78.2% and 77.5%, respectively. The Group has acquired many of the existing students through search engine marketing channels, mobile marketing channels and, to a lesser extent, offline channels. Further, the Group relies on a large sales force to provide counseling-oriented sales services to convert sales leads into enrollments. As such, the cost-effectiveness of the sales and marketing depends heavily on the ability to enhance returns from different marketing channels, as well as to improve the efficiency of the counseling-oriented sales activities. The Group also plans to further strengthen the mobile marketing endeavors, which we believe are particularly critical to attracting prospective students who are not yet aware of solutions available to satisfy their desire to pursue adult online education and adult personal interest learning education. These initiatives have placed, and will continue to place, significant strains on the ability to sell and market the Group’s course offerings in an efficient and cost-effective manner. Key Components of Results of Operations Net revenues The Group derives substantially all net revenues from tuition that the Group charges students for the course packages that they purchase. In 2023, 2024 and 2025, the Group generated net revenues of RMB2,159.6 million, RMB1,990.2 million and RMB2,019.9 million (US$288.8 million), respectively. The Group generally bills students for the entire course tuition upfront at the time of sale of the course packages. The tuition the Group collects from a student is initially recorded as deferred revenue and is generally recognized proportionally over a weighted average service period of 4 months for the interest, professional skills and professional certification preparation courses and a weighted average service period of 16 months for the degree- or diploma-oriented post-secondary courses for the year ended December 31, 2025. As of December 31, 2023, 2024 and 2025, the Group had deferred revenue of RMB1,113.9 million, RMB916.5 million and RMB585.3 million (US$83.7 million), respectively. For a reconciliation of the Group’s gross billings and net revenues, see “—Non-GAAP Financial Measures.” The following table sets forth a breakdown of the Group’s total net revenues for the years indicated: 84 For the Year Ended December 31, 2023 2024 2025 RMB % RMB % RMB US$ % (in thousands, except for percentages) Interest, professional skills and professional certification preparation courses 1,449,858 67.1 1,498,058 75.3 1,499,704 214,455 74.2 Degree- or diploma-oriented post-secondary courses 534,041 24.8 205,578 10.3 272,138 38,915 13.5 Sales of products(1) 144,233 6.7 244,901 12.3 213,344 30,508 10.6 Others(2) 31,452 1.4 41,667 2.1 34,695 4,961 1.7 Total net revenues 2,159,584 100.0 1,990,204 100.0 2,019,881 288,839 100.0 Note: (1) Include revenues from sales of products such as printed books and learning materials associated with the courses we offer. Revenues from sales of goods for the year ended December 31, 2023 were previously included in "others" of net revenues for the respective years. (2) Include commissions received for providing referral services to third-party companies. Cost of revenues The Group recorded cost of revenues of RMB265.5 million, RMB317.6 million and RMB264.4 million (US$37.8 million) in 2023, 2024 and 2025, respectively. Salaries and benefits paid to teachers and mentors accounted for a primary portion of cost of revenues. In 2023, 2024 and 2025, salaries and benefits paid to teachers and mentors that the Group recorded as cost of revenues were RMB91.4 million, RMB62.1 million and RMB52.9 million (US$7.6 million), respectively, accounting for 34.4%, 19.6% and 20.0%, respectively, of the cost of revenues for the same periods. The cost of revenues also included cost of printed books and learning materials, service fees paid to educational institutions, cooperation costs, related rental expenses, server management costs, bandwidth costs, payment processing costs, insurance cost, depreciations for property and equipment and amortizations for intangible assets. See “Item 4. Information on the Company—4.B. Business Overview—Tuition and Fees.” Operating expenses The following table sets forth the Group’s operating expenses, in absolute amounts and as percentages of total operating expenses, for the years indicated: For the Year Ended December 31, 2023 2024 2025 RMB % RMB % RMB US$ % (in thousands, except for percentages) Sales and marketing 1,142,154 86.6 1,216,912 88.5 1,137,631 162,679 86.8 General and administrative 143,286 10.9 132,809 9.7 143,796 20,563 11.0 Product development 33,723 2.5 25,008 1.8 29,553 4,226 2.2 Total operating expenses 1,319,163 100.0 1,374,729 100.0 1,310,980 187,468 100.0 Sales and marketing expenses The following table sets forth a breakdown of the Group’s sales and marketing expenses, in absolute amounts and as percentages of total sales and marketing expenses, for the years indicated: 85 For the Year Ended December 31, 2023 2024 2025 RMB % RMB % RMB US$ % (in thousands, except for percentages) Expenses incurred in relation to sales and marketing personnel 518,040 45.4 548,630 45.1 519,654 74,310 45.7 Marketing spending 590,565 51.7 611,610 50.3 564,351 80,701 49.6 Rentals and related expenses 5,158 0.5 13,699 1.1 14,617 2,090 1.3 Others 28,391 2.4 42,973 3.5 39,009 5,578 3.4 Total sales and marketing expenses 1,142,154 100.0 1,216,912 100.0 1,137,631 162,679 100.0 The Group’s expenses incurred in relation to sales and marketing personnel consist of (i) salaries paid to the sales and marketing personnel; (ii) commissions for the sales and marketing personnel; and (iii) business process outsourcing service fees and commissions. The marketing spending includes expenses relating to the search engine marketing channels and mobile marketing channels, and to a lesser extent, offline channels and promotion activities. The Group has historically incurred, and are expected to continue to incur, significant sales and marketing expenses as the Group invested substantially in the sales, branding and marketing efforts and expanding the sales and marketing team to increase student enrollments and gain market share. General and administrative expenses The Group’s general and administrative expenses primarily consist of (i) compensation for the Group’s senior executives and administrative personnel, (ii) rentals of premises occupied by the Group’s senior executives and administrative personnel, and (iii) administrative and other expenses. The Group expects the general and administrative expenses to remain stable in the foreseeable future. Product development expenses The Group’s product development expenses primarily consist of (i) compensation for the Group’s course and educational content development professionals and technology development personnel, and (ii) rentals of premises occupied by the Group’s course and educational content development professionals and technology development personnel. The Group expects the product development expenses to remain stable in the foreseeable future. Results of Operations The following table sets forth the Group’s consolidated results of operations for the years indicated. This information should be read together with the consolidated financial statements and related notes included elsewhere in this annual report. The operating results in any period are not necessarily indicative of the results that may be expected for any future period. 86 For the Year Ended December 31, 2023 2024 2025 RMB RMB RMB US$ (in thousands, except for share and per share data) Net revenues 2,159,584 1,990,204 2,019,881 288,839 Cost of revenues (265,528 ) (317,570 ) (264,424 ) (37,812 ) Gross profit 1,894,056 1,672,634 1,755,457 251,027 Operating expenses Sales and marketing expenses (1,142,154 ) (1,216,912 ) (1,137,631 ) (162,679 ) Product development expenses (33,723 ) (25,008 ) (29,553 ) (4,226 ) General and administrative expenses (143,286 ) (132,809 ) (143,796 ) (20,563 ) Impairment loss on long-lived assets(1) — — (67,931 ) (9,714 ) Total operating expenses (1,319,163 ) (1,374,729 ) (1,378,911 ) (197,182 ) Income from operations 574,893 297,905 376,546 53,845 Interest income 31,094 38,824 23,643 3,381 Interest expense (7,657 ) (5,293 ) (852 ) (122 ) Other income, net 34,097 26,296 30,121 4,307 Impairment loss on long-term investments (61 ) — — — Gain/(loss) on disposal of subsidiaries 43,715 (838 ) — — Income before income tax expenses and loss from equity method investments 676,081 356,894 429,458 61,411 Income tax expenses (25,166 ) (1,300 ) (59,297 ) (8,479 ) Loss from equity method investments (10,084 ) (13,512 ) (4,530 ) (648 ) Net income 640,831 342,082 365,631 52,284 Less: Net income attributable to non-controlling interest 1 — — — Net income attributable to Sunlands Technology Group 640,830 342,082 365,631 52,284 Net income per share attributable to ordinary shareholders of Sunlands Technology Group—basic and diluted 92.88 50.12 54.28 7.76 Weighted average shares used in calculating net income per ordinary share— basic and diluted 6,899,456 6,824,824 6,736,373 6,736,373 Note: (1) The Group has included the impairment loss on long-lived assets within the income from operations as the amount was recognized for a long-lived asset to be held and used. This represents a reclassification from the unaudited full-year 2025 financial results released on March 19, 2026, where the amount was not previously presented within that subtotal. The adjustment is made to comply with the presentation requirements for impairment loss and has no impact on net income. Year Ended December 31, 2025 Compared to Year Ended December 31, 2024 Net revenues The Group’s net revenues increased by 1.5% from RMB1,990.2 million in 2024 to RMB2,019.9 million (US$288.8 million) in 2025, primarily due to the increase in revenues generated from degree- or diploma-oriented post-secondary courses. This was mainly because the Group gradually resumed providing services for these historical orders, which students had previously requested to suspend but exceeded the maximum allowable suspension period in the contract. Cost of revenues The Group’s cost of revenues decreased by 16.7% from RMB317.6 million in 2024 to RMB264.4 million (US$37.8 million) in 2025. The decrease was primarily due to declined cost of revenues from sales of goods such as learning materials and books, and declined cooperation costs. Gross profit As a result of the foregoing, the Group’s gross profit increased by 5.0% from RMB1,672.6 million in 2024 to RMB1,755.5 million (US$251.0 million) in 2025, and gross margin increased from 84.0% in 2024 to 86.9% in 2025. The increase was primarily due to the contribution from the resumption of services for suspended historical orders. 87 Operating expenses The Group’s operating expenses decreased by 4.6% from RMB1,374.7 million in 2024 to RMB1,311.0 million (US$187.5 million) in 2025. Sales and marketing expenses The Group’s sales and marketing expenses decreased by 6.5% from RMB1,216.9 million in 2024 to RMB1,137.6 million (US$162.7 million) in 2025. The decrease was mainly due to the decreases in compensation for sales personnel and the spending on branding and marketing activities focused on interest courses offerings. General and administrative expenses The Group’s general and administrative expenses increased by 8.3% from RMB132.8 million in 2024 to RMB143.8 million (US$20.6 million) in 2025, driven primarily by compensation expenses related to the Group’s general and administrative personnel. Product development expenses The Group’s product development expenses increased by 18.2% from RMB25.0 million in 2024 to RMB29.6 million (US$4.2 million) in 2025. The increase was primarily due to increased compensation expenses related to headcount expansion of our product development personnel. Other income, net Other income, net for 2025 was RMB30.1 million (US$4.3 million), compared with RMB26.3 million in 2024. Net income As a result of the foregoing, the Group’s net income for 2025 was RMB365.6 million (US$52.3 million), compared with RMB342.1 million in 2024. Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 See “Item 5. Operating and Financial Review and Prospects—5.A. Operating Results—Year Ended December 31, 2024 Compared to Year Ended December 31, 2023” beginning on page 86 of our Form 20-F for the fiscal year ended December 31, 2024 filed with the Securities and Exchange Commission on April 25, 2025 (Securities Act File No. 001-38423). Non-GAAP Financial Measures We use gross billings, EBITDA and adjusted EBITDA, each a non-GAAP financial measure, in evaluating the Group’s operating results and for financial and operational decision-making purposes. We define gross billings for a specific period as the total amount of cash received for the sale of course packages, net of the total amount of refunds paid in such period. For a more detailed discussion of our tuition refund policy, see “Item 4. Information on the Company—4.B. Business Overview—Tuition and Fees.” The Group’s management uses gross billings as a performance measurement because the Group generally bills students for the entire course tuition at the time of sale of course packages and recognize revenue proportionally over a period. EBITDA is defined as net loss/income excluding depreciation and amortization, interest expense, interest income, and income tax expenses. Adjusted EBITDA is defined as net income excluding depreciation and amortization, interest expense, interest income, income tax expenses and impairment loss on long-lived assets. We believe that gross billings, EBITDA and adjusted EBITDA provide valuable insight into the sales of our course packages and the performance of our business. These non-GAAP financial measures should not be considered in isolation from, or as a substitute for, their respective most directly comparable financial measure prepared in accordance with GAAP. A reconciliation of the historical non-GAAP financial measures to their respective most directly comparable GAAP measure has been provided in the tables included below. Investors are encouraged to review the reconciliation of the historical non-GAAP financial measures to their respective most directly comparable GAAP financial measures. As gross billings, EBITDA and adjusted EBITDA have material limitations as analytical metrics and may not be calculated in the same manner by all companies, they may not be comparable to other similarly titled measures used by other companies. In light of the foregoing limitations, you should not consider gross billings, EBITDA and adjusted EBITDA as a substitute for, or superior to, their respective most directly comparable financial measures prepared in accordance with GAAP. We encourage investors and others to review the Group’s financial information in its entirety and not rely on a single financial measure. 88 For the Year Ended December 31, 2023 2024 2025 RMB RMB RMB US$ (in thousands) Net revenues 2,159,584 1,990,204 2,019,881 288,839 Less: other revenues(1) (176,014 ) (287,179 ) (248,650 ) (35,556 ) Add: tax and surcharges 62,352 77,734 75,322 10,771 Add: ending deferred revenue 1,113,923 916,510 585,294 83,696 Add: deferred revenue in connection with disposal of subsidiaries 23,220 3,423 — — Add: ending refund liability 143,744 112,342 64,393 9,208 Less: beginning deferred revenue (1,690,946 ) (1,113,923 ) (916,510 ) (131,059 ) Less: beginning refund liability (133,066 ) (143,744 ) (112,342 ) (16,065 ) Less: beginning refund liability in connection with disposal of subsidiaries 1,820 — — — Gross billings (non-GAAP) 1,504,617 1,555,367 1,467,388 209,834 Note: (1) Include commissions received for providing referral services to third-party companies and revenues from sales of goods such as printed books and learning materials associated with the courses we offer. For the Year Ended December 31, 2023 2024 2025 RMB RMB RMB US$ (in thousands) Net income 640,831 342,082 365,631 52,284 Add: Income tax expenses 25,166 1,300 59,297 8,479 Depreciation and amortization 30,648 29,467 28,792 4,117 Interest expense 7,657 5,293 852 122 Less: Interest income (31,094 ) (38,824 ) (23,643 ) (3,381 ) EBITDA (non-GAAP) 673,208 339,318 430,929 61,621 Add: Impairment loss on long-lived assets — — 67,931 9,714 Adjusted EBITDA (non-GAAP) 673,208 339,318 498,860 71,335 Taxation The Cayman Islands We are incorporated in the Cayman Islands. Under the current law of the Cayman Islands, we are not subject to income, corporate or capital gains tax. In addition, dividend payments are not subject to withholding tax in the Cayman Islands. Singapore Our subsidiary, Sunlands Online Education Singapore Pte. Ltd is incorporated in Singapore and are subject to Singapore Profits Tax on the taxable income as reported in its statutory financial statements adjusted in accordance with relevant Singapore tax laws. The profits earned by such Singapore entity will be taxed at 17%, with 75% of the first SGD$10,000 taxable income and 50% of the next SGD$190,000 taxable income are exempted from income tax. Hong Kong Our subsidiaries in Hong Kong are subject to a two-tiered income tax rate for taxable income earned in Hong Kong with effect from April 1, 2018. The first HK$2 million of profits earned by Hong Kong entities will be taxed at 8.25%, while the remaining profits will continue to be taxed at the existing 16.5% tax rate. In addition, to avoid abuse of the two-tiered income tax rate regime, each group of connected entities can nominate only one entity to benefit from the two-tiered income tax rate. Payments of dividends by our subsidiaries to the Group are not subject to withholding tax in Hong Kong. PRC 89 Our subsidiaries and the VIEs and their subsidiaries in China are companies incorporated under PRC law and, as such, are subject to PRC enterprise income tax on their taxable income in accordance with the relevant PRC income tax laws. Pursuant to the PRC Enterprise Income Tax Law, or PRC EIT Law, a uniform 25% enterprise income tax rate is generally applicable to both foreign-invested enterprises and domestic enterprises, except where a special preferential rate applies. For example, the local tax bureau in Guangdong exempted 40% of the EIT based on the statutory tax rate of 25% for the enterprises located in certain autonomous regions from 2018 to 2035. Besides, from January 1, 2023 to December 31, 2027, subject to certain criteria, the portion of annual taxable income amount of a small profit enterprise shall be computed at a reduced rate of 25% as taxable income amount, and be subject to enterprise income tax at 20% tax rate. The Group’s services are subject to VAT at the rate of 6%, and sales of goods are calculated at 13% on revenue and paid after deducting input VAT on purchases for general-VAT-payer entities in accordance with tax rule, except that certain subsidiaries were subject to a simple VAT collection method at a rate of 3%. As a Cayman Islands holding company, we may receive dividends from our PRC subsidiaries through Sunlands Online Education HK Limited. The PRC EIT Law and its implementing regulations provide that dividends paid by a PRC entity to a non-resident enterprise for income tax purposes is subject to PRC withholding tax at a rate of 10%, subject to reduction by an applicable tax treaty with China. Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, the withholding tax rate in respect to the payment of dividends by a PRC enterprise to a Hong Kong enterprise may be reduced to 5% from a standard rate of 10% if the Hong Kong enterprise directly holds at least 25% of the PRC enterprise and certain other conditions are met. Pursuant to the Notice of the State Administration of Taxation on the Issues concerning the Application of the Dividend Clauses of Tax Agreements, or SAT Circular 81, a Hong Kong resident enterprise must meet the following conditions, among others, in order to apply the reduced withholding tax rate: (i) it must be a company; (ii) it must directly own the required percentage of equity interests and voting rights in the PRC resident enterprise; and (iii) it must have directly owned such required percentage in the PRC resident enterprise throughout the 12 months prior to receiving the dividends. The State Administration of Taxation promulgated the Administrative Measures for Non-resident Taxpayers to Enjoy Treatment under Treaties, or SAT Circular 35, which became effective on January 1, 2020. SAT Circular 35 provides that nonresident enterprises are not required to obtain pre-approval from the relevant tax authority in order to enjoy the reduced withholding tax. Instead, non-resident enterprises and their withholding agents may, by self-assessment and on confirmation that the prescribed criteria to enjoy the tax treaty benefits are met, directly apply the reduced withholding tax rate, and file necessary forms and supporting documents when performing tax filings, which will be subject to post-tax filing examinations by the relevant tax authorities. Accordingly, Sunlands Online Education HK Limited may be able to benefit from the 5% withholding tax rate for the dividends it receives from Wuhan Zhibo if it satisfies the conditions prescribed under SAT Circular 81 and other relevant tax rules and regulations. However, according to SAT Circular 81 and SAT Circular 35, if the relevant tax authorities consider the transactions or arrangements the Group has are for the primary purpose of enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable withholding tax in the future. If our company or any of our subsidiaries outside of China were deemed to be a “resident enterprise” under the PRC EIT Law, it would be subject to enterprise income tax on its worldwide income at a rate of 25%. See “Item 3. Key Information—3.D. Risk Factors—Risks Related to Doing Business in China—If we are classified as a PRC resident enterprise for PRC enterprise income tax purposes, such classification could result in unfavorable tax consequences to the Group and our non-PRC shareholders and ADS holders.” Critical Accounting Estimates We prepare financial statements in accordance with U.S. GAAP, which requires the Group to make judgments, estimates and assumptions that affect the reported amounts of our assets and liabilities and the disclosure of our contingent assets and liabilities at the end of each fiscal period and the reported amounts of revenues and expenses during each fiscal period. We continually evaluate these judgments and estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and assumptions that we believe to be reasonable, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, the Group’s actual results could differ from those estimates. Some of our accounting estimates require a higher degree of judgment than others in their application. The selection of critical accounting estimates, the judgments and other uncertainties affecting application of those estimates and the sensitivity of reported results to changes in conditions and assumptions are factors that should be considered when reviewing the Group’s financial statements. We believe the following accounting estimates involve the most significant judgments and estimates used in the preparation of the Group’s financial statements. For further information on our critical accounting estimates, see Note 2 to the consolidated financial statements. Revenue recognition 90 The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Group’s contracts with customers may include promises to transfer multiple services and goods. Determining whether different services and goods are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. For the year ended December 31, 2025, the Group derived revenue primarily from the online education services. Revenues for online education services are recognized on a straight-line basis over the service period from the registration day to the day on which the service period ends. For online education services, the Group provides an integrated online education service package to students, including online live streaming audio-video interactive course content, recorded previous live audio-video course content, quiz banks, online chat rooms, and educational contents. The services and goods provided in the package are highly interdependent and interrelated in the context of the contract and are only considered accessory services to the online live streaming and recorded courses which are not distinct and are not sold standalone. Therefore, the Group’s integrated online education services package is accounted for as a single performance obligation. The transaction price of the integrated online education service package is determined by the contract amount net of any discount. Students are offered a full, unconditional refund within 24 hours upon enrollment and undelivered courses are eligible for refund during the entire service period, excluding registration fees. Refund liability represents the tuition fee collected by the Group which is expected to refund back to the customers as a result of the Group’s refund policy. Refund liabilities are estimated based on a historical refund ratio on a portfolio basis using the expected value method and current period experience factors, such as the anticipated cash refund that would occur in the normal course of business. This may requires significant judgments and the actual amount of refund may differ from the Group’s estimates. 5.B. Liquidity and Capital Resources Cash Flows and Working Capital The Group financed operations from cash generated from operating activities as well as proceeds from the issuance and sale of our ordinary shares. As of December 31, 2025, the Group had RMB575.7 million (US$82.3 million) in cash and cash equivalents, the majority of which were held by our company, our PRC subsidiaries, the VIEs and the VIEs’ subsidiaries in China. The Group’s cash and cash equivalents consist primarily of bank deposits and are primarily denominated in U.S. dollars and Renminbi. We believe that the Group’s current cash and anticipated cash flow from operations will be sufficient to meet the Group’s anticipated cash needs, including the cash needs for working capital and capital expenditures, for at least the next 12 months. As of December 31, 2025, the Group’s cash and cash equivalents denominated in U.S. dollars and Renminbi amounted to RMB364.0 million (US$52.0 million) and RMB211.2 million (US$30.2 million), respectively. We believe there is no substantial doubt to operate as a going concern, as a result, the accompanying consolidated financial statements have been prepared on a going concern basis, and do not reflect any adjustments relating to the recoverability and reclassification of assets and liabilities that might have been necessary if we were unable to continue as a going concern. The Group recorded net income of RMB640.8 million, RMB342.1 million and RMB365.6 million (US$52.3 million) for the years ended December 31, 2023, 2024 and 2025, respectively. The Group had positive working capital of RMB82.9 million and RMB157.9 million (US$22.6 million) as of December 31, 2024 and 2025, respectively. We intend to finance the Group’s future working capital requirements and capital expenditures from existing cash balance, cash generated from operating activities and funds raised from financing activities. We may, however, require additional cash due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If our existing cash is insufficient to meet the Group’s requirements, we may seek to issue debt or equity securities or obtain additional credit facilities. Financing may be unavailable in the amounts we need or on terms acceptable to us, if at all. Issuance of additional equity securities, including convertible debt securities, would dilute earnings per share. The incurrence of debt would divert cash for working capital and capital expenditures to service debt obligations and could result in operating and financial covenants that restrict the Group’s operations and our ability to pay dividends to our shareholders. If we are unable to obtain additional equity or debt financing as required, the Group’s business operations and prospects may suffer. We did not have any off-balance sheet arrangements as of December 31, 2025. As a holding company with no material operations of our own, the Group’s operations are primarily conducted through our subsidiaries and the VIEs in China. We are permitted under PRC laws and regulations to provide funding to our PRC subsidiaries in China through capital contributions or loans, subject to the approval of government authorities and limits on the amount of capital contributions and loans. In addition, our subsidiaries in China may provide Renminbi funding to the VIEs only through entrusted loans. The ability of our subsidiaries in China to make dividends or other cash payments 91 to us is subject to various restrictions under PRC laws and regulations. See “Item 3. Key Information—3.D. Risk Factors—Risks Related to Doing Business in China—We may rely on dividends and other distributions on equity paid by our PRC and Hong Kong subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of these subsidiaries in the PRC, including Hong Kong, to make payments to us could have a material and adverse effect on our ability to conduct the Group’s business” and “Item 3. Key Information—3.D. Risk Factors—Risks Related to Doing Business in China—If we are classified as a PRC resident enterprise for PRC enterprise income tax purposes, such classification could result in unfavorable tax consequences to the Group and our non-PRC shareholders and ADS holders.” The following table sets forth a summary of the Group’s cash flows for the years indicated: For the Year Ended December 31, 2024 2025 RMB RMB US$ (in thousands) Net cash generated from operating activities 195,519 146,809 20,994 Net cash used in investing activities (358,860 ) (12,735 ) (1,821 ) Net cash used in financing activities (112,728 ) (47,708 ) (6,822 ) Effect of exchange rate changes 16,920 (16,832 ) (2,408 ) Net (decrease)/increase in cash, cash equivalents and restricted cash (259,149 ) 69,534 9,943 Cash, cash equivalents and restricted cash at beginning of the year 766,378 507,229 72,533 Cash, cash equivalents and restricted cash at end of the year 507,229 576,763 82,476 For a summary of the Group’s cash flows in 2023, see “Item 5. Operating and Financial Review and Prospects—5.B. Liquidity and Capital Resources—Cash Flows and Working Capital” beginning on page 90 of our Form 20-F for the fiscal year ended December 31, 2023 filed with the Securities and Exchange Commission on April 25, 2024 (Securities Act File No. 001-38423). Operating Activities Net cash generated from operating activities was RMB146.8 million (US$21.0 million) in 2025. The difference between the Group’s net income of RMB365.6 million (US$52.3 million), after netting non-cash reconciliation items, and the net cash used in operating activities was mainly due to (i) a decrease in deferred revenue of RMB331.2 million (US$47.4 million), (ii) a decrease in accrued expenses and other current liabilities of RMB38.4 million (US$5.5 million), (iii) a decrease in lease liability of RMB6.7 million (US$1.0 million); partially offset by (i) impairment loss on long-lived assets of RMB67.9 million (US$9.7 million), (ii) depreciation and amortization of RMB28.8 million (US$4.1 million), (iii) a decrease in deferred costs of RMB27.8 million (US$4.0 million), (iv) non-cash lease expenses of RMB12.2 million (US$1.7 million), (v) a decrease in prepaid expenses and other current assets of RMB12.4 million (US$1.8 million). Deferred revenue consisted primarily of tuition paid upfront by students at the time of purchase of course packages. Deferred cost consisted primarily of the incremental sales commissions and service fees relating to obtaining of customer contracts which is expected to be recovered and capitalized. Net cash generated from operating activities was RMB195.5 million in 2024. The difference between the Group’s net income of RMB342.1 million, after netting non-cash reconciliation items, and the net cash used in operating activities was mainly due to (i) a decrease in deferred revenue of RMB194.0 million, (ii) an increase in deferred tax assets of RMB24.7 million, (iii) a decrease in lease liability of RMB19.9 million; partially offset by (i) depreciation and amortization of RMB29.5 million, (ii) non-cash lease expenses of RMB18.1 million, (iii) a decrease in deferred costs of RMB18.1 million, (iv) loss from an equity method investment of RMB13.5 million. Deferred revenue consisted primarily of tuition paid upfront by students at the time of purchase of course packages. Deferred cost consisted primarily of the incremental sales commissions and service fees relating to obtaining of customer contracts which is expected to be recovered and capitalized. Investing Activities Net cash used in investing activities was RMB12.7 million (US$1.8 million) in 2025, which was primarily attributable to purchase of short-term investments of RMB1,491.4 million (US$213.3 million) and the payment for long-term investments of RMB84.6 million (US$12.1 million), partially offset by proceeds from maturity of short-term investments of RMB1,553.0 million (US$222.1 million) and proceeds received from disposal of long-term investments of RMB6.9 million (US$1.0 million). Net cash used in investing activities was RMB358.9 million in 2024, which was primarily attributable to purchase of short-term investments of RMB1,738.7 million and the purchase of long-term investments of RMB235.3 million, partially offset by proceeds from maturity of short-term investments of RMB1,607.1 million. 92 Financing Activities Net cash used in financing activities in 2025 was RMB47.7 million (US$6.8 million), which was primarily attributable to repayment of bank debt of RMB61.5 million (US$8.8 million), and partially offset by the proceeds from bank loans of RMB20.0 million (US$2.9 million). Net cash used in financing activities in 2024 was RMB112.7 million, which was primarily attributable to repayment of bank debt of RMB101.8 million and repurchase Class A ordinary shares of RMB10.9 million. Material Cash Requirements The Group’s material cash requirements as of December 31, 2025 and any subsequent interim period primarily include the Group’s operating lease commitments, capital expenditures and working capital requirements. The Group’s operating lease commitments consist of the commitments under the lease agreements for office premises. The Group leases the office facilities under non-cancelable operating leases with various expiration dates. The majority of the Group’s operating lease commitments are related to our office lease agreements in China. The following table sets forth the Group’s contractual obligations as of December 31, 2025: Payment due by period Total Less than 1 year 1-3 years 3-5 years More than 5 years (RMB in thousands) Operating lease commitments 190,411 18,319 38,237 38,876 94,979 The Group’s capital expenditures are incurred primarily in connection with purchases of IT infrastructure equipment necessary to support the Group’s operations. The Group’s capital expenditures were RMB6.4 million, RMB0.4 million and RMB0.7 million (US$0.1 million), respectively, for the years ended December 31, 2023, 2024 and 2025. We intend to fund our future working capital requirements and capital expenditures from the Group’s existing cash balance, cash generated from operating activities and funds raised from financing activities. The Group’s long-term loans represent future maximum commitment relating to the principal amount and interests in connection with two loan agreements dated August 29, 2018 and November 21, 2018 in the aggregate principal amount of RMB260.0 million (US$40.8 million) and one loan agreement dated July 5, 2021 with the principal amount of RMB61.5 million (US$9.7 million). The annual interest rate for the loan agreements dated in 2018 was 1.472% prior to April 15, 2021, 1.25% from April 16, 2021 to August 25, 2023 and 0.7% after August 25, 2023 on top of base rate of one-year interest rate released by the People’s Bank of China. The annual interest rate for the loan agreement dated in 2021 was 1.05% prior to July 1, 2022 and 0.75% after July 1, 2022 on top of base rate of one-year interest rate released by the People’s Bank of China. Under the agreements, the Group is obligated to repay the loans in equal installment every three months with maturity terms ranging from eight years to ten years. The Group repaid RMB38.7 million, RMB101.8 million and RMB41.5 million (US$5.9 million) for the principals of loans during the years ended December 31, 2023, 2024 and 2025, respectively. During the year ended December 31, 2024, the Group has fully repaid outstanding amount under the two loan agreements dated August 29, 2018 and November 21, 2018. During the year ended December 31, 2025, the Group had fully repaid outstanding loan principals before maturity date for the loan dated July 5, 2021. The Group has not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. The Group does not have retained or contingent interests in assets transferred. The Group has not entered into contractual arrangements that support the credit, liquidity or market risk for transferred assets. The Group does not have obligations that arise or could arise from variable interests held in an unconsolidated entity, or obligations related to derivative instruments that are both indexed to and classified in the Group’s own equity, or not reflected in the statement of financial position. Other than those shown above, the Group did not have any significant capital and other commitments, long-term obligations, or guarantees as of December 31, 2025. Transfer of Funds and Other Assets Under relevant PRC laws and regulations, we are permitted to remit funds to the VIEs through loans rather than capital contributions. The VIEs funded their operations primarily using cash generated from operating and financing activities. In addition, we and the VIEs may, from time to time, lend cash to each other to settle the payment obligations on each other’s behalf to provide temporary working capital support. In 2023 and 2024, the net amounts of working capital support provided by the VIEs to our PRC subsidiaries were RMB602.9 million and RMB924.6 million, respectively. In 2025, the net amounts of working capital support provided by our PRC subsidiaries to the VIEs were RMB148.4 million (US$21.2 93 million). For more information, see “Item 3. Key Information—Condensed Consolidating Schedule,” and consolidated financial statements included elsewhere in this annual report. As of December 31, 2025, Sunlands Technology Group had made cumulative capital contributions of US$200.2 million to our PRC subsidiaries through an intermediate holding company. These funds have been used by our PRC subsidiaries for their operations. Our PRC subsidiaries maintained certain personnel for sales and marketing, research and development, and general and administrative functions to support the operations of the VIEs. In 2023, 2024 and 2025, the VIEs transferred RMB26.8 million, RMB60.1 million and RMB132.6 million (US$19.0 million) of service fees to our PRC subsidiaries pursuant to the contractual arrangements, respectively. The outstanding balance of service fees owed by the VIEs to our PRC subsidiaries was nil as of each of December 31, 2023, 2024 and 2025. There were no other assets transferred between us and the VIEs in 2023, 2024 and 2025. As advised by our PRC legal counsel, for any amounts owed by the VIEs to our PRC subsidiaries under the VIE agreements, unless otherwise required by PRC tax authorities, the Group is able to settle such amounts without limitations under the current effective PRC laws and regulations, provided that the VIEs have sufficient funds to do so and that the VIEs, in case in the form of non-enterprise institution, follow the principles of openness, fairness and impartiality, fix the price reasonably and regulate the decision-making, and do not damage the state interests, the interests of the non-enterprise institution or the rights and interests of the teachers and students when conducting such related party transaction. Our subsidiaries are permitted to pay dividends to their shareholders, and eventually to Sunlands Technology Group, only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Such payment of dividends by entities registered in China is subject to limitations, which could result in limitations on the availability of cash to fund dividends or make distributions to shareholders of our securities. For example, our PRC subsidiaries and the VIEs are required to make appropriations to certain statutory reserve funds or may make appropriations to certain discretionary funds, which are not distributable as cash dividends except in the event of a solvent liquidation of the companies. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We may rely on dividends and other distributions on equity paid by our PRC and Hong Kong subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of these subsidiaries in the PRC, including Hong Kong, to make payments to us could have a material and adverse effect on our ability to conduct the Group’s business.” Sunlands Technology Group has previously declared a special cash dividend of US$1.36 per ordinary share (or US$0.68 per ADS) to holders of its ordinary shares and ADSs on June 14, 2022, which had been fully paid. We have no plan to declare or pay any dividends in the near future on our shares or the ADSs representing our ordinary shares. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand the Group’s business. See “Item 8. Financial Information—8.A. Consolidated Statements and Other Financial Information—Dividend Policy.” As of the date of this annual report, no transfers, dividends, or distributions between Sunlands Technology Group, our PRC subsidiaries, and the VIEs, other than those described in this annual report, have been made. As of the date of this annual report, we do not have cash management policies in place that dictate how funds are transferred between Sunlands Technology Group, our subsidiaries, the VIEs and the investors. Rather, the funds can be transferred in accordance with the applicable laws and regulations discussed in this section. To the extent cash or assets in the business are in the PRC, including Hong Kong, or a PRC (including Hong Kong) entity, the funds or assets may not be available to fund operations or for other use outside of the PRC or Hong Kong due to interventions in or the imposition of restrictions and limitations on the ability of Sunlands Technology Group, our subsidiaries, or the VIEs by the PRC government to transfer cash or assets. There is no assurance the PRC government will not intervene in or impose restrictions on the ability of Sunlands Technology Group, our subsidiaries, or the VIEs to transfer cash or assets. See “Item 3. Key Information—3.D. Risk Factors—Risks Related to Doing Business in China—We may rely on dividends and other distributions on equity paid by our PRC and Hong Kong subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of these subsidiaries in the PRC, including Hong Kong, to make payments to us could have a material and adverse effect on our ability to conduct the Group’s business.” For the purpose of illustration, the below table reflects the hypothetical taxes that might be required to be paid within China, assuming that: (i) we have taxable earnings, and (ii) we determine to pay a dividend in the future: 94 Taxation Scenario(1) Statutory Tax and Standard Rates Hypothetical pre-tax earnings(2) 100 % Tax on earnings at statutory rate of 25%(3) (25 )% Net earnings available for distribution 75 % Withholding tax at standard rate of 10%(4) (7.5 )% Net distribution to Parent/Shareholders 67.5 % Notes: (1) The tax calculation has been simplified for the purpose of this example. The hypothetical book pre-tax earnings amount, which does not consider timing differences, is assumed to equal the taxable income in the PRC. (2) Under the terms of the VIE agreements, sales service fees are charged by our PRC subsidiaries to the VIEs. For all the periods presented, these fees are recognized as cost of revenues of the VIEs, with a corresponding amount as service income by our PRC subsidiaries and eliminated in consolidation. For income tax purposes, our PRC subsidiaries and the VIEs file income taxes on a separate company basis. The fees paid are recognized as a tax deduction by the VIEs and as income by our PRC subsidiaries and are tax neutral. (3) Certain of our subsidiaries qualifies for a 15% preferential income tax rate in China. However, such rate is temporary in nature, and may not be available in a future period. For purposes of this hypothetical example, the table above reflects a maximum tax scenario under which the full statutory rate would be effective. (4) Upon the instance that the VIEs reach a cumulative level of profitability, because our PRC subsidiaries occupy certain trademarks and copyrights, the agreements will be updated to reflect charges for such trademarks and copyrights usage on the basis that they will qualify for tax neutral treatment. China’s Enterprise Income Tax Law imposes a withholding income tax of 10% on dividends distributed by a Foreign Invested Enterprises, or the FIE, to its immediate holding company outside of China. A lower withholding income tax rate of 5% is applied if the FIE’s immediate holding company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with China, subject to a qualification review at the time of the distribution. For the purpose of this hypothetical example, this table has been prepared based on a taxation scenario under which the full withholding tax would be applied. In addition, this table has been prepared under the assumption that all profits of the VIEs will be distributed as fees to our PRC subsidiaries under tax neutral contractual arrangements. If in the future, the accumulated earnings of the VIEs exceed the fees paid to our PRC subsidiaries, or if the current and contemplated fee structure between the intercompany entities is determined to be non-substantive and disallowed by Chinese tax authorities, we have other tax-planning strategies that can be deployed on a tax neutral basis. Should all tax planning strategies fail, the VIEs could, as a matter of last resort, make a non-deductible transfer to our PRC subsidiaries for the amounts of the stranded cash in the VIEs. This would result in the double taxation of earnings: one at the VIE level (for non-deductible expenses) and one at the PRC subsidiary level (for presumptive earnings on the transfer). Such a transfer and the related tax burdens would reduce our after-tax income to approximately 50.6% of the pre-tax income. The Group’s management is of the view that the likelihood that this scenario would happen is remote. Holding Company Structure Sunlands Technology Group is a holding company with no material operations of its own. The Group’s operations are primarily conducted through our subsidiaries and the VIEs in China. As a result, our ability to pay dividends depends upon dividends paid by our subsidiaries. If our subsidiaries or any newly formed subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our subsidiaries in China are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with the Accounting Standards for Business Enterprise as promulgated by the Ministry of Finance of the PRC, or PRC GAAP. In accordance with PRC company laws, the VIEs in China must make appropriations from their after-tax profit to non-distributable reserve funds including (i) statutory surplus fund and (ii) discretionary surplus fund. The appropriation to the statutory surplus fund must be at least 10% of the after-tax profits calculated in accordance with PRC GAAP. Appropriation is not required if the statutory surplus fund has reached 50% of the registered capital of the VIEs. Appropriation to discretionary surplus fund is made at the discretion of the VIEs. Pursuant to the law applicable to China’s foreign investment enterprise, our subsidiaries that are foreign investment enterprise in the PRC have to make appropriation from their after-tax profits, as determined under PRC GAAP, to reserve funds including (i) general reserve fund, (ii) enterprise expansion fund and (iii) staff bonus and welfare fund. The appropriation to the general reserve fund must be at least 10% of the after-tax profits calculated in accordance with PRC GAAP. Appropriation is not required if the reserve fund has reached 50% of the registered capital of our subsidiary. Appropriation to the other two reserve funds are at our subsidiary’s discretion. As a Cayman Islands holding company, we are permitted under PRC laws and regulations to provide funding from the proceeds of our fund raising activities to our PRC subsidiaries only through loans or capital contributions, and to the VIEs only through loans, in each case subject to the satisfaction of the applicable government registration and reporting, approval requirements. As a result, there is uncertainty with respect to our ability to provide prompt financial support to our PRC subsidiaries and the VIEs when needed. Notwithstanding the foregoing, our PRC subsidiaries may use their own retained 95 earnings (rather than Renminbi converted from foreign currency denominated capital) to provide financial support to the VIEs either through entrustment loans from our PRC subsidiaries to the VIEs or direct loans to the VIEs’ nominee shareholders, which would be contributed to the VIEs as capital injections. Such direct loans to the nominee shareholders would be eliminated in the Group’s consolidated financial statements against the VIEs’ share capital. 5.C. Research and Development, Patents and Licenses, etc. The Group has focused on and will continue to invest in the technology system, which supports all key aspects of the Group’s online platform and is designed to optimize for scalability and flexibility. See “Item 4. Information on the Company—4.B. Business Overview.” For details of the Group’s material licenses and approvals, see “Item 4. Information on the Company—4.B. Business Overview—Licenses and Approvals.” 5.D.Trend Information Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the year ended December 31, 2025 that are reasonably likely to have a material and adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future results of operations or financial condition. 5.E. Critical Accounting Estimates For our critical accounting estimates, see “Item 5. Operating and Financial Review and Prospects—5.A. Operating Results—Critical Accounting Estimates.”