Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-Q(Mark .
2023-09-05
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Reimagining Local Healthcare and Wellbeing for All 2023 Walgreens Boots Alliance,Inc.All rights rese.
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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-Q QUARTERLY REPORT PURSUA.
2023-09-05
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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31,2023OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _ to _Commission file number 1-11840THE ALLSTATE CORPORATION(Exact name of registrant as specified in its charter)Delaware 36-3871531 (State or other jurisdiction of incorporation or organization)(I.R.S.Employer Identification No.)3100 Sanders Road,Northbrook,Illinois 60062(Address of principal executive offices)(Zip Code)Registrants telephone number,including area code:(847)402-5000Securities registered pursuant to Section 12(b)of the Act:Title of each classTradingSymbolsName of each exchange on which registeredCommon Stock,par value$.01 per shareALLNew York Stock ExchangeChicago Stock Exchange5.100%Fixed-to-Floating Rate Subordinated Debentures due 2053ALL.PR.BNew York Stock ExchangeDepositary Shares represent 1/1,000th of a share of 5.100%Noncumulative Preferred Stock,Series HALL PR HNew York Stock ExchangeDepositary Shares represent 1/1,000th of a share of 4.750%Noncumulative Preferred Stock,Series IALL PR INew York Stock ExchangeIndicate by check mark whether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements for the past 90 days.Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required to submit such files).Yes No Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company,or an emerging growthcompany.See the definitions of“large accelerated filer,”“accelerated filer,”“smaller reporting company”and“emerging growth company”in Rule 12b-2 of the Exchange Act.Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth companyIf an emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act).Yes No As of April 17,2023,the registrant had 262,851,915 common shares,$.01 par value,outstanding.The Allstate CorporationIndex to Quarterly Report on Form 10-QMarch 31,2023Part I Financial InformationPage Item 1.Financial Statements(unaudited)as of March 31,2023 and December 31,2022 and for the Three Month Periods Ended March 31,2023 and2022Condensed Consolidated Statements of Operations1Condensed Consolidated Statements of Comprehensive Income(Loss)2Condensed Consolidated Statements of Financial Position3Condensed Consolidated Statements of Shareholders Equity4 Condensed Consolidated Statements of Cash Flows5 Notes to Condensed Consolidated Financial Statements(unaudited)6 Report of Independent Registered Public Accounting Firm46Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations Highlights47 Property-Liability Operations51Segment resultsAllstate Protection53Run-off Property-Liability60Protection Services62Allstate Health and Benefits64 Investments66 Capital Resources and Liquidity74Forward-Looking Statements76Item 4.Controls and Procedures76 Part II Other InformationItem 1.Legal Proceedings77Item 1A.Risk Factors77Item 2.Unregistered Sales of Equity Securities and Use of Proceeds77Item 6.Exhibits78Condensed Consolidated Financial StatementsPart I.Financial InformationItem 1.Financial StatementsThe Allstate Corporation and SubsidiariesCondensed Consolidated Statements of Operations(unaudited)($in millions,except per share data)Three months endedMarch 31,20232022Revenues Property and casualty insurance premiums$12,173$10,981 Accident and health insurance premiums and contract charges463 468 Other revenue561 560 Net investment income575 594 Net gains(losses)on investments and derivatives14(267)Total revenues13,786 12,336 Costs and expenses Property and casualty insurance claims and claims expense10,326 7,822 Accident,health and other policy benefits265 268 Amortization of deferred policy acquisition costs1,744 1,608 Operating costs and expenses1,716 1,902 Pension and other postretirement remeasurement(gains)losses(53)(247)Restructuring and related charges27 12 Amortization of purchased intangibles81 87 Interest expense86 83 Total costs and expenses14,192 11,535(Loss)income from operations before income tax expense(406)801 Income tax(benefit)expense(85)151 Net(loss)income(321)650 Less:Net loss attributable to noncontrolling interest(1)(10)Net(loss)income attributable to Allstate(320)660 Less:Preferred stock dividends26 26 Net(loss)income applicable to common shareholders$(346)$634 Earnings per common share:Net(loss)income applicable to common shareholders per common share-Basic$(1.31)$2.28 Weighted average common shares-Basic263.5 278.1 Net(loss)income applicable to common shareholders per common share-Diluted$(1.31)$2.25 Weighted average common shares-Diluted263.5 281.8 See notes to condensed consolidated financial statements.First Quarter 2023 Form 10-Q 1Condensed Consolidated Financial StatementsThe Allstate Corporation and SubsidiariesCondensed Consolidated Statements of Comprehensive Income(Loss)(unaudited)($in millions)Three months ended March 31,20232022Net(loss)income$(321)$650 Other comprehensive income(loss),after-tax Changes in:Unrealized net capital gains and losses682(1,594)Unrealized foreign currency translation adjustments50 Unamortized pension and other postretirement prior service credit(4)(15)Discount rate for reserve for future policy benefits(9)95 Other comprehensive income(loss),after-tax719(1,514)Comprehensive income(loss)398(864)Less:Comprehensive income(loss)attributable to noncontrolling interest4(22)Comprehensive income(loss)attributable to Allstate$394$(842)See notes to condensed consolidated financial statements.2 Condensed Consolidated Financial StatementsThe Allstate Corporation and SubsidiariesCondensed Consolidated Statements of Financial Position(unaudited)($in millions,except par value data)March 31,2023December 31,2022AssetsInvestments Fixed income securities,at fair value(amortized cost,net$46,120 and$45,370)$44,103$42,485 Equity securities,at fair value(cost$2,147 and$4,253)2,174 4,567 Mortgage loans,net781 762 Limited partnership interests7,971 8,114 Short-term,at fair value(amortized cost$6,722 and$4,174)6,722 4,173 Other investments,net1,724 1,728 Total investments63,475 61,829 Cash662 736 Premium installment receivables,net9,483 9,165 Deferred policy acquisition costs5,471 5,442 Reinsurance and indemnification recoverables,net9,528 9,619 Accrued investment income436 423 Deferred income taxes345 382 Property and equipment,net971 987 Goodwill3,502 3,502 Other assets,net5,758 5,904 Total assets99,631 97,989 Liabilities Reserve for property and casualty insurance claims and claims expense38,644 37,541 Reserve for future policy benefits1,338 1,322 Contractholder funds878 879 Unearned premiums22,499 22,299 Claim payments outstanding1,333 1,268 Other liabilities and accrued expenses9,114 9,353 Debt8,452 7,964 Total liabilities82,258 80,626 Commitments and Contingent Liabilities(Note 14)Equity Preferred stock and additional capital paid-in,$1 par value,25 million shares authorized,81.0 thousand sharesissued and outstanding,$2,025 aggregate liquidation preference1,970 1,970 Common stock,$.01 par value,2.0 billion shares authorized and 900 million issued,263 million and 263 millionshares outstanding9 9 Additional capital paid-in3,780 3,788 Retained income50,388 50,970 Treasury stock,at cost(637 million and 637 million shares)(36,980)(36,857)Accumulated other comprehensive income:Unrealized net capital gains and losses(1,573)(2,255)Unrealized foreign currency translation adjustments(115)(165)Unamortized pension and other postretirement prior service credit25 29 Discount rate for reserve for future policy benefits(10)(1)Total accumulated other comprehensive income(1,673)(2,392)Total Allstate shareholders equity17,494 17,488 Noncontrolling interest(121)(125)Total equity17,373 17,363 Total liabilities and equity$99,631$97,989 See notes to condensed consolidated financial statements.First Quarter 2023 Form 10-Q 3Condensed Consolidated Financial StatementsThe Allstate Corporation and SubsidiariesCondensed Consolidated Statements of Shareholders Equity(unaudited)($in millions,except per share data)Three months ended March 31,20232022Preferred stock par value$Preferred stock additional capital paid-in1,970 1,970 Common stock par value9 9 Common stock additional capital paid-inBalance,beginning of period3,788 3,722 Equity incentive plans activity(8)(16)Balance,end of period3,780 3,706 Retained incomeBalance,beginning of period50,970 53,288 Net(loss)income(320)660 Dividends on common stock(declared per share of$0.89 and$0.85)(236)(236)Dividends on preferred stock(26)(26)Balance,end of period50,388 53,686 Treasury stockBalance,beginning of period(36,857)(34,471)Shares acquired(153)(794)Shares reissued under equity incentive plans,net30 57 Balance,end of period(36,980)(35,208)Accumulated other comprehensive incomeBalance,beginning of period(2,392)426 Change in unrealized net capital gains and losses682(1,594)Change in unrealized foreign currency translation adjustments50 Change in unamortized pension and other postretirement prior service credit(4)(15)Change in discount rate for reserve for future policy benefits(9)95 Balance,end of period(1,673)(1,088)Total Allstate shareholders equity17,494 23,075 Noncontrolling interestBalance,beginning of period(125)(52)Change in unrealized net capital gains and losses5(12)Noncontrolling loss(1)(10)Balance,end of period(121)(74)Total equity$17,373$23,001 See notes to condensed consolidated financial statements.4 Condensed Consolidated Financial StatementsThe Allstate Corporation and SubsidiariesCondensed Consolidated Statements of Cash Flows(unaudited)($in millions)Three months ended March31,20232022Cash flows from operating activitiesNet(loss)income$(321)$650 Adjustments to reconcile net income(loss)to net cash provided by operating activities:Depreciation,amortization and other non-cash items177 236 Net(gains)losses on investments and derivatives(14)267 Pension and other postretirement remeasurement(gains)losses(53)(247)Changes in:Policy benefits and other insurance reserves1,080(111)Unearned premiums199 390 Deferred policy acquisition costs(29)(103)Premium installment receivables,net(317)(502)Reinsurance recoverables,net91 333 Income taxes(125)93 Other operating assets and liabilities(87)(574)Net cash provided by operating activities601 432 Cash flows from investing activities Proceeds from sales Fixed income securities7,008 12,400 Equity securities3,739 5,216 Limited partnership interests414 300 Other investments55 208 Investment collections Fixed income securities646 104 Mortgage loans22 3 Other investments25 49 Investment purchases Fixed income securities(8,424)(13,220)Equity securities(1,187)(3,624)Limited partnership interests(226)(216)Mortgage loans(41)(37)Other investments(73)(186)Change in short-term and other investments,net(2,675)114 Purchases of property and equipment,net(79)(130)Net cash(used in)provided by investing activities(796)981 Cash flows from financing activities Proceeds from issuance of long-term debt744 Redemption and repayment of debt(250)Contractholder fund deposits33 34 Contractholder fund withdrawals(9)(9)Dividends paid on common stock(224)(230)Dividends paid on preferred stock(26)(26)Treasury stock purchases(153)(802)Shares reissued under equity incentive plans,net6 17 Other(30)Net cash provided by(used in)financing activities121(1,046)Net(decrease)increase in cash(74)367 Cash at beginning of period736 763 Cash at end of period$662$1,130 See notes to condensed consolidated financial statements.First Quarter 2023 Form 10-Q 5Notes to Condensed Consolidated Financial StatementsThe Allstate Corporation and SubsidiariesNotes to Condensed Consolidated Financial Statements(Unaudited)Note 1GeneralBasis of presentationThe accompanying condensed consolidated financial statementsinclude the accounts of The Allstate Corporation(the“Corporation”)andits wholly owned subsidiaries,primarily Allstate Insurance Company(“AIC”),a property and casualty insurance company(collectively referredto as the“Company”or“Allstate”)and variable interest entities(“VIEs”)inwhich the Company is considered a primary beneficiary.Thesecondensed consolidated financial statements have been prepared inconformity with accounting principles generally accepted in the UnitedStates of America(“GAAP”).The condensed consolidated financial statements and notes as ofMarch 31,2023 and for the three month periods ended March 31,2023and 2022 are unaudited.The condensed consolidated financialstatements reflect all adjustments(consisting only of normal recurringaccruals)which are,in the opinion of management,necessary for the fairpresentation of the financial position,results of operations and cash flowsfor the interim periods.These condensed consolidated financial statements and notes shouldbe read in conjunction with the consolidated financial statements andnotes thereto included in the Companys annual report on Form 10-K forthe year ended December 31,2022.The results of operations for theinterim periods should not be considered indicative of results to beexpected for the full year.All significant intercompany accounts andtransactions have been eliminated.To reflect the application of the new guidance to all in-scope long-duration insurance contracts,certain amounts in the condensedconsolidated financial statements and notes for 2022 have been recast.Macroeconomic impactsThe Novel Coronavirus Pandemic or COVID-19(“Coronavirus”)andsubsequent U.S.government fiscal and monetary policies have and maycontinue to effect economic activity through longer-term impacts such assupply chain disruptions,labor shortages and other macroeconomicfactors that have increased inflation and affected our operations.Thesefactors may continue to significantly affect results of operations,financialcondition and liquidity.The impact from the pandemic and the ongoingeffects should be considered when comparing the current period to priorperiods.Adopted accounting standardAccounting for Long-Duration Insurance Contracts Effective January1,2023,the Company adopted the Financial Accounting Standards Board(”FASB”)guidance revising the accounting for certain long-durationinsurance contracts using the modified retrospective approach to thetransition date of January 1,2021.Under the new guidance,measurement assumptions,including thosefor mortality,morbidity and policy lapses,are required to be reviewed atleast annually,and updated as appropriate.In addition,reserves underthe new guidance are required to be discounted using an upper-mediumgrade fixed income instrument yield that is updated through othercomprehensive income(“OCI”)at each reporting date.Additionally,deferred policy acquisition costs(“DAC”)for all long-duration products willbe amortized on a simplified basis.Also,the Companys reserve for futurepolicy benefits and DAC will be subject to new disclosure guidance.In addition,the Company met the conditions included in AccountingStandards Update No.2022-05,Transition for Sold Contracts,and electedto not apply the new guidance for contracts that were part of the 2021sales of Allstate Life Insurance Company(“ALIC”)and Allstate LifeInsurance Company of New York(“ALNY”).After-tax cumulative effect of change in accounting principle ontransition date($in millions)January 1,2021Decrease in retained income$21 Decrease in accumulated othercomprehensive income(“AOCI”)277 Total decrease in equity$298 The decrease in AOCI is primarily attributable to a change in thediscount rate used in measuring the reserve for future policy benefits fortraditional life contracts and other long-term products with guaranteedterms from a portfolio-based rate at contract issuance to an upper-medium grade fixed income-based rate at the reporting date.Thedecrease in retained income primarily relates to certain cohorts of long-term contracts whose expected net premiums exceeded expected grosspremiums which resulted in an increase in reserves and a decrease inretained income equal to the present value of expected future benefitsless the present value of expected future premiums at the transition date.6 Notes to Condensed Consolidated Financial StatementsTransition disclosures The following tables summarize the balance of and changes in the reserve for future policy benefits and DAC on January 1,2021upon the adoption of the guidance.Impact of adoption for reserve for future policy benefits($in millions)Accident andhealthTraditional lifeTotalPre-adoption 12/31/2020 balance$728$311$1,039 Adjustments:Effect of the remeasurement of the reserve at upper-medium grade fixed income-based rate 232 153 385 Adjustments for contracts with net premiums in excess of gross premiums 77 77 Total adjustments309 153 462 Post-adoption 1/1/2021 balance1,037 464 1,501 Less:reinsurance recoverables 159 3 162 Post-adoption 1/1/2021 balance,after reinsurance recoverables$878$461$1,339 Traditional life includes$11 million in reserves related to riders of traditional life insurance products reclassified from contractholder funds.Adjustment reflected with a corresponding decrease to AOCI.Adjustment reflected with a corresponding decrease to retained income.Represents post-adoption January 1,2021 balance of reinsurance recoverables.Adjustments to reinsurance recoverables for accident and health products increased January1,2021 AOCI by$33 million due to the remeasurement of the reserve at upper-medium grade fixed income based rate and increased January 1,2021 retained income by$51 million due to adjustments for contracts with net premiums in excess of gross premiums.Impact of adoption for DAC($in millions)Accident andhealthTraditional lifeInterest-sensitive lifeTotalPre-adoption 12/31/2020 balance$343$32$95$470 Adjustment for removal of impact of unrealized gains or losses 2 2 Post-adoption 1/1/2021 balance$343$32$97$472 Adjustment reflected with a corresponding increase to AOCI.Impacts of the adoption on the financial statementsConsolidated Statements of OperationsThree months ended March 31,2022($in millions,except per share data)As reportedImpact ofchangeAs adjustedRevenuesAccident and health insurance premiums and contract charges$469$(1)$468 Total revenues12,337(1)12,336 Costs and expensesAccident,health and other policy benefits269(1)268 Amortization of deferred policy acquisition costs1,612(4)1,608 Total costs and expenses11,540(5)11,535 Income from operations before income tax expense797 4 801 Income tax expense151 151 Net income646 4 650 Net income attributable to Allstate656 4 660 Net income applicable to common shareholders$630$4$634 Earnings per common share:Net income applicable to common shareholders per common share-Basic$2.27$0.01$2.28 Net income applicable to common shareholders per common share-Diluted$2.24$0.01$2.25(1)(2)(3)(4)(1)(2)(3)(4)(1)(1)First Quarter 2023 Form 10-Q 7Notes to Condensed Consolidated Financial StatementsCondensed Consolidated Statements of Comprehensive Income(unaudited)Three months ended March 31,2022($in millions)As reportedImpact ofchangeAs adjustedNet income$646$4$650 Other comprehensive income(loss),after-taxChanges in:Unrealized net capital gains and losses(1,593)(1)(1,594)Discount rate for reserve for future policy benefits 95 95 Other comprehensive loss,after-tax(1,608)94(1,514)Comprehensive loss(962)98(864)Comprehensive loss attributable to Allstate$(940)$98$(842)Condensed Consolidated Statements of Financial Position(unaudited)December 31,2022($in millions)As reportedImpact ofchangeAs adjustedAssetsDeferred policy acquisition costs$5,418$24$5,442 Reinsurance and indemnification recoverables,net9,606 13 9,619 Deferred income taxes386(4)382 Other assets,net5,905(1)5,904 Total assets97,957 32 97,989 LiabilitiesReserve for future policy benefits1,273 49 1,322 Contractholder funds897(18)879 Unearned premiums22,311(12)22,299 Total liabilities80,607 19 80,626 EquityRetained income50,954 16 50,970 Accumulated other comprehensive income:Unrealized net capital gains and losses(2,253)(2)(2,255)Discount rate for reserve for future policy benefits(1)(1)Total AOCI(2,389)(3)(2,392)Total Allstate shareholders equity17,475 13 17,488 Total equity17,350 13 17,363 Total liabilities and equity$97,957$32$97,989 8 Notes to Condensed Consolidated Financial StatementsCondensed Consolidated Statements of Shareholders Equity(unaudited)Three months ended March 31,2022($in millions)As reportedImpact ofchangeAs adjustedRetained incomeBalance,beginning of period$53,294$(6)$53,288 Net income656 4 660 Balance,end of period53,688(2)53,686 Accumulated other comprehensive income(loss)Balance,beginning of period655(229)426 Change in unrealized net capital gains and losses(1,593)(1)(1,594)Change in discount rate for reserve for future policy benefits 95 95 Balance,end of period(953)(135)(1,088)Total Allstate shareholders equity23,212(137)23,075 Total equity$23,138$(137)$23,001 Condensed Consolidated Statements of Cash Flows(unaudited)Three months ended March 31,2022($in millions)As reportedImpact ofchangeAs adjustedCash flows from operating activitiesNet income$646$4$650 Adjustments to reconcile net income to net cash provided by operating activities:Changes in:Policy benefits and other insurance reserves(113)2(111)Unearned premiums392(2)390 Deferred policy acquisition costs(99)(4)(103)Reinsurance recoverables,net334(1)333 Income taxes92 1 93 Other operating assets and liabilities(574)(574)Net cash provided by operating activities$432$432 Changes to significant accounting policiesReserve for future policy benefitsLong-duration voluntary accident and health insurance and traditionallife insurance contracts The reserve for future policy benefits(“RFPB”)iscalculated using the net premium reserving model,which uses the presentvalue of insurance contract benefits less the present value of netpremiums.Under the net premium reserving model,the Companycomputes a net premium ratio which is the present value of insurancecontract benefits divided by the present value of gross premiums.Thepresent value of contract benefits and gross premiums are determinedusing the discount rate at contract inception.The net premium ratio isapplied to premiums due on a periodic basis to compute the RFPB.Thenet premium ratio is recomputed at least annually using both actualhistorical cash flows and future cash flows anticipated over the life ofcohort of contracts subject to measurement.Assumptions includingmortality,morbidity,and lapses affect the timing and amount of estimatedcash flows used to calculate the RFPB.The Company has grouped contracts into cohorts based on producttype and issue year.Examples of insurance product types include wholelife,term life,critical illness and disability.Issue year is based on theissuance date of the contract to the policyholder,except in the case of contracts acquired in a business combination,wherethe issue date is based on the acquisition date of the businesscombination.The RFPB is calculated for contracts in force at the end ofeach period,which results in the Company recognizing the effects ofactual experience in the period it occurs.Annually,in the third quarter,the Company obtains historicalpremiums and benefits information and evaluates future cash flowassumptions that include mortality,morbidity,and terminations,andupdates cash flow assumptions as necessary.The Company has electedto not update the expense assumption when annually reviewing andupdating future cash flow assumptions.Actual premiums and benefits andany updates to future cash flow assumptions are incorporated into thecalculation of an updated net premium ratio.Updates for actual premiumsand benefits and changes to future cash flow assumptions will result in aliability remeasurement gain or loss that is recognized in net income.Thefirst step to determining the liability remeasurement gain or loss is tocalculate the RFPB using revised net premiums discounted at the locked-in discount rate set at contract issuance.The result of the first step is thencompared to the carrying amount of the RFPB before the updates foractual experience and changes to future cash flow assumptions.Thedecrease(gain)or increase(loss)in the RFPB is reported as liabilityFirst Quarter 2023 Form 10-Q 9Notes to Condensed Consolidated Financial Statementsremeasurement gain or loss in net income and presented parentheticallyas part of Accident,health and other policy benefits on the ConsolidatedStatements of Operations.The updated net premium ratio is used infuture quarters to measure the RFPB until the next annual update or anearlier date if the Company determines it is necessary to revise futurecash flow assumptions based on available evidence,including actualexperience.The discount rate assumption is determined using a yield curveapproach.The yield curve consists of U.S.dollar-denominated seniorunsecured fixed-income securities issued by U.S.companies that have anA credit rating based on the ratings provided by nationally recognizedrating agencies that include Moodys,Standard&Poors,and Fitch.Forpoints on the yield curve that do not have observable yields,the Companyuses linear interpolation which calculates the unobservable yield basedon the two nearest observable yields,except for any points beyond thelast observable yield at 30 years,where interest rates are held constantwith the last observable point on the yield curve.The Company updatesthe current discount rate quarterly and the change in the RFPB resultingfrom the updated current discount rate is recognized in OCI.Deferred policy acquisition costsDeferred policy acquisition costs are related directly to the successfulacquisition of new or renewal insurance contracts and are deferred andrecognized as an expense over the life of the related contracts.Thesecosts are principally agent and broker remuneration,premium taxes andcertain underwriting expenses.All other acquisition costs are expensed asincurred and included in operating costs and expenses.Long-duration voluntary accident and health insurance,traditional lifeinsurance contracts,and interest-sensitive life insurance contractsVoluntary accident and health insurance and traditional life insurancecontracts are grouped by product and issue year into cohorts consistentwith the cohorts used to calculate the RFPB.Interest-sensitive lifeinsurance contracts are grouped into cohorts by issue year,and the issueyear is determined based on contract issue date.DAC is amortized on aconstant level basis over the expected contract term and is included inAmortization of deferred policy acquisition costs on the ConsolidatedStatements of Operations.The constant level basis used for all cohorts isbased on policies-in-force.The expected contract term and mortality,morbidity,and termination assumptions are used to calculate both DACamortization and the RFPB.If actual contract terminations are greaterthan expected terminations for any cohort,each affected cohorts DACbalance will be reduced in the current period based on the differencebetween the actual and expected terminations.No adjustments to DACamortization are recorded if actual contract terminations are less thanexpected terminations for any cohort.If the Company makes an update toany of its mortality,morbidity,or termination assumptions,the Companywill use the assumptions prospectively to amortize any cohorts remainingDAC over the remaining expected contract term.The costs assigned to the right to receive future cash flows fromcertain business purchased from other insurers are also classified as DACin the Consolidated Statements of Financial Position.The costscapitalized represent the present value of future profits expected to beearned over the lives of the contracts acquired.The Company amortizesthe present value of future profits using the same methodology andassumptions as the amortization of DAC.The present value of futureprofits is subject to premium deficiency testing.10 Notes to Condensed Consolidated Financial StatementsNote 2Earnings per Common ShareBasic earnings per common share is computed using the weightedaverage number of common shares outstanding,including vestedunissued participating restricted stock units.Diluted earnings per commonshare is computed using the weighted average number of common anddilutive potential common shares outstanding.For the Company,dilutive potential common shares consist ofoutstanding stock options,unvestednon-participating restricted stock units and contingently issuableperformance stock awards.The effect of dilutive potential common sharesdoes not include the effect of options with an anti-dilutive effect onearnings per common share because their exercise prices exceed theaverage market price of Allstate common shares during the period or forwhich the unrecognized compensation cost would have an anti-dilutiveeffect.Computation of basic and diluted earnings per common share(In millions,except per share data)Three months ended March 31,20232022Numerator:Net(loss)income$(321)$650 Less:Net loss attributable to noncontrolling interest(1)(10)Net(loss)income attributable to Allstate(320)660 Less:Preferred stock dividends26 26 Net(loss)income applicable to common shareholders$(346)$634 Denominator:Weighted average common shares outstanding263.5 278.1 Effect of dilutive potential common shares:Stock options 2.6 Restricted stock units(non-participating)and performance stock awards 1.1 Weighted average common and dilutive potential common shares outstanding263.5 281.8 Earnings per common share-Basic$(1.31)$2.28 Earnings per common share-Diluted$(1.31)$2.25 Anti-dilutive options excluded from diluted earnings per common share1.1 1.2 Weighted average dilutive potential common shares excluded due to net loss applicable to common shareholders 2.6 As a result of the net loss reported for the three month period ended March 31,2023,weighted average shares for basic earnings per share is also used for calculating dilutedearnings per share because all dilutive potential common shares are anti-dilutive and are therefore excluded from the calculation.Note 3Reportable SegmentsMeasuring segment profit or lossThe measure of segment profit or loss used in evaluatingperformance is underwriting income for the Allstate Protection and Run-offProperty-Liability segments and adjusted net income for the ProtectionServices,Allstate Health and Benefits and Corporate and Othersegments.Underwriting income is calculated as premiums earned and otherrevenue,less claims and claims expenses(“losses”),amortization ofDAC,operating costs and expenses,amortization or impairment ofpurchased intangibles and restructuring and related charges asdetermined using GAAP.Adjusted net income is net income(loss)applicable to commonshareholders,excluding:Net gains and losses on investments and derivativesPension and other postretirement remeasurement gains and lossesAmortization or impairment of purchased intangiblesGain or loss on dispositionAdjustments for other significant non-recurring,infrequent or unusualitems,when(a)the nature of the charge or gain is such that it isreasonably unlikely to recur within two years,or(b)there has been nosimilar charge or gain within the prior two yearsIncome tax expense or benefit on reconciling itemsA reconciliation of these measures to net income(loss)applicable tocommon shareholders is provided below.(1)(1)(1)(1)First Quarter 2023 Form 10-Q 11Notes to Condensed Consolidated Financial StatementsReportable segments financial performanceThree months ended March 31,($in millions)20232022Underwriting income(loss)by segmentAllstate Protection$(998)$282 Run-off Property-Liability(3)(2)Total Property-Liability(1,001)280 Adjusted net income(loss)by segment,after-taxProtection Services34 53 Allstate Health and Benefits56 57 Corporate and Other(89)(111)Reconciling itemsProperty-Liability net investment income509 558 Net gains(losses)on investments and derivatives14(267)Pension and other postretirement remeasurement gains(losses)53 247 Amortization of purchased intangibles(24)(29)Gain(loss)on disposition9(16)Income tax benefit(expense)on reconciling items92(148)Total reconciling items653 345 Less:Net loss attributable to noncontrolling interest(1)(10)Net(loss)income applicable to common shareholders$(346)$634 Excludes amortization of purchased intangibles in Property-Liability,which is included above in underwriting income.Reflects net loss attributable to noncontrolling interest in Property-Liability.(1)(2)(1)(2)12 Notes to Condensed Consolidated Financial StatementsReportable segments revenue information($in millions)Three months ended March 31,20232022Property-Liability Insurance premiums Auto$7,908$7,081 Homeowners2,810 2,490 Other personal lines562 531 Commercial lines232 283 Other business lines123 113 Allstate Protection11,635 10,498 Run-off Property-Liability Total Property-Liability insurance premiums11,635 10,498 Other revenue353 347 Net investment income509 558 Net gains(losses)on investments and derivatives12(203)Total Property-Liability12,509 11,200 Protection ServicesProtection plans361 313 Roadside assistance49 53 Finance and insurance products128 117 Intersegment premiums and service fees 33 41 Other revenue84 94 Net investment income16 9 Net gains(losses)on investments and derivatives(1)(13)Total Protection Services670 614 Allstate Health and BenefitsEmployer voluntary benefits255 263 Group health107 94 Individual health101 111 Other revenue101 95 Net investment income19 17 Net gains(losses)on investments and derivatives2(7)Total Allstate Health and Benefits585 573 Corporate and Other Other revenue23 24 Net investment income31 10 Net gains(losses)on investments and derivatives1(44)Total Corporate and Other55(10)Intersegment eliminations(33)(41)Consolidated revenues$13,786$12,336 Intersegment insurance premiums and service fees are primarily related to Arity and Allstate Roadside and are eliminated in the condensed consolidated financial statements.(1)(1)(1)First Quarter 2023 Form 10-Q 13Notes to Condensed Consolidated Financial StatementsNote 4InvestmentsPortfolio composition($in millions)March 31,2023December 31,2022Fixed income securities,at fair value$44,103$42,485 Equity securities,at fair value2,174 4,567 Mortgage loans,net781 762 Limited partnership interests7,971 8,114 Short-term investments,at fair value6,722 4,173 Other investments,net1,724 1,728 Total$63,475$61,829 Amortized cost,gross unrealized gains(losses)and fair value for fixed income securities($in millions)Amortized cost,netGross unrealizedFairvalueGainsLossesMarch 31,2023 U.S.government and agencies$7,826$21$(152)$7,695 Municipal6,499 65(240)6,324 Corporate29,705 118(1,787)28,036 Foreign government1,112 3(24)1,091 ABS978 4(25)957 Total fixed income securities$46,120$211$(2,228)$44,103 December 31,2022 U.S.government and agencies$8,123$6$(231)$7,898 Municipal6,500 36(326)6,210 Corporate28,562 46(2,345)26,263 Foreign government997 (40)957 ABS1,188 4(35)1,157 Total fixed income securities$45,370$92$(2,977)$42,485 Scheduled maturities for fixed income securities($in millions)March 31,2023December 31,2022Amortized cost,netFair valueAmortized cost,netFair valueDue in one year or less$3,754$3,697$2,870$2,836 Due after one year through five years24,766 23,771 26,546 25,217 Due after five years through ten years11,461 10,697 11,035 9,870 Due after ten years5,161 4,981 3,731 3,405 45,142 43,146 44,182 41,328 ABS978 957 1,188 1,157 Total$46,120$44,103$45,370$42,485 Actual maturities may differ from those scheduled as a result of calls and make-whole payments by the issuers.ABS is shown separately because ofpotential prepayment of principal prior to contractual maturity dates.Net investment income($in millions)Three months ended March 31,20232022Fixed income securities$390$267 Equity securities11 36 Mortgage loans8 8 Limited partnership interests134 292 Short-term investments66 2 Other investments41 40 Investment income,before expense650 645 Investment expense(75)(51)Net investment income$575$594 14 Notes to Condensed Consolidated Financial StatementsNet gains(losses)on investments and derivatives by asset type($in millions)Three months ended March 31,20232022Fixed income securities$(136)$(152)Equity securities167(347)Mortgage loans(1)Limited partnership interests22(101)Derivatives(52)318 Other investments13 16 Net gains(losses)on investments and derivatives$14$(267)Net gains(losses)on investments and derivatives by transaction type($in millions)Three months ended March 31,20232022Sales$(120)$(127)Credit losses(12)(11)Valuation change of equity investments 198(447)Valuation change and settlements of derivatives(52)318 Net gains(losses)on investments and derivatives$14$(267)Includes valuation change of equity securities and certain limited partnership interests where the underlying assets are predominately public equity securities.Gross realized gains(losses)on sales of fixed income securities($in millions)Three months ended March 31,20232022Gross realized gains$46$66 Gross realized losses(173)(218)Net appreciation(decline)recognized in net income for assets that are still held($in millions)Three months ended March 31,20232022Equity securities$20$(92)Limited partnership interests carried at fair value16 38 Total$36$(54)Credit losses recognized in net income($in millions)Three months ended March 31,20232022AssetsFixed income securities:Corporate$(9)$Total fixed income securities(9)Mortgage loans(1)Other investmentsBank loans(3)(10)Total credit losses by asset type$(12)$(11)LiabilitiesCommitments to fund commercial mortgage loans and bank loans Total$(12)$(11)(1)(1)First Quarter 2023 Form 10-Q 15Notes to Condensed Consolidated Financial StatementsUnrealized net capital gains and losses included in AOCI($in millions)FairvalueGross unrealizedUnrealized netgains(losses)March 31,2023GainsLossesFixed income securities$44,103$211$(2,228)$(2,017)Short-term investments6,722 Derivative instruments (2)(2)Limited partnership interests 4 Unrealized net capital gains and losses,pre-tax (2,015)Other unrealized net capital gains and losses,pre-tax 18 Deferred income taxes 424 Unrealized net capital gains and losses,after-tax$(1,573)December 31,2022Fixed income securities$42,485$92$(2,977)$(2,885)Short-term investments4,173 (1)(1)Derivative instruments (3)(3)Limited partnership interests 2 Unrealized net capital gains and losses,pre-tax (2,887)Other unrealized net capital gains and losses,pre-tax 23 Deferred income taxes 609 Unrealized net capital gains and losses,after-tax$(2,255)Unrealized net capital gains and losses for limited partnership interests represent the Companys share of the equity method of accounting(“EMA”)limited partnerships OCI.Fair value and gross unrealized gains and losses are not applicable.Includes amounts recognized for the reclassification of unrealized gains and losses related to noncontrolling interest.Change in unrealized net capital gains(losses)($in millions)Three months ended March31,2023Fixed income securities$868 Short-term investments1 Derivative instruments1 Limited partnership interests2 Total872 Other unrealized net capital gains and losses,pre-tax(5)Deferred income taxes(185)Increase in unrealized net capital gains and losses,after-tax$682 Carrying value for limited partnership interests($in millions)March 31,2023December 31,2022EMAFair ValueTotalEMAFair ValueTotalPrivate equity$5,546$1,199$6,745$5,372$1,217$6,589 Real estate1,019 29 1,048 1,013 29 1,042 Other 178 178 483 483 Total$6,743$1,228$7,971$6,868$1,246$8,114 Other consists of certain limited partnership interests where the underlying assets are predominately public equity and debt securities.Short-term investments Short-term investments,including money market funds,commercial paper,U.S.Treasury bills and other short-term investments,arecarried at fair value.As of March 31,2023 and December 31,2022,the fair value of short-term investments totaled$6.72 billion and$4.17 billion,respectively.(1)(2)(1)(2)(1)(2)(1)(1)16 Notes to Condensed Consolidated Financial StatementsOther investments Other investments primarily consist of bank loans,real estate,policy loans and derivatives.Bank loans are primarily senior securedcorporate loans and are carried at amortized cost,net.Policy loans are carried at unpaid principal balances.Real estate is carried at cost less accumulateddepreciation.Derivatives are carried at fair value.Other investments by asset type($in millions)March 31,2023December 31,2022Bank loans,net$698$686 Real estate790 813 Policy loans120 120 Derivatives10 1 Other106 108 Total$1,724$1,728 Portfolio monitoring and credit lossesFixed income securities The Company has a comprehensiveportfolio monitoring process to identify and evaluate each fixed incomesecurity that may require a credit loss allowance.For each fixed income security in an unrealized loss position,theCompany assesses whether management with the appropriate authorityhas made the decision to sell or whether it is more likely than not theCompany will be required to sell the security before recovery of theamortized cost basis for reasons such as liquidity,contractual orregulatory purposes.If a security meets either of these criteria,anyexisting credit loss allowance would be written-off against the amortizedcost basis of the asset along with any remaining unrealized losses,withincremental losses recorded in earnings.If the Company has not made the decision to sell the fixed incomesecurity and it is not more likely than not the Company will be required tosell the fixed income security before recovery of its amortized cost basis,the Company evaluates whether it expects to receive cash flows sufficientto recover the entire amortized cost basis of the security.The Companycalculates the estimated recovery value based on the best estimate offuture cash flows considering past events,current conditions andreasonable and supportable forecasts.The estimated future cash flowsare discounted at the securitys current effective rate and is compared tothe amortized cost of the security.The determination of cash flow estimates is inherently subjective,andmethodologies may vary depending on facts and circumstances specificto the security.All reasonably available information relevant to thecollectability of the security is considered when developing the estimate ofcash flows expected to be collected.That information generally includes,but is not limited to,the remaining payment terms of the security,prepayment speeds,the financial condition and future earnings potentialof the issue or issuer,expected defaults,expected recoveries,the value ofunderlying collateral,origination vintage year,geographic concentration ofunderlying collateral,available reserves or escrows,current subordinationlevels,third-party guarantees and other credit enhancements.Otherinformation,such as industry analyst reports and forecasts,credit ratings,financial condition of the bond insurer for insured fixed incomesecurities,and other market data relevant to the realizability of contractualcash flows,may also be considered.The estimated fair value of collateralwill be used to estimate recovery value if the Company determines thatthe security is dependent on the liquidation of collateral for ultimatesettlement.If the Company does not expect to receive cash flows sufficient torecover the entire amortized cost basis of the fixed income security,acredit loss allowance is recorded in earnings for the shortfall in expectedcash flows;however,the amortized cost,net of the credit loss allowance,may not be lower than the fair value of the security.The portion of theunrealized loss related to factors other than credit remains classified inAOCI.If the Company determines that the fixed income security does nothave sufficient cash flow or other information to estimate a recovery valuefor the security,the Company may conclude that the entire decline in fairvalue is deemed to be credit related and the loss is recorded in earnings.When a security is sold or otherwise disposed or when the security isdeemed uncollectible and written off,the Company removes amountspreviously recognized in the credit loss allowance.Recoveries after write-offs are recognized when received.Accrued interest excluded from theamortized cost of fixed income securities totaled$400 million and$389million as of March 31,2023 and December 31,2022,respectively,and isreported within the accrued investment income line of the CondensedConsolidated Statements of Financial Position.The Company monitorsaccrued interest and writes off amounts when they are not expected to bereceived.The Companys portfolio monitoring process includes a quarterlyreview of all securities to identify instances where the fair value of asecurity compared to its amortized cost is below internally establishedthresholds.The process also includes the monitoring of other credit lossindicators such as ratings,ratings downgrades and payment defaults.Thesecurities identified,in addition to other securities for which the Companymay have a concern,are evaluated for potential credit losses using allreasonably available information relevant to the collectability or recoveryof the security.Inherent in the Companys evaluation of credit losses forthese securities are assumptions and estimates about the financialcondition and future earnings potential of the issue or issuer.Some of thefactors that may be considered in evaluating whether aFirst Quarter 2023 Form 10-Q 17Notes to Condensed Consolidated Financial Statementsdecline in fair value requires a credit loss allowance are:1)the financialcondition,near-term and long-term prospects of the issue or issuer,including relevant industry specific market conditions and trends,geographic location and implications of rating agency actions and offeringprices;2)the specific reasons thata security is in an unrealized loss position,including overall marketconditions which could affect liquidity;and 3)the extent to which the fairvalue has been less than amortized cost.Rollforward of credit loss allowance for fixed income securitiesThree months ended March 31,($in millions)20232022Beginning balance$(13)$(6)Credit losses on securities for which credit losses not previously reported Net increases related to credit losses previously reported(9)Reduction of allowance related to sales Write-offs Ending balance$(22)$(6)Components of credit loss allowanceCorporate bonds$(20)$(6)ABS(2)Total$(22)$(6)Gross unrealized losses and fair value by type and length of time held in a continuous unrealized loss position($in millions)Less than 12 months12 months or moreTotalunrealizedlossesNumberof issuesFairvalueUnrealizedlossesNumberof issuesFairvalueUnrealizedlossesMarch 31,2023 Fixed income securities U.S.government and agencies70$2,576$(41)104$3,216$(111)$(152)Municipal1,183 1,632(27)1,860 2,376(213)(240)Corporate970 8,673(286)1,777 14,543(1,501)(1,787)Foreign government15 197(1)87 452(23)(24)ABS74 160(5)152 669(20)(25)Total fixed income securities2,312$13,238$(360)3,980$21,256$(1,868)$(2,228)Investment grade fixed income securities2,132$12,415$(313)3,601$18,633$(1,509)$(1,822)Below investment grade fixed income securities180 823(47)379 2,623(359)(406)Total fixed income securities2,312$13,238$(360)3,980$21,256$(1,868)$(2,228)December 31,2022 Fixed income securities U.S.government and agencies112$4,900$(138)75$2,393$(93)$(231)Municipal3,015 3,944(215)507 740(111)(326)Corporate2,085 18,072(1,389)845 6,105(956)(2,345)Foreign government74 739(22)42 200(18)(40)ABS194 874(27)83 109(8)(35)Total fixed income securities5,480$28,529$(1,791)1,552$9,547$(1,186)$(2,977)Investment grade fixed income securities4,959$25,487$(1,409)1,437$8,791$(1,009)$(2,418)Below investment grade fixed income securities521 3,042(382)115 756(177)(559)Total fixed income securities5,480$28,529$(1,791)1,552$9,547$(1,186)$(2,977)18 Notes to Condensed Consolidated Financial StatementsGross unrealized losses by unrealized loss position and credit quality as of March 31,2023($in millions)InvestmentgradeBelow investmentgradeTotalFixed income securities with unrealized loss position less than 20%of amortizedcost,net$(1,669)$(296)$(1,965)Fixed income securities with unrealized loss position greater than or equal to 20%of amortized cost,net(153)(110)(263)Total unrealized losses$(1,822)$(406)$(2,228)Below investment grade fixed income securities include$41 million that have been in an unrealized loss position for less than twelve months.Related to securities with an unrealized loss position less than 20%of amortized cost,net,the degree of which suggests that these securities do not pose a high risk of havingcredit losses.Below investment grade fixed income securities include$104 million that have been in an unrealized loss position for a period of twelve or more consecutive months.Evaluated based on factors such as discounted cash flows and the financial condition and near-term and long-term prospects of the issue or issuer and were determined tohave adequate resources to fulfill contractual obligations.Investment grade is defined as a security having a NationalAssociation of Insurance Commissioners(“NAIC”)designation of 1 or 2,which is comparable to a rating of Aaa,Aa,A or Baa from Moodys orAAA,AA,A or BBB from S&P Global Ratings(“S&P”),or a comparableinternal rating if an externally provided rating is not available.Marketprices for certain securities may have credit spreads which imply higher orlower credit quality than the current third-party rating.Unrealized losseson investment grade securities are principally related to an increase inmarket yields which may include increased risk-free interest rates or widercredit spreads since the time of initial purchase.The unrealized losses areexpected to reverse as the securities approach maturity.ABS in an unrealized loss position were evaluated based on actualand projected collateral losses relative to the securities positions in therespective securitization trusts,security specific expectations of cashflows,and credit ratings.This evaluation also takes into considerationcredit enhancement,measured in terms of(i)subordination from otherclasses of securities in the trust that are contractually obligated to absorblosses before the class of security the Company owns,and(ii)theexpected impact of other structural features embedded in thesecuritization trust beneficial to the class of securities the Company owns,such as overcollateralization and excess spread.Municipal bonds in anunrealized loss position were evaluated based on the underlying creditquality of the primary obligor,obligation type and quality of the underlyingassets.As of March 31,2023,the Company has not made the decision to selland it is not more likely than not the Company will be required to sell fixedincome securities with unrealized losses before recovery of the amortizedcost basis.Loans The Company establishes a credit loss allowance formortgage loans and bank loans when they are originated or purchased,and for unfunded commitments unless they are unconditionallycancellable by the Company.The Company uses a probability of defaultand loss given default model for mortgage loans and bank loans toestimate current expected credit losses that considers all relevantinformation available including past events,current conditions,andreasonable and supportable forecasts over the life of an asset.TheCompany also considers such factors as historical losses,expectedprepayments and various economic factors.For mortgage loans theCompany considers origination vintage year and property levelinformation such as debt service coverage,property type,propertylocation and collateral value.For bank loans,the Company considers thecredit rating of the borrower,credit spreads and type of loan.After thereasonable and supportable forecast period,the Companys model revertsto historical loss trends.Loans are evaluated on a pooled basis when they share similar riskcharacteristics.The Company monitors loans through a quarterly creditmonitoring process to determine when they no longer share similar riskcharacteristics and are to be evaluated individually when estimating creditlosses.Loans are written off against their corresponding allowances whenthere is no reasonable expectation of recovery.If a loan recovers after awrite-off,the estimate of expected credit losses includes the expectedrecovery.Accrual of income is suspended for loans that are in default or whenfull and timely collection of principal and interest payments is notprobable.Accrued income receivable is monitored for recoverability andwhen not expected to be collected is written off through net investmentincome.Cash receipts on loans on non-accrual status are generallyrecorded as a reduction of amortized cost.Accrued interest is excluded from the amortized cost of loans and isreported within the accrued investment income line of the CondensedConsolidated Statements of Financial Position.Accrued interest($in millions)March 31,December 31,20232022Mortgage loans$3$3 Bank Loans4 3 (1)(2)(3)(4)(1)(2)(3)(4)First Quarter 2023 Form 10-Q 19Notes to Condensed Consolidated Financial StatementsMortgage loans When it is determined a mortgage loan shall beevaluated individually,the Company uses various methods to estimatecredit losses on individual loans such as using collateral value lessestimated costs to sell where applicable,including when foreclosure isprobable or when repayment is expected to be provided substantiallythrough the operation or sale of the collateral and the borrower isexperiencing financial difficulty.When collateral value is used,themortgage loans may not have a credit loss allowance when the fair valueof the collateral exceeds the loans amortized cost.An alternativeapproach may be utilized to estimate credit losses using the present valueof the loans expected future repayment cash flows discounted at theloans current effective interest rate.Individual loan credit loss allowancesare adjustedfor subsequent changes in the fair value of the collateral less costs to sell,when applicable,or present value of the loans expected future repaymentcash flows.Debt service coverage ratio is considered a key credit qualityindicator when mortgage loan credit loss allowances are estimated.Debtservice coverage ratio represents the amount of estimated cash flow fromthe property available to the borrower to meet principal and interestpayment obligations.Debt service coverage ratio estimates are updatedannually or more frequently if conditions are warranted based on theCompanys credit monitoring process.Mortgage loans amortized cost by debt service coverage ratio distribution and year of originationMarch 31,2023December 31,2022($in millions)2018 andprior2019202020212022CurrentTotalTotalBelow 1.0$18$18$18 1.0-1.2510 10 20 42 1.26-1.5041 66 12 7 8 134 151 Above 1.50108 172 42 185 77 32 616 558 Amortized cost before allowance$159$238$52$197$102$40$788$769 Allowance(7)(7)Amortized cost,net$781$762 Mortgage loans with a debt service coverage ratio below 1.0 that arenot considered impaired primarily relate to situations where the borrowerhas the financial capacity to fund the revenue shortfalls from theproperties for the foreseeable term,the decrease in cash flows from theproperties is consideredtemporary,or there are other risk mitigating factors such as additionalcollateral,escrow balances or borrower guarantees.Payments on allmortgage loans were current as of March 31,2023 and December 31,2022.Rollforward of credit loss allowance for mortgage loansThree months ended March 31,($in millions)20232022Beginning balance$(7)$(6)Net increases related to credit losses(1)Write-offs Ending balance$(7)$(7)Bank loans When it is determined a bank loan shall be evaluatedindividually,the Company uses various methods to estimate credit losseson individual loans such as the present value of the loans expected futurerepayment cash flows discounted at the loans current effective interestrate.Credit ratings of the borrower are considered a key credit qualityindicator when bank loan credit loss allowances are estimated.Theratings are either received from the Securities Valuation Office of theNAIC based on availability of applicable ratings from rating agencies onthe NAIC credit rating provider list or a comparable internal rating.Theyear of origination is determined to be the year in which the asset isacquired.20 Notes to Condensed Consolidated Financial StatementsBank loans amortized cost by credit rating and year of originationMarch 31,2023December 31,2022($in millions)2018 andprior2019202020212022CurrentTotalTotalNAIC 2/BBB$7$5$45$4$61$54 NAIC 3/BB5 4 3 202 16 22 252 266 NAIC 4/B22 17 15 223 38 32 347 329 NAIC 5-6/CCC and below31 34 1 16 6 2 90 94 Amortized cost before allowance$58$62$24$486$64$56$750$743 Allowance(52)(57)Amortized cost,net$698$686 Rollforward of credit loss allowance for bank loans($in millions)Three months ended March 31,20232022Beginning balance$(57)$(61)Net increases related to credit losses(3)(10)Reduction of allowance related to sales5 3 Write-offs3 Ending balance$(52)$(68)Note 5Fair Value of Assets and LiabilitiesFair value is defined as the price that would be received to sell anasset or paid to transfer a liability in an orderly transaction betweenmarket participants at the measurement date.The hierarchy for inputsused in determining fair value maximizes the use of observable inputs andminimizes the use of unobservable inputs by requiring that observableinputs be used when available.Assets and liabilities recorded on theCondensed Consolidated Statements of Financial Position at fair valueare categorized in the fair value hierarchy based on the observability ofinputs to the valuation techniques as follows:Level 1:Assets and liabilities whose values are based on unadjustedquoted prices for identical assets or liabilities in an active market that theCompany can access.Level 2:Assets and liabilities whose values are based on the following:(a)Quoted prices for similar assets or liabilities in active markets;(b)Quoted prices for identical or similar assets or liabilities in marketsthat are not active;or(c)Valuation models whose inputs are observable,directly or indirectly,for substantially the full term of the asset or liability.Level 3:Assets and liabilities whose values are based on prices orvaluation techniques that require inputs that are both unobservable andsignificant to the overall fair value measurement.Unobservable inputsreflect the Companys estimates of the assumptions that marketparticipants would use in valuing the assets and liabilities.The availability of observable inputs varies by instrument.Insituations where fair value is based on internally developed pricing modelsor inputs that are unobservable in the market,the determination of fairvalue requires more judgment.The degree of judgment exercised by theCompany in determining fair value is typically greatest for instrumentscategorized in Level 3.In many instances,valuation inputs used tomeasure fair value fall into different levels of the fair value hierarchy.Thecategory level in the fair value hierarchy is determined based on thelowest level input that is significant to the fair value measurement in itsentirety.The Company uses prices and inputs that are current as of themeasurement date,including during periods of market disruption.Inperiods of market disruption,the ability to observe prices and inputs maybe reduced for many instruments.The Company is responsible for the determination of fair value andthe supporting assumptions and methodologies.The Company gainsassurance that assets and liabilities are appropriately valued through theexecution of various processes and controls designed to ensure theoverall reasonableness and consistent application of valuationmethodologies,including inputs and assumptions,and compliance withaccounting standards.For fair values received from third parties orinternally estimated,the Companys processes and controls are designedto ensure that the valuation methodologies are appropriate andconsistently applied,the inputs and assumptions are reasonable andconsistent with the objective of determining fair value,and the fair valuesare accurately recorded.For example,on a continuing basis,theCompany assesses the reasonableness of individual fair values that havestale security prices or that exceed certain thresholds as compared toFirst Quarter 2023 Form 10-Q 21Notes to Condensed Consolidated Financial Statementsprevious fair values received from valuation service providers or brokersor derived from internal models.The Company performs procedures tounderstand and assess the methodologies,processes and controls ofvaluation service providers.In addition,the Company may validate the reasonableness of fairvalues by comparing information obtained from valuation serviceproviders or brokers to other third-party valuation sources for selectedsecurities.The Company performs ongoing price validation proceduressuch as back-testing of actual sales,which corroborate the various inputsused in internal models to market observable data.When fair valuedeterminations are expected to be more variable,the Company validatesthem through reviews by members of management who have relevantexpertise and who are independent of those charged with executinginvestment transactions.The Company has two types of situations where investments areclassified as Level 3 in the fair value hierarchy:(1)Specific inputs significant to the fair value estimation models are notmarket observable.This primarily occurs in the Companys use ofbroker quotes to value certain securities where the inputs have notbeen corroborated to be market observable,and the use of valuationmodels that use significant non-market observable inputs.(2)Quotes continue to be received from independent third-partyvaluation service providers and all significant inputs are marketobservable;however,there has been a significant decrease in thevolume and level of activity for the asset when compared to normalmarket activity such that the degree of market observability hasdeclined to a point where categorization as a Level 3 measurement isconsidered appropriate.The indicators considered in determiningwhether a significant decrease in the volume and level of activity for aspecific asset has occurred include the level of new issuances in theprimary market,trading volume in the secondary market,the level ofcredit spreads over historical levels,applicable bid-ask spreads,andprice consensus among market participants and other pricingsources.Certain assets are not carried at fair value on a recurring basis,including mortgage loans,bank loans and policy loans and are onlyincluded in the fair value hierarchy disclosure when the individualinvestment is reported at fair value.In determining fair value,the Company principally uses the marketapproach which generally utilizes market transaction data for the same orsimilar instruments.To a lesser extent,the Company uses the incomeapproach which involves determining fair values from discounted cashflow methodologies.For the majority of Level 2 and Level 3 valuations,acombination of the market and income approaches is used.Summary of significant inputs and valuation techniques for Level 2and Level 3 assets and liabilities measured at fair value on arecurring basisLevel 2 measurementsFixed income securities:U.S.government and agencies,municipal,corporate-public andforeign government:The primary inputs to the valuation includequoted prices for identical or similar assets in markets that are notactive,contractual cash flows,benchmark yields and credit spreads.Corporate-privately placed:Privately placed are valued using adiscounted cash flow model that is widely accepted in the financialservices industry and uses market observable inputs and inputsderived principally from,or corroborated by,observable market data.The primary inputs to the discounted cash flow model include aninterest rate yield curve,as well as published credit spreads forsimilar assets in markets that are not active that incorporate the creditquality and industry sector of the issuer.Corporate-privately placed also includes redeemable preferred stockthat are valued using quoted prices for identical or similar assets inmarkets that are not active,contractual cash flows,benchmark yields,underlying stock prices and credit spreads.ABS:The primary inputs to the valuation include quoted prices foridentical or similar assets in markets that are not active,contractualcash flows,benchmark yields,collateral performance and creditspreads.Certain ABS are valued based on non-binding broker quoteswhose inputs have been corroborated to be market observable.Residential mortgage-backed securities(“MBS”),included in ABS,use prepayment speeds as a primary input for valuation.Equity securities:The primary inputs to the valuation include quotedprices or quoted net asset values for identical or similar assets inmarkets that are not active.Short-term:The primary inputs to the valuation include quoted pricesfor identical or similar assets in markets that are not active,contractual cash flows,benchmark yields and credit spreads.Other investments:Free-standing exchange listed derivatives that arenot actively traded are valued based on quoted prices for identicalinstruments in markets that are not active.Over-the-counter(“OTC”)derivatives,including interest rate swaps,foreign currency swaps,total return swaps,foreign exchange forwardcontracts,certain options and certain credit default swaps,are valuedusing models that rely on inputs such as interest rate yield curves,implied volatilities,index price levels,currency rates,and creditspreads that are observable for substantially the full term of thecontract.The valuation techniques underlying the models are widelyaccepted in the financial22 Notes to Condensed Consolidated Financial Statementsservices industry and do not involve significant judgment.Level 3 measurementsFixed income securities:Municipal:Comprise municipal bonds that are not rated by third-partycredit rating agencies.The primary inputs to the valuation of thesemunicipal bonds include quoted prices for identical or similar assetsthat are not market observable,contractual cash flows,benchmarkyields and credit spreads.Also included are municipal bonds valuedbased on non-binding broker quotes where the inputs have not beencorroborated to be market observable and municipal bonds in defaultvalued based on the present value of expected cash flows.Corporate-public and privately placed and ABS:Primarily valuedbased on non-binding broker quotes where the inputs have not beencorroborated to be market observable.Other inputs for corporatefixed income securities include an interest rate yield curve,as well aspublished credit spreads for similar assets that incorporate the creditquality and industry sector of the issuer.Equity securities:The primary inputs to the valuation include quotedprices or quoted net asset values for identical or similar assets thatare not market observable.Short-term:For certain short-term investments,amortized cost isused as the best estimate of fair value.Other investments:Certain OTC derivatives,such as interest ratecaps,certain credit default swaps and certain options(includingswaptions),are valued using models that are widely accepted in thefinancial services industry.These are categorized as Level 3 as aresult of the significance of non-market observable inputs such asvolatility.Other primary inputs include interest rate yield curves andcredit spreads,and quoted prices for identical or similar assets inmarkets that exhibit less liquidity relative to those markets supportingLevel 2 fair value measurements.Other assets:Includes the contingent consideration provision in thesale agreement for ALIC which meets the definition of a derivative.This derivative is valued internally using a model that includesstochastically determined cash flows and inputs that include spot andforward interest rates,volatility,corporate credit spreads and aliquidity discount.This derivative is categorized as Level 3 due to thesignificance of non-market observable inputs.Assets measured at fair value on a non-recurring basisComprise long-lived assets to be disposed of by sale,including realestate,that are written down to fair value less costs to sell.Investments excluded from the fair value hierarchyLimited partnerships carried at fair value,which do not have readilydeterminable fair values,use NAV provided by the investees and areexcluded from the fair value hierarchy.These investments are generallynot redeemable by the investees and generally cannot be sold withoutapproval of the general partner.The Company receives distributions ofincome and proceeds from the liquidation of the underlying assets of theinvestees,which usually takes place in years 4-9 of the typical contractuallife of 10-12 years.As of March 31,2023,the Company has commitmentsto invest$204 million in these limited partnership interests.First Quarter 2023 Form 10-Q 23Notes to Condensed Consolidated Financial StatementsAssets and liabilities measured at fair valueMarch 31,2023($in millions)Quoted pricesin active markets foridentical assets(Level 1)Significant otherobservable inputs(Level 2)Significantunobservableinputs(Level 3)Counterpartyand cash collateralnettingTotalAssets Fixed income securities:U.S.government and agencies$7,678$17$7,695 Municipal 6,307 17 6,324 Corporate-public 20,320 29 20,349 Corporate-privately placed 7,638 49 7,687 Foreign government 1,091 1,091 ABS 930 27 957 Total fixed income securities7,678 36,303 122 44,103 Equity securities1,523 293 358 2,174 Short-term investments2,034 4,682 6 6,722 Other investments 10 2$12 Other assets4 112 116 Total recurring basis assets11,239 41,288 600 53,127 Non-recurring basis 19 19 Total assets at fair value$11,239$41,288$619$53,146%of total assets at fair value21.1w.7%1.20.0%Investments reported at NAV1,228 Total$54,374 Liabilities Other liabilities$(5)$(16)$16$(5)Total recurring basis liabilities(5)(16)16(5)Total liabilities at fair value$(5)$(16)$16$(5)%of total liabilities at fair value100.020.0%(320.0)0.0$ Notes to Condensed Consolidated Financial StatementsAssets and liabilities measured at fair valueDecember 31,2022($in millions)Quoted pricesin active markets foridentical assets(Level 1)Significant otherobservable inputs(Level 2)Significantunobservableinputs(Level 3)Counterpartyand cash collateralnettingTotalAssets Fixed income securities:U.S.government and agencies$7,878$20$7,898 Municipal 6,189 21 6,210 Corporate-public 18,547 69 18,616 Corporate-privately placed 7,592 55 7,647 Foreign government 957 957 ABS 1,129 28 1,157 Total fixed income securities7,878 34,434 173 42,485 Equity securities3,936 298 333 4,567 Short-term investments508 3,659 6 4,173 Other investments 23 3$(22)4 Other assets3 103 106 Total recurring basis assets12,325 38,414 618(22)51,335 Non-recurring basis 23 23 Total assets at fair value$12,325$38,414$641$(22)$51,358%of total assets at fair value24.0t.8%1.20.0%Investments reported at NAV1,246 Total$52,604 Liabilities Other liabilities$(1)$(25)$21$(5)Total recurring basis liabilities(1)(25)21(5)Total liabilities at fair value$(1)$(25)$21$(5)%of total liabilities at fair value20.0P0.0%(420.0)0.0%As of March 31,2023 and December 31,2022,Level 3 fair valuemeasurements of fixed income securities total$122 million and$173million,respectively,and include$30 million and$70 million,respectively,of securities valued based on non-binding broker quotes where the inputshave not been corroborated to be market observable and$16 million and$21 million,respectively,of municipal fixed income securities that are notrated by third-party credit rating agencies.As the Company does notdevelop the Level 3 fair valueunobservable inputs for these fixed income securities,they are notincluded in the table above.However,an increase(decrease)in creditspreads for fixed income securities valued based on non-binding brokerquotes would result in a lower(higher)fair value,and an increase(decrease)in the credit rating of municipal bonds that are not rated bythird-party credit rating agencies would result in a higher(lower)fair value.First Quarter 2023 Form 10-Q 25Notes to Condensed Consolidated Financial StatementsRollforward of Level 3 assets and liabilities held at fair value during the three month period ended March 31,2023Balance as of December 31,2022Total gains(losses)included in:TransfersBalance as of March 31,2023($in millions)NetincomeOCIInto Level3Out ofLevel 3PurchasesSalesIssuesSettlementsAssetsFixed income securities:Municipal$21$(3)$(1)$17 Corporate-public69(1)2 (41)29 Corporate-privately placed55(4)(2)49 ABS28 (1)27 Total fixed income securities173(5)2 (46)(2)122 Equity securities333 42(17)358 Short-term investments6 6 Other investments3(1)2 Other assets103 9 112 Total recurring Level 3 assets$618$3$2$42$(63)$(2)$600 Rollforward of Level 3 assets and liabilities held at fair value during the three month period ended March 31,2022Balance as of December 31,2021Total gains(losses)included in:TransfersBalance as of March 31,2022($in millions)NetincomeOCIInto Level3Out ofLevel 3PurchasesSalesIssuesSettlementsAssetsFixed income securities:Municipal$18$(1)$17 Corporate-public20 (2)35(4)49 Corporate-privately placed66 1 63 130 ABS40 1 (28)7 (1)19 Total fixed income securities144 1(1)(28)105(4)(2)215 Equity securities349 25 2(3)373 Short-term investments5 6 11 Other investments2 2 Other assets65 12 77 Total recurring Level 3 assets$565$38$(1)$(28)$113$(7)$(2)$678 Total Level 3 gains(losses)included in net incomeThree months ended March 31,($in millions)20232022Net investment income$(5)$9 Net gains(losses)on investments and derivatives8 29 26 Notes to Condensed Consolidated Financial StatementsThere were no transfers into Level 3 during the three months endedMarch 31,2023 and 2022.There were no transfers out of Level 3 during the three months endedMarch 31,2023.Transfers out of Level 3 during the three months endedMarch 31,2022 included situations where a broker quote was used in theprior period and a quote became available from theCompanys independent third-party valuation service provider in thecurrent period.A quote utilizing the new pricing source was not availableas of the prior period,and any gains or losses related to the change invaluation source for individual securities were not significant.Valuation changes included in net income and OCI for Level 3 assets and liabilities held as of March 31,Three months ended March 31,($in millions)20232022Assets Fixed income securities:Corporate-privately placed$(4)$Total fixed income securities(4)Equity securities(1)25 Other investments(1)Other assets9 12 Total recurring Level 3 assets$3$37 Total included in net income$3$37 Components of net incomeNet investment income$(5)$9 Net gains(losses)on investments and derivatives8 28 Total included in net income$3$37 AssetsCorporate-public$1$(2)Corporate-privately placed 1 Changes in unrealized net capital gains and losses reported in OCI$1$(1)Financial instruments not carried at fair value($in millions)March 31,2023December 31,2022Financial assetsFair value levelAmortized cost,netFairvalueAmortized cost,netFairvalueMortgage loansLevel 3$781$724$762$700 Bank loansLevel 3698 706 686 686 Financial liabilitiesFair value levelCarrying valueFairvalueCarrying valueFairvalueContractholder funds on investment contractsLevel 3$48$48$50$50 DebtLevel 28,452 8,089 7,964 7,449 Liability for collateralLevel 21,807 1,807 2,011 2,011 Represents the amounts reported on the Condensed Consolidated Statements of Financial Position.Note 6Derivative Financial InstrumentsThe Company uses derivatives for risk reduction and to increaseinvestment portfolio returns through asset replication.Risk reductionactivity is focused on managing the risks with certain assets and liabilitiesarising from the potential adverse impacts from changes in risk-freeinterest rates,changes in equity market valuations,increases in creditspreads and foreign currency fluctuations.Asset replication refers to the“synthetic”creation of assets throughthe use of derivatives.The Company replicates fixed income securitiesusing a combination of a credit default swap,index total return swap,options,futures,or a foreign currency forward contractand one or more highly rated fixed income securities,primarily investmentgrade host bonds,to synthetically replicate the economic characteristicsof one or more cash market securities.The Company replicates equitysecurities using futures,index total return swaps,and options to increaseequity exposure.Property-Liability may use interest rate swaps,swaptions,futures andoptions to manage the interest rate risks of existing investments.Theseinstruments are utilized to change the duration of the portfolio in order tooffset the economic effect that interest rates would otherwise have on thefair value of its fixed income securities.Fixed income index total return(1)(1)(1)First Quarter 2023 Form 10-Q 27Notes to Condensed Consolidated Financial Statementsswaps are used to offset valuation losses in the fixed income portfolioduring periods of declining market values.Credit default swaps aretypically used to mitigate the credit risk within the Property-Liability fixedincome portfolio.Equity index total return swaps,futures and options areused by Property-Liability to offset valuation losses in the equity portfolioduring periods of declining equity market values.In addition,equity futuresare used to hedge the market risk related to deferred compensationliability contracts.Forward contracts are primarily used by Property-Liability to hedge foreign currency risk associated with holding foreigncurrency denominated investments and foreign operations.In 2022,the Company also had derivatives embedded in non-derivative host contracts that were required to be separated from the hostcontracts and accounted for at fair value with changes in fair value ofembedded derivatives reported in net income.When derivatives meet specific criteria,they may be designated asaccounting hedges and accounted for as fair value,cash flow,foreigncurrency fair value or foreign currency cash flow hedges.The notional amounts specified in the contracts are used to calculatethe exchange of contractual payments under the agreements and aregenerally not representative of the potential for gain or loss on theseagreements.However,the notional amounts specified in credit defaultswaps where the Company has sold credit protection represent themaximum amount of potential loss,assuming no recoveries.Fair value,which is equal to the carrying value,is the estimatedamount that the Company would receive or pay to terminate the derivativecontracts at the reporting date.The carrying value amounts for OTCderivatives are further adjusted for the effects,if any,of enforceablemaster netting agreements and are presented on a net basis,bycounterparty agreement,in the Condensed Consolidated Statements of Financial Position.For those derivatives which qualify and have been designated as fairvalue accounting hedges,net income includes the changes in the fairvalue of both the derivative instrument and the hedged risk.For cash flowhedges,gains and losses are amortized from AOCI and are reported innet income in the same period the forecasted transactions being hedgedimpact net income.Non-hedge accounting is generally used for“portfolio”level hedgingstrategies where the terms of the individual hedged items do not meet thestrict homogeneity requirements to permit the application of hedgeaccounting.For non-hedge derivatives,net income includes changes infair value and accrued periodic settlements,when applicable.With theexception of non-hedge derivatives used for asset replication and non-hedge embedded derivatives,all of the Companys derivatives areevaluated for their ongoing effectiveness as either accounting hedge ornon-hedge derivative financial instruments on at least a quarterly basis.In connection with the sale of ALIC and certain affiliates in 2021,thesale agreement included a provision related to contingent considerationthat may be earned over a ten-year period with the first potential paymentdate commencing on January 1,2026 and a final potential payment dateof January 1,2035.The contingent consideration is determined annuallybased on the average 10-year Treasury rate over the preceding 3-yearperiod compared to a designated rate.The contingent considerationmeets the definition of a derivative and is accounted for on a fair valuebasis with periodic changes in fair value reflected in earnings.There areno collateral requirements related to the contingent consideration.28 Notes to Condensed Consolidated Financial StatementsSummary of the volume and fair value positions of derivative instruments as of March 31,2023($in millions,except number of contracts)Volume Balance sheet locationNotionalamountNumber ofcontractsFairvalue,netGrossassetGrossliabilityAsset derivatives Derivatives not designated as accounting hedging instruments Interest rate contracts FuturesOther assetsn/a6,842$2$2$Equity and index contracts FuturesOther assetsn/a1,116 2 2 Foreign currency contracts Foreign currency forwardsOther investments$453 n/a(9)5(14)Contingent considerationOther assets250 n/a112 112 Credit default contracts Credit default swaps buying protectionOther investments51 n/a 1(1)Total asset derivatives$754 7,958$107$122$(15)Liability derivatives Derivatives not designated as accounting hedging instruments Interest rate contracts FuturesOther liabilities&accrued expensesn/a12,394$(3)$(3)Equity and index contracts FuturesOther liabilities&accrued expensesn/a680(2)(2)Foreign currency contracts Foreign currency forwardsOther liabilities&accrued expenses$176 n/a3 4(1)Credit default contracts Credit default swaps buying protectionOther liabilities&accrued expenses3 n/a Total liability derivatives 179 13,074(2)$4$(6)Total derivatives$933 21,032$105 Volume for OTC and cleared derivative contracts is represented by their notional amounts.Volume for exchange traded derivatives is represented by the number of contracts,which is the basis on which they are traded.(n/a=not applicable)(1)(1)First Quarter 2023 Form 10-Q 29Notes to Condensed Consolidated Financial StatementsSummary of the volume and fair value positions of derivative instruments as of December 31,2022($in millions,except number of contracts)Volume Balance sheet locationNotionalamountNumber ofcontractsFairvalue,netGrossassetGrossliabilityAsset derivatives Derivatives not designated as accounting hedging instruments Interest rate contracts FuturesOther assetsn/a24,380$3$3$Equity and index contracts FuturesOther assetsn/a343 Foreign currency contracts Foreign currency forwardsOther investments$354 n/a1 14(13)Contingent considerationOther assets250 n/a103 103 Credit default contracts Credit default swaps buying protectionOther investments24 n/a 1(1)Total asset derivatives$628 24,723$107$121$(14)Liability derivatives Derivatives not designated as accounting hedging instruments Interest rate contracts FuturesOther liabilities&accrued expensesn/a1,624$Equity and index contracts FuturesOther liabilities&accrued expensesn/a1,229(1)(1)Foreign currency contracts Foreign currency forwardsOther liabilities&accrued expenses$283 n/a 7(7)Credit default contracts Credit default swaps buying protectionOther liabilities&accrued expenses525 n/a(3)1(4)Total liability derivatives 808 2,853(4)$8$(12)Total derivatives$1,436 27,576$103 Volume for OTC and cleared derivative contracts is represented by their notional amounts.Volume for exchange traded derivatives is represented by the number of contracts,which is the basis on which they are traded.(n/a=not applicable)Gross and net amounts for OTC derivatives($in millions)Offsets Gross amountCounter-partynettingCash collateral(received)pledgedNet amount onbalance sheetSecuritiescollateral(received)pledgedNet amountMarch 31,2023 Asset derivatives$10$(19)$19$10$10 Liability derivatives(16)19(3)December 31,2022 Asset derivatives$23$(22)$1$1 Liability derivatives(22)22(1)(1)(1)All OTC derivatives are subject to enforceable master netting agreements.(1)(1)(1)(1)30 Notes to Condensed Consolidated Financial StatementsGains(losses)from valuation and settlements reported on derivatives not designated as accounting hedges($in millions)Net gains(losses)oninvestments and derivativesOperating costs and expensesTotal gain(loss)recognized innet income on derivativesThree months ended March 31,2023 Interest rate contracts$(35)$(35)Equity and index contracts4 8 12 Contingent consideration 9 9 Foreign currency contracts(7)(7)Credit default contracts(14)(14)Total$(52)$17$(35)Three months ended March 31,2022 Interest rate contracts$316$316 Equity and index contracts3(13)(10)Contingent consideration 12 12 Foreign currency contracts7 7 Credit default contracts(8)(8)Total$318$(1)$317 The Company manages its exposure to credit risk by utilizing highlyrated counterparties,establishing risk control limits,executing legallyenforceable master netting agreements(“MNAs”)and obtaining collateralwhere appropriate.The Company uses MNAs for OTC derivativetransactions that permit either party to net payments due for transactionsand collateral is either pledged or obtained when certain predeterminedexposure limits are exceeded.OTC cash and securities collateral pledged($in millions)March 31,2023Pledged by the Company$19 Pledged to the Company 3$1 million of collateral was posted under MNAs for contracts containing credit-risk-contingent provisions that are in a liability provision.The Company has not incurred any losses on derivative financialinstruments due to counterparty nonperformance.Other derivatives,including futures and certain option contracts,are traded on organizedexchanges which require margin deposits and guarantee the execution oftrades,thereby mitigating any potential credit risk.Counterparty credit exposure represents the Companys potentialloss if all of the counterparties concurrently fail to perform under thecontractual terms of the contracts and all collateral,if any,becomesworthless.This exposure is measured by the fair value of OTC derivativecontracts with a positive fair value at the reporting date reduced by theeffect,if any,of legally enforceable master netting agreements.OTC derivatives counterparty credit exposure by counterparty credit rating($in millions)March 31,2023December 31,2022Rating Number of counter-partiesNotionalamountCreditexposureExposure,netof collateralNumber of counter-partiesNotionalamountCreditexposureExposure,netof collateralA 1$176$3$1$128$5$A 1 192 7 Total1$176$3$2$320$12$Allstate uses the lower of S&Ps or Moodys long-term debt issuer ratings.Only OTC derivatives with a net positive fair value are included for each counterparty.For certain exchange traded and cleared derivatives,margin depositsare required as well as daily cash settlements of margin accounts.Exchange traded and cleared margin deposits($in millions)March 31,2023Pledged by the Company$146 Received by the Company Market risk is the risk that the Company will incur losses due toadverse changes in market rates and prices.Market risk exists for all ofthe derivative financial instruments the Company currently holds,as theseinstruments may become less valuable due toadverse changes in market conditions.To limit this risk,the Companyssenior management has established risk control limits.In addition,changes in fair value of the derivative financial instruments that theCompany uses for risk management purposes are generally offset by thechange in the fair value or cash flows of the hedged risk component of therelated assets,liabilities or forecasted transactions.Certain of the Companys derivative transactions contain credit-risk-contingent termination events and cross-default provisions.Credit-risk-contingent termination events allow the counterparties to terminate thederivative agreement or a specific trade on certain dates if AICs financialstrength credit(1)(1)(1)(2)(2)(2)(2)(2)(2)(1)(2)First Quarter 2023 Form 10-Q 31Notes to Condensed Consolidated Financial Statementsratings by Moodys or S&P fall below a certain level.Credit-risk-contingentcross-default provisions allow the counterparties to terminate thederivative agreement if the Company defaults by pre-determinedthreshold amounts on certain debt instruments.The following table summarizes the fair value of derivativeinstruments with termination,cross-default or collateral credit-risk-contingent features that are in a liability position,as well as the fair valueof assets and collateral that are netted against the liability in accordancewith provisions within legally enforceable MNAs.($in millions)March 31,2023December 31,2022Gross liability fair value of contracts containing credit-risk-contingent features$4$21 Gross asset fair value of contracts containing credit-risk-contingent features andsubject to MNAs(3)(11)Collateral posted under MNAs for contracts containing credit-risk-contingentfeatures(1)(10)Maximum amount of additional exposure for contracts with credit-risk-contingent features if all features were triggered concurrently$Note 7Variable Interest EntitiesConsolidated VIEs,of which the Company is the primary beneficiary,primarily include Adirondack Insurance Exchange,a New York reciprocalinsurer,and New Jersey Skylands Insurance Association,a New Jerseyreciprocal insurer(together“Reciprocal Exchanges”).The ReciprocalExchanges are insurance carriers organized as unincorporatedassociations.The Company does not own the equity of the ReciprocalExchanges,which is owned by their respective policyholders.The Company manages the business operations of the ReciprocalExchanges and has the power to direct their activities that mostsignificantly impact their economic performance.The Company receives amanagement fee for the services provided to the Reciprocal Exchanges.In addition,as of March 31,2023 and December 31,2022,the Companyholds interests of$123 million in the form of surplus notes included inother liabilities and expenses on the Statement of Assets and Liabilities ofthe Reciprocal Exchanges that provide capital to the ReciprocalExchanges and would absorb any expected losses.The Company isthereforethe primary beneficiary.In addition,the Company provides quota sharereinsurance on the property business of the Reciprocal Exchanges.In the event of dissolution,policyholders would share any residualunassigned surplus but are not subject to assessment for any deficit inunassigned surplus of the Reciprocal Exchanges.The assets of theReciprocal Exchanges can be used only to settle the obligations of theReciprocal Exchanges and general creditors have no recourse to theCompany.The results of operations of the Reciprocal Exchanges are included inthe Companys Allstate Protection segment and generated$57 million ofearned premiums for the three months ended March 31,2023 comparedto$42 million for the three months ended March 31,2022.Claims and claims expenses were$40 million for the three monthsended March 31,2023 compared to$34 million for the three monthsended March 31,2022.Assets and liabilities of Reciprocal Exchanges($in millions)March 31,2023December 31,2022AssetsFixed income securities$285$302 Short-term investments16 13 Deferred policy acquisition costs23 15 Premium installment and other receivables,net36 43 Reinsurance recoverables,net88 97 Other assets37 90 Total assets485 560 LiabilitiesReserve for property and casualty insurance claims and claims expense194 209 Unearned premiums132 171 Other liabilities and expenses285 311 Total liabilities$611$691 32 Notes to Condensed Consolidated Financial StatementsNote 8Reserve for Property and Casualty Insurance Claims and Claims ExpenseThe Company establishes reserves for claims and claims expense onreported and unreported claims of insured losses.The Companysreserving process takes into account known facts and interpretations ofcircumstances and factors including the Companys experience withsimilar cases,actual claims paid,historical trends involving claim paymentpatterns and pending levels of unpaid claims,loss managementprograms,product mix and contractual terms,changes in law andregulation,judicial decisions,and economic conditions.When the Company experiences changes in the mix or type of claimsor changing claim settlement patterns or data,it applies actuarialjudgment in the determination and selection of development factors todevelop reserve liabilities.Supply chain disruptions and inflation haveresulted in higher part costs,used car values and longer time to claimresolution,which have combined with labor shortages to increase physicaldamage loss costs.Medical inflation,treatment trends,attorneyrepresentation,litigation costs and more severe accidents havecontributed to higher third-party bodily injury loss costs.The Company hasalso digitized and modified claim processes to increase effectiveness andefficiency.These factors may lead to historical development trends beingless predictive of future loss development,potentially creating additionalreserve variability.Generally,the initial reserves for a new accident year are establishedbased on claim frequency and severity assumptions for different businesssegments,lines and coverages based on historical relationships torelevant inflation indicators.Reserves for prior accident years arestatistically determined using several different actuarial estimationmethods.Changes in auto claim frequency may result from changes inmix of business,driving behaviors,miles driven or other factors.Changesin auto current year claim severity are generally influenced by inflation inthe medical and auto repair sectors,the effectiveness and efficiency ofclaim practices and changes in mix of claim types.The Companymitigates these effects through various loss management programs.When such changes in claim data occur,actuarial judgment is used todetermine appropriate development factors to establish reserves.TheCompanys reserving process incorporates changes in loss patterns,operational statistics and changes in claims reporting processes todetermine its best estimate of recorded reserves.As part of the reserving process,the Company may also supplementits claims processes by utilizing third-party adjusters,appraisers,engineers,inspectors,and other professionals and information sources toassess and settle catastrophe and non-catastrophe related claims.Theeffects of inflation are implicitly considered in the reserving process.Because reserves are estimates of unpaid portions of losses thathave occurred,including IBNR losses,the establishment of appropriatereserves,including reserves for catastrophes,Run-off Property-Liabilityand reinsurance and indemnification recoverables,is an inherentlyuncertain and complex process.The ultimate cost of losses may varymaterially from recorded amounts,which are based on managementsbest estimates.The highest degree of uncertainty is associated with reserves forlosses incurred in the initial reporting period as it contains the greatestproportion of losses that have not been reported or settled as well asheightened uncertainty for claims that involve litigation or take longer tosettle during periods of rapidly increasing loss costs.The Company alsohas uncertainty in the Run-off Property-Liability reserves that are basedon events long since passed and are complicated by lack of historicaldata,legal interpretations,unresolved legal issues and legislative intentbased on establishment of facts.The Company regularly updates its reserve estimates as newinformation becomes available and as events unfold that may affect theresolution of unsettled claims.Changes in reserve estimates,which maybe material,are reported in property and casualty insurance claims andclaims expense in the Condensed Consolidated Statements of Operationsin the period such changes are determined.Management believes that the reserve for property and casualtyinsurance claims and claims expense,net of recoverables,isappropriately established in the aggregate and adequate to cover theultimate net cost of reported and unreported claims arising from losseswhich had occurred by the date of the Condensed ConsolidatedStatements of Financial Position based on available facts,laws andregulations.First Quarter 2023 Form 10-Q 33Notes to Condensed Consolidated Financial StatementsRollforward of the reserve for property and casualty insurance claims and claims expenseThree months ended March 31,($in millions)20232022Balance as of January 1$37,541$33,060 Less recoverables(9,176)(9,479)Net balance as of January 128,365 23,581 Incurred claims and claims expense related to:Current year10,341 7,677 Prior years(15)145 Total incurred10,326 7,822 Claims and claims expense paid related to:Current year(3,122)(2,751)Prior years(6,036)(4,735)Total paid(9,158)(7,486)Net balance as of March 3129,533 23,917 Plus recoverables9,111 9,074 Balance as of March 31$38,644$32,991 Recoverables comprises reinsurance and indemnification recoverables.Incurred claims and claims expense represents the sum of paidlosses,claim adjustment expenses and reserve changes in the period.This expense included losses from catastrophes of$1.69 billion and$462million in the three months ended March 31,2023 and 2022,respectively,net of recoverables.Catastrophes are an inherent risk of the property and casualtyinsurance business that have contributed to,and will continue tocontribute to,material year-to-year fluctuations in the Companys resultsof operations and financial position.Prior year reserve reestimates included in claims and claims expense Non-catastrophe lossesCatastrophe lossesTotal($in millions)202320222023 202220232022Three months ended March 31,Auto$3$151$(28)$(9)$(25)$142 Homeowners(12)4(8)(11)(20)(7)Other personal lines10(11)(7)4 3(7)Commercial lines23 20 1(1)24 19 Other business lines1(7)4 1(3)Run-off Property-Liability2 1 2 1 Total prior year reserve reestimates$27$158$(42)$(13)$(15)$145 Favorable reserve reestimates are shown in parentheses.(1)(1)(1)(1)34 Notes to Condensed Consolidated Financial StatementsNote 9Reserve for Future Policy Benefits and Contractholder FundsRollforward of reserve for future policy benefits Three months ended March 31,Accident and healthTraditional lifeTotal($in millions)202320222023202220232022Present value of expected net premiumsBeginning balance$1,464$1,785$238$254$1,702$2,039 Beginning balance at original discount rate1,549 1,604 246 215 1,795 1,819 Effect of changes in cash flow assumptions Effect of actual variances from expected experience(42)(49)5 20(37)(29)Adjusted beginning balance1,507 1,555 251 235 1,758 1,790 Issuances199 173 17 4 216 177 Interest accrual12 12 3 2 15 14 Net premiums collected(95)(103)(12)(11)(107)(114)Lapses and withdrawals Ending balance at original discount rate1,623 1,637 259 230 1,882 1,867 Effect of changes in discount rate assumptions(62)65(5)20(67)85 Ending balance1,561 1,702 254 250 1,815 1,952 Prese
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Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-Q(Mark One)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 30,2023ORTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission file number 001-35054Marathon Petroleum Corporation(Exact name of registrant as specified in its charter)Delaware 27-1284632(State or other jurisdiction of incorporation or organization)(I.R.S.Employer Identification No.)539 South Main Street,Findlay,Ohio 45840-3229(Address of principal executive offices)(Zip code)(419)422-2121(Registrants telephone number,including area code)Securities registered pursuant to Section 12(b)of the ActTitle of each classTrading Symbol(s)Name of each exchange on which registeredCommon Stock,par value$.01MPCNew York Stock ExchangeIndicate by check mark whether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 duringthe preceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements forthe past 90 days.Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required to submit such files.)Yes No Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company,or anemerging growth company.See the definitions of“large accelerated filer,”“accelerated filer,”“smaller reporting company,”and“emerging growth company”inRule 12b-2 of the Exchange Act.Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company If an emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act)Yes No There were 399,844,048 shares of Marathon Petroleum Corporation common stock outstanding as of July 26,2023.Table of ContentsTable of Contents PagePART I-FINANCIAL INFORMATIONItem 1.Financial Statements:Consolidated Statements of Income(Unaudited)3Consolidated Statements of Comprehensive Income(Unaudited)4Consolidated Balance Sheets(Unaudited)5Consolidated Statements of Cash Flows(Unaudited)6Consolidated Statements of Equity and Redeemable Noncontrolling Interest(Unaudited)8Notes to the Consolidated Financial Statements(Unaudited)9Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations26Item 3.Quantitative and Qualitative Disclosures about Market Risk46Item 4.Controls and Procedures47PART II-OTHER INFORMATIONItem 1.Legal Proceedings48Item 1A.Risk Factors48Item 2.Unregistered Sales of Equity Securities and Use of Proceeds48Item 5.Other Information48Item 6.Exhibits49Signatures50Unless otherwise stated or the context otherwise indicates,all references in this Form 10-Q to“MPC,”“us,”“our,”“we”or“the Company”mean MarathonPetroleum Corporation and its consolidated subsidiaries.1Table of ContentsGlossary of TermsThroughout this report,the following company or industry specific terms and abbreviations are used:ANSAlaska North Slope crude oil,an oil index benchmark priceASCAccounting Standards CodificationASUAccounting Standards UpdatebarrelOne stock tank barrel,or 42 U.S.gallons liquid volume,used in reference to crude oil or other liquid hydrocarbonsCARBCalifornia Air Resources BoardCARBOBCalifornia Reformulated Gasoline Blendstock for Oxygenate BlendingCBOBConventional Blending for Oxygenate BlendingEBITDAEarnings Before Interest,Tax,Depreciation and Amortization(a non-GAAP financial measure)EPAU.S.Environmental Protection AgencyFASBFinancial Accounting Standards BoardGAAPAccounting principles generally accepted in the United StatesLIFOLast in,first out,an inventory costing methodmbpdThousand barrels per dayMEHMagellan East Houston crude oil,an oil index benchmark priceMMBtuOne million British thermal unitsNGLNatural gas liquids,such as ethane,propane,butanes and natural gasolineNYMEXNew York Mercantile ExchangeRFS2Revised Renewable Fuel Standard program,as required by the Energy Independence and Security Act of 2007RINRenewable Identification NumberSECU.S.Securities and Exchange CommissionULSDUltra-low sulfur dieselUSGCU.S.Gulf CoastVIEVariable interest entityWTIWest Texas Intermediate crude oil,an oil index benchmark price2Table of ContentsPART I FINANCIAL INFORMATIONItem 1.Financial StatementsMarathon Petroleum CorporationConsolidated Statements of Income(Unaudited)Three Months Ended June 30,Six Months Ended June 30,(In millions,except per share data)2023202220232022Revenues and other income:Sales and other operating revenues$36,343$53,795$71,207$91,853 Income from equity method investments199 147 332 289 Net gain on disposal of assets13 39 16 21 Other income269 257 346 459 Total revenues and other income36,824 54,238 71,901 92,622 Costs and expenses:Cost of revenues(excludes items below)31,762 44,207 61,056 79,275 Depreciation and amortization834 819 1,634 1,624 Selling,general and administrative expenses704 694 1,395 1,297 Other taxes219 190 450 382 Total costs and expenses33,519 45,910 64,535 82,578 Income from operations3,305 8,328 7,366 10,044 Net interest and other financial costs142 312 296 574 Income before income taxes3,163 8,016 7,070 9,470 Provision for income taxes583 1,799 1,406 2,081 Net income2,580 6,217 5,664 7,389 Less net income attributable to:Redeemable noncontrolling interest23 21 46 42 Noncontrolling interests331 323 668 629 Net income attributable to MPC$2,226$5,873$4,950$6,718 Per share data(See Note 7)Basic:Net income attributable to MPC per share$5.34$11.03$11.49$12.24 Weighted average shares outstanding417 532 430 549 Diluted:Net income attributable to MPC per share$5.32$10.95$11.44$12.15 Weighted average shares outstanding419 536 432 553 The accompanying notes are an integral part of these consolidated financial statements.3Table of ContentsMarathon Petroleum CorporationConsolidated Statements of Comprehensive Income(Unaudited)Three Months Ended June 30,Six Months Ended June 30,(Millions of dollars)2023202220232022Net income$2,580$6,217$5,664$7,389 Defined benefit plans:Actuarial changes,net of tax of$(2),$7,$(1)and$11,respectively(6)21(4)33 Prior service,net of tax of$(4),$(4),$(8)and$(8),respectively(12)(12)(25)(25)Other,net of tax of$(1),$,$(1)and$(2),respectively(3)(3)(6)Other comprehensive income(loss)(21)9(32)2 Comprehensive income2,559 6,226 5,632 7,391 Less comprehensive income attributable to:Redeemable noncontrolling interest23 21 46 42 Noncontrolling interests331 323 668 629 Comprehensive income attributable to MPC$2,205$5,882$4,918$6,720 The accompanying notes are an integral part of these consolidated financial statements.4Table of ContentsMarathon Petroleum CorporationConsolidated Balance Sheets(Unaudited)(Millions of dollars,except share data)June 30,2023December 31,2022AssetsCash and cash equivalents$7,345$8,625 Short-term investments4,109 3,145 Receivables,less allowance for doubtful accounts of$54 and$29,respectively10,274 13,477 Inventories9,536 8,827 Other current assets949 1,168 Total current assets32,213 35,242 Equity method investments6,665 6,466 Property,plant and equipment,net35,059 35,657 Goodwill8,244 8,244 Right of use assets1,288 1,214 Other noncurrent assets2,973 3,081 Total assets$86,442$89,904 LiabilitiesAccounts payable$13,052$15,312 Payroll and benefits payable712 967 Accrued taxes1,160 1,140 Debt due within one year72 1,066 Operating lease liabilities423 368 Other current liabilities2,047 1,167 Total current liabilities17,466 20,020 Long-term debt27,211 25,634 Deferred income taxes5,913 5,904 Defined benefit postretirement plan obligations1,181 1,114 Long-term operating lease liabilities859 841 Deferred credits and other liabilities1,244 1,304 Total liabilities53,874 54,817 Commitments and contingencies(see Note 23)Redeemable noncontrolling interest968 968 EquityPreferred stock,no shares issued and outstanding(par value$0.00 per share,30 million shares authorized)Common stock:Issued 992 million and 990 million shares(par value$0.01 per share,2 billion shares authorized)10 10 Held in treasury,at cost 587 million and 536 million shares(38,119)(31,841)Additional paid-in capital33,411 33,402 Retained earnings30,442 26,142 Accumulated other comprehensive income(loss)(30)2 Total MPC stockholders equity25,714 27,715 Noncontrolling interests5,886 6,404 Total equity31,600 34,119 Total liabilities,redeemable noncontrolling interest and equity$86,442$89,904 The accompanying notes are an integral part of these consolidated financial statements.5Table of ContentsMarathon Petroleum CorporationConsolidated Statements of Cash Flows(Unaudited)Six Months Ended June 30,(Millions of dollars)20232022Operating activities:Net income$5,664$7,389 Adjustments to reconcile net income to net cash provided by operating activities:Amortization of deferred financing costs and debt discount(27)33 Depreciation and amortization1,634 1,624 Pension and other postretirement benefits,net25 117 Deferred income taxes22(92)Net gain on disposal of assets(16)(21)Income from equity method investments(332)(289)Distributions from equity method investments429 336 Changes in income tax receivable46 11 Changes in the fair value of derivative instruments88(169)Changes in:Current receivables3,238(6,282)Inventories(708)(2,979)Current accounts payable and accrued liabilities(1,861)10,106 Right of use assets and operating lease liabilities,net(1)2 All other,net(160)(277)Cash provided by operating activities-continuing operations8,041 9,509 Cash used in operating activities-discontinued operations(44)Net cash provided by operating activities8,041 9,465 Investing activities:Additions to property,plant and equipment(938)(993)Acquisitions,net of cash acquired(74)Disposal of assets24 72 Investments acquisitions and contributions(296)(160)redemptions,repayments and return of capital Purchases of short-term investments(4,723)(2,581)Sales of short-term investments1,583 1,075 Maturities of short-term investments2,231 2,811 All other,net423 470 Net cash provided by(used in)investing activities(1,696)620 Financing activities:Long-term debt borrowings1,589 2,385 repayments(1,043)(1,237)Debt issuance costs(15)(16)Issuance of common stock27 167 Common stock repurchased(6,248)(6,177)Dividends paid(653)(643)Distributions to noncontrolling interests(635)(599)Repurchases of noncontrolling interests(135)Redemption of noncontrolling interests-preferred units(600)6Table of Contents Six Months Ended June 30,(Millions of dollars)20232022All other,net(49)(41)Net cash used in financing activities(7,627)(6,296)Net change in cash,cash equivalents and restricted cash(1,282)3,789 Cash,cash equivalents and restricted cash at beginning of period8,631 5,294 Cash,cash equivalents and restricted cash at end of period$7,349$9,083 Restricted cash is included in other current assets on our consolidated balance sheets.The accompanying notes are an integral part of these consolidated financial statements.(a)(a)(a)7Table of ContentsMarathon Petroleum CorporationConsolidated Statements of Equity and Redeemable Noncontrolling Interest(Unaudited)MPC Stockholders Equity Common StockTreasury StockAdditional Paid-in CapitalRetainedEarningsAccumulated OtherComprehensiveIncome(Loss)Non-controllingInterestsTotal EquityRedeemableNon-controllingInterest(Shares in millions;amounts in millions of dollars)SharesAmountSharesAmountBalance as of December 31,2022990$10(536)$(31,841)$33,402$26,142$2$6,404$34,119$968 Net income 2,724 337 3,061 23 Dividends declared on common stock($0.75 per share)(336)(336)Distributions to noncontrolling interests (306)(306)(23)Other comprehensive loss (11)(11)Shares repurchased (25)(3,238)(3,238)Share-based compensation1 3 3 Equity transactions of MPLX 3(2)(598)(597)Balance as of March 31,2023991$10(561)$(35,079)$33,408$28,528$(9)$5,837$32,695$968 Net income 2,226 331 2,557 23 Dividends declared on common stock($0.75 per share)(312)(312)Distributions to noncontrolling interests (283)(283)(23)Other comprehensive loss (21)(21)Shares repurchased (26)(3,040)(3,040)Share-based compensation1 3 1 4 Equity transactions of MPLX Balance as of June 30,2023992$10(587)$(38,119)$33,411$30,442$(30)$5,886$31,600$968 MPC Stockholders Equity Common StockTreasury StockAdditional Paid-in CapitalRetainedEarningsAccumulated OtherComprehensiveIncome(Loss)Non-controllingInterestsTotal EquityRedeemableNon-controllingInterest(Shares in millions;amounts in millions of dollars)SharesAmountSharesAmountBalance as of December 31,2021984$10(405)$(19,904)$33,262$12,905$(67)$6,410$32,616$965 Net income 845 306 1,151 21 Dividends declared on common stock($0.58 per share)(330)(330)Distributions to noncontrolling interests (290)(290)(21)Other comprehensive loss (7)(7)Shares repurchased (37)(2,807)(2,807)Share-based compensation3 90 (1)89 Equity transactions of MPLX (25)(63)(88)Balance as of March 31,2022987$10(442)$(22,711)$33,327$13,420$(74)$6,362$30,334$965 Net income 5,873 323 6,196 21 Dividends declared on common stock($0.58 per share)(310)(310)Distributions to noncontrolling interests (267)(267)(21)Other comprehensive income 9 9 Shares repurchased (34)(3,285)(3,285)Share-based compensation2 (4)71 2 69 Equity transactions of MPLX (20)(22)(42)Balance as of June 30,2022989$10(476)$(26,000)$33,378$18,983$(65)$6,398$32,704$965 The accompanying notes are an integral part of these consolidated financial statements.8Table of ContentsNotes to Consolidated Financial Statements(Unaudited)1.Description of the Business and Basis of PresentationDescription of the BusinessWe are a leading,integrated,downstream energy company headquartered in Findlay,Ohio.We operate the nations largest refining system.We sell refinedproducts to wholesale marketing customers domestically and internationally,to buyers on the spot market and to independent entrepreneurs who operatebranded outlets.We also sell transportation fuel to consumers through direct dealer locations under long-term supply contracts.MPCs midstream operations areprimarily conducted through MPLX LP(“MPLX”),which owns and operates crude oil and light product transportation and logistics infrastructure as well asgathering,processing and fractionation assets.We own the general partner and a majority limited partner interest in MPLX.See Note 4.Basis of PresentationAll significant intercompany transactions and accounts have been eliminated.These interim consolidated financial statements are unaudited;however,in the opinion of our management,these statements reflect all adjustments necessaryfor a fair statement of the results for the periods reported.All such adjustments are of a normal,recurring nature unless otherwise disclosed.These interimconsolidated financial statements,including the notes,have been prepared in accordance with the rules of the SEC applicable to interim period financialstatements and do not include all of the information and disclosures required by GAAP for complete financial statements.Certain information and disclosuresderived from our audited annual financial statements,prepared in accordance with GAAP,have been condensed or omitted from these interim financialstatements.These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included inour Annual Report on Form 10-K for the year ended December 31,2022.The results of operations for the three and six months ended June 30,2023 are notnecessarily indicative of the results to be expected for the full year.2.Accounting StandardsNot Yet AdoptedASU 2023-01,Leases(Topic 842):Common Control ArrangementsIn March 2023,the FASB issued an ASU to amend certain provisions of ASC 842 that apply to arrangements between related parties under common control.The ASU amends the accounting for the amortization period of leasehold improvements in common-control leases for all entities and requires certain disclosureswhen the lease term is shorter than the useful life of the asset.This ASU is effective for fiscal years beginning after December 15,2023,including interim periodswithin those fiscal years.Early adoption is permitted.We do not expect the application of this ASU to have a material impact on our consolidated financialstatements or financial disclosures.3.Short-Term InvestmentsInvestments ComponentsThe components of investments were as follows:June 30,2023(Millions of dollars)Fair ValueLevelAmortized CostUnrealized GainsUnrealizedLossesFair ValueCash and CashEquivalentsShort-termInvestmentsAvailable-for-sale debt securitiesCommercial paperLevel 2$2,088$(1)$2,087$447$1,640 Certificates of deposit and time depositsLevel 23,340 (1)3,339 2,562 777 U.S.government securitiesLevel 11,965 (4)1,961 309 1,652 Corporate notes and bondsLevel 240 40 40 Total available-for-sale debt securities$7,433$(6)$7,427$3,318$4,109 Cash4,027 4,027 Total$11,454$7,345$4,109 9Table of ContentsDecember 31,2022(Millions of dollars)Fair ValueLevelAmortized CostUnrealized GainsUnrealizedLossesFair ValueCash and CashEquivalentsShort-termInvestmentsAvailable-for-sale debt securitiesCommercial paperLevel 2$3,074$(1)$3,073$1,106$1,967 Certificates of deposit and time depositsLevel 22,093 2,093 1,500 593 U.S.government securitiesLevel 11,071 1,071 498 573 Corporate notes and bondsLevel 266 66 54 12 Total available-for-sale debt securities$6,304$(1)$6,303$3,158$3,145 Cash5,467 5,467 Total$11,770$8,625$3,145 Our investment policy includes concentration limits and credit rating requirements which limits our investments to high quality,short term and highly liquidsecurities.Realized gains/losses were not material.All of our available-for-sale debt securities held as of June 30,2023 mature within one year or less or are readilyavailable for use.4.Master Limited PartnershipWe own the general partner and a majority limited partner interest in MPLX,which owns and operates crude oil and light product transportation and logisticsinfrastructure as well as gathering,processing and fractionation assets.We control MPLX through our ownership of the general partner interest and,as ofJune 30,2023,we owned approximately 65 percent of the outstanding MPLX common units.Unit Repurchase ProgramIn November 2020,MPLX announced the board authorization of a unit repurchase program for the repurchase of up to$1.0 billion of MPLXs outstandingcommon units held by the public,which was utilized in 2022.On August 2,2022,MPLX announced its board of directors approved a$1.0 billion unit repurchaseauthorization.The unit repurchase authorizations have no expiration date.MPLX may utilize various methods to effect the repurchases,which could includeopen market repurchases,negotiated block transactions,accelerated unit repurchases,tender offers or open market solicitations for units,some of which maybe effected through Rule 10b5-1 plans.The timing and amount of future repurchases,if any,will depend upon several factors,including market and businessconditions,and such repurchases may be discontinued at any time.Total unit repurchases were as follows for the respective periods:Three Months Ended June 30,Six Months Ended June 30,(In millions,except per share data)2023202220232022Number of common units repurchased 1 4 Cash paid for common units repurchased$35$135 Average cost per unit$33.74$32.48 As of June 30,2023,MPLX had approximately$846 million remaining under its unit repurchase authorization.Redemption of the Series B Preferred UnitsOn February 15,2023,MPLX exercised its right to redeem all of its 600,000 outstanding preferred units(the“Series B preferred units”).MPLX paid unitholdersthe Series B preferred unit redemption price of$1,000 per unit.The final semi-annual distribution on the Series B preferred units was paid on February 15,2023in the usual manner.The excess of the total redemption price of$600 million paid to Series B preferred unitholders over the carrying value of the Series B preferred units on theredemption date resulted in a$2 million net reduction to retained earnings.The Series B preferred units were included in noncontrolling interest on ourconsolidated balance sheet at December 31,2022.10Table of ContentsAgreementsWe have various long-term,fee-based commercial agreements with MPLX.Under these agreements,MPLX provides transportation,storage,distribution andmarketing services to us.With certain exceptions,these agreements generally contain minimum volume commitments.These transactions are eliminated inconsolidation but are reflected as intersegment transactions between our Refining&Marketing and Midstream segments.We also have agreements with MPLXthat establish fees for operational and management services provided between us and MPLX and for executive management services and certain general andadministrative services provided by us to MPLX.These transactions are eliminated in consolidation but are reflected as intersegment transactions betweencorporate and our Midstream segment.Noncontrolling InterestAs a result of equity transactions of MPLX,we are required to adjust non-controlling interest and additional paid-in capital.Changes in MPCs additional paid-incapital resulting from changes in its ownership interests in MPLX were as follows:Three Months Ended June 30,Six Months Ended June 30,(Millions of dollars)2023202220232022Increase(decrease)due to change in ownership$(13)$1$(50)Tax impact(7)2 5 Increase(decrease)in MPCs additional paid-in capital,net of tax$(20)$3$(45)5.Variable Interest EntitiesConsolidated VIEWe control MPLX through our ownership of its general partner.MPLX is a VIE because the limited partners do not have substantive kick-out or participatingrights over the general partner.We are the primary beneficiary of MPLX because in addition to our significant economic interest,we also have the ability,throughour ownership of the general partner,to control the decisions that most significantly impact MPLX.We therefore consolidate MPLX and record a noncontrollinginterest for the interest owned by the public.We also record a redeemable noncontrolling interest related to MPLXs Series A preferred units.The creditors of MPLX do not have recourse to MPCs general credit through guarantees or other financial arrangements,except as noted.MPC has effectivelyguaranteed certain indebtedness of LOOP LLC(“LOOP”)and LOCAP LLC(“LOCAP”),in which MPLX holds an interest.See Note 23 for more information.Theassets of MPLX can only be used to settle its own obligations and its creditors have no recourse to our assets,except as noted earlier.11Table of ContentsThe following table presents balance sheet information for the assets and liabilities of MPLX,which are included in our consolidated balance sheets.(Millions of dollars)June 30,2023December 31,2022AssetsCash and cash equivalents$755$238 Receivables,less allowance for doubtful accounts728 747 Inventories146 148 Other current assets52 56 Equity method investments4,124 4,095 Property,plant and equipment,net18,692 18,848 Goodwill7,645 7,645 Right of use assets281 283 Other noncurrent assets1,611 1,664 LiabilitiesAccounts payable$588$664 Payroll and benefits payable 4 Accrued taxes82 67 Debt due within one year1 988 Operating lease liabilities49 46 Other current liabilities331 338 Long-term debt20,405 18,808 Deferred income taxes13 13 Long-term operating lease liabilities228 230 Deferred credits and other liabilities385 366 6.Related Party TransactionsTransactions with related parties were as follows:Three Months Ended June 30,Six Months Ended June 30,(Millions of dollars)2023202220232022Sales to related parties$263$21$452$40 Purchases from related parties480 297 791 579 Sales to related parties,which are included in sales and other operating revenues,consist primarily of refined product sales and renewable feedstock sales tocertain of our equity affiliates.Purchases from related parties are included in cost of revenues.We obtain utilities,transportation services and purchase ethanol and renewable fuels fromcertain of our equity affiliates.12Table of Contents7.Earnings Per ShareWe compute basic earnings per share by dividing net income attributable to MPC less income allocated to participating securities by the weighted averagenumber of shares of common stock outstanding.Since MPC grants certain incentive compensation awards to employees and non-employee directors that areconsidered to be participating securities,we have calculated our earnings per share using the two-class method.Diluted income per share assumes exercise ofcertain share-based compensation awards,provided the effect is not anti-dilutive.Three Months Ended June 30,Six Months Ended June 30,(In millions,except per share data)2023202220232022Net income$2,580$6,217$5,664$7,389 Net income attributable to noncontrolling interest(354)(344)(714)(671)Net income allocated to participating securities(1)(3)(3)(3)Redemption of preferred units (2)Income available to common stockholders$2,225$5,870$4,945$6,715 Weighted average common shares outstanding:Basic417 532 430 549 Effect of dilutive securities2 4 2 4 Diluted419 536 432 553 Income available to common stockholders per share:Basic:Net income attributable to MPC per share$5.34$11.03$11.49$12.24 Diluted:Net income attributable to MPC per share$5.32$10.95$11.44$12.15 The following table summarizes the shares that were anti-dilutive and,therefore,were excluded from the diluted share calculation.Three Months Ended June 30,Six Months Ended June 30,(In millions)2023202220232022Shares issuable under share-based compensation plans 8.EquityIn May 2021,MPC announced the authorization of a share repurchase program of up to$7.1 billion.Subsequently,in February 2022,MPC announced a$5.0 billion share repurchase authorization.Both these authorizations were utilized in 2022.In August 2022,MPC announced a$5.0 billion share repurchase authorization and announced additional$5.0 billion share repurchase authorizations in bothJanuary 2023 and in May 2023.As of June 30,2023,$7.12 billion remained available for repurchase under these authorizations.These authorizations have noexpiration date.We may utilize various methods to effect the repurchases,which could include open market repurchases,negotiated block transactions,tender offers,accelerated share repurchases or open market solicitations for shares,some of which may be effected through Rule 10b5-1 plans.The timing and amount offuture repurchases,if any,will depend upon several factors,including market and business conditions,and such repurchases may be suspended or discontinuedat any time.13Table of ContentsTotal share repurchases were as follows for the respective periods:Three Months Ended June 30,Six Months Ended June 30,(In millions,except per share data)2023202220232022Number of shares repurchased26 34 51 71 Cash paid for shares repurchased$3,068$3,331$6,248$6,177 Average cost per share$117.62$95.46$122.07$85.31 The average cost per share for the 2023 period includes a 1%excise tax on share repurchases resulting from the Inflation Reduction Act of 2022.The number of shares repurchased shown above and the amount remaining available under the share repurchase authorizations reflect the repurchase of540,000 common shares for$63 million that were transacted in the second quarter of 2023 and settled in the third quarter of 2023.9.Segment InformationWe have two reportable segments:Refining&Marketing and Midstream.Each of these segments is organized and managed based upon the nature of theproducts and services it offers.Refining&Marketing refines crude oil and other feedstocks,including renewable feedstocks,at our refineries in the Gulf Coast,Mid-Continent andWest Coast regions of the United States,purchases refined products and ethanol for resale and distributes refined products,including renewablediesel,through transportation,storage,distribution and marketing services provided largely by our Midstream segment.We sell refined products towholesale marketing customers domestically and internationally,to buyers on the spot market,to independent entrepreneurs who operate primarilyMarathon branded outlets and through long-term fuel supply contracts with direct dealers who operate locations mainly under the ARCO brand.Midstream gathers,transports,stores and distributes crude oil,refined products,including renewable diesel,and other hydrocarbon-based productsprincipally for the Refining&Marketing segment via refining logistics assets,pipelines,terminals,towboats and barges;gathers,processes andtransports natural gas;and transports,fractionates,stores and markets NGLs.The Midstream segment primarily reflects the results of MPLX.Our chief operating decision maker(“CODM”)evaluates the performance of our segments using segment adjusted EBITDA.Our CODM is the chief executiveofficer.Amounts included in income before income taxes and excluded from segment adjusted EBITDA include:(i)depreciation and amortization;(ii)net interestand other financial costs;(iii)turnaround expenses and(iv)other adjustments as deemed necessary.These items are either:(i)believed to be non-recurring innature;(ii)not believed to be allocable or controlled by the segment;or(iii)not tied to the operational performance of the segment.Assets by segment are not ameasure used to assess the performance of the company by the CODM and thus are not reported in our disclosures.(a)(a)14Table of ContentsThree Months Ended June 30,Six Months Ended June 30,(Millions of dollars)2023202220232022Segment adjusted EBITDA for reportable segmentsRefining&Marketing$3,163$7,760$7,016$9,134 Midstream1,532 1,456 3,062 2,859 Total reportable segments$4,695$9,216$10,078$11,993 Reconciliation of segment adjusted EBITDA for reportable segments to incomebefore income taxesTotal reportable segments$4,695$9,216$10,078$11,993 Corporate(164)(156)(329)(294)Refining planned turnaround costs(392)(151)(749)(296)Renewable volume obligation requirements 238 238 Litigation 27 Depreciation and amortization(834)(819)(1,634)(1,624)Net interest and other financial costs(142)(312)(296)(574)Income before income taxes$3,163$8,016$7,070$9,470 Three Months Ended June 30,Six Months Ended June 30,(Millions of dollars)2023202220232022Sales and other operating revenuesRefining&MarketingRevenues from external customers$35,167$52,300$68,830$89,092 Intersegment revenues21 47 48 83 Refining&Marketing segment revenues35,188 52,347 68,878 89,175 MidstreamRevenues from external customers1,176 1,495 2,377 2,761 Intersegment revenues1,347 1,308 2,709 2,555 Midstream segment revenues2,523 2,803 5,086 5,316 Total segment revenues37,711 55,150 73,964 94,491 Less:intersegment revenues1,368 1,355 2,757 2,638 Consolidated sales and other operating revenues$36,343$53,795$71,207$91,853 Includes related party sales.See Note 6 for additional information.(a)(a)(a)(a)15Table of ContentsThree Months Ended June 30,Six Months Ended June 30,(Millions of dollars)2023202220232022Income(loss)from equity method investmentsRefining&Marketing$17$6$(19)$18 Midstream182 141 351 271 Corporate Consolidated income from equity method investments$199$147$332$289 Depreciation and amortizationRefining&Marketing$484$475$948$936 Midstream331 330 648 661 Corporate19 14 38 27 Consolidated depreciation and amortization$834$819$1,634$1,624 Capital expendituresRefining&Marketing$243$315$664$559 Midstream273 222 514 505 Segment capital expenditures and investments516 537 1,178 1,064 Less investments in equity method investees89 48 296 160 Plus:Corporate33 15 40 38 Capitalized interest13 25 34 48 Consolidated capital expenditures$473$529$956$990 Includes changes in capital expenditure accruals.See Note 19 for a reconciliation of total capital expenditures to additions to property,plant and equipment for the six monthsended June 30,2023 and 2022 as reported in the consolidated statements of cash flows.10.Net Interest and Other Financial CostsNet interest and other financial costs were as follows:Three Months Ended June 30,Six Months Ended June 30,(Millions of dollars)2023202220232022Interest income$(119)$(18)$(240)$(23)Interest expense329 324 663 634 Interest capitalized(13)(25)(36)(48)Pension and other postretirement non-service costs(25)32(48)11 Loss on extinguishment of debt 9 Investments-net premium(discount)amortization(31)(5)(59)(6)Other financial costs1 4 7 6 Net interest and other financial costs$142$312$296$574 See Note 22.11.Income TaxesWe recorded a combined federal,state and foreign income tax provision of$583 million and$1.41 billion for the three and six months ended June 30,2023,respectively,which was lower than the U.S.statutory rate primarily due to net income attributable to noncontrolling interests,a benefit related to foreign derivedintangible income,offset by state taxes.We recorded a combined federal,state and foreign income tax provision of$1.80 billion and$2.08 billion for the three and six months ended June 30,2022,respectively,which was higher than the U.S.statutory rate primarily due to state taxes offset by net income attributable to noncontrolling interests.(a)(a)(a)(a)16Table of Contents12.Inventories(Millions of dollars)June 30,2023December 31,2022Crude oil$3,279$3,047 Refined products5,254 4,748 Materials and supplies1,003 1,032 Total$9,536$8,827 Inventories are carried at the lower of cost or market value.Costs of crude oil and refined products are aggregated on a consolidated basis for purposes ofassessing whether the LIFO cost basis of these inventories may have to be written down to market values.13.Equity Method InvestmentsLF Bioenergy AcquisitionOn March 8,2023,MPC announced the acquisition of a 49.9 percent interest in LF Bioenergy,an emerging producer of renewable natural gas(“RNG”)in theU.S.,for approximately$56 million,which included funding for on-going operations and project development.LF Bioenergy has been focused on developing andgrowing a portfolio of dairy farm-based,low carbon intensity RNG projects.LF Bioenergy is a VIE since it is unable to fund its operations without financial support from its equity owners.We are not the primary beneficiary of this VIEbecause we do not have the ability to control the activities that significantly influence the economic outcomes of the entity and,therefore,do not consolidate theentity.MPC accounts for our ownership interest in LF Bioenergy as an equity method investment.Watson Cogeneration CompanyOn June 1,2022,MPC purchased the remaining 49 percent interest in Watson Cogeneration Company from NRG Energy,Inc.for approximately$59 million.This entity is now consolidated and included in our consolidated results.It was previously accounted for as an equity method investment.The excess of the$62 million fair value over the$25 million book value of our 51 percent ownership interest in Watson Cogeneration Company resulted in a$37 million gain,which is included in the net gain on disposal of assets line of the accompanying consolidated statements of income.14.Property,Plant and Equipment(PP&E)June 30,2023December 31,2022(Millions of dollars)GrossPP&EAccumulatedDepreciationNetPP&EGrossPP&EAccumulatedDepreciationNetPP&ERefining&Marketing$32,712$17,576$15,136$32,292$16,745$15,547 Midstream28,043 8,689 19,354 27,659 8,118 19,541 Corporate1,589 1,020 569 1,550 981 569 Total$62,344$27,285$35,059$61,501$25,844$35,657 17Table of Contents15.Fair Value MeasurementsFair ValuesRecurringThe following tables present assets and liabilities accounted for at fair value on a recurring basis as of June 30,2023 and December 31,2022 by fair valuehierarchy level.We have elected to offset the fair value amounts recognized for multiple derivative contracts executed with the same counterparty,including anyrelated cash collateral as shown below;however,fair value amounts by hierarchy level are presented on a gross basis in the following tables.June 30,2023Fair Value Hierarchy(Millions of dollars)Level 1Level 2Level 3Netting andCollateralNet Carrying Value onBalance SheetCollateralPledged NotOffsetAssets:Commodity contracts$338$10$(330)$18$53 Liabilities:Commodity contracts$361$(361)$Embedded derivatives in commodity contracts 53 53 December 31,2022Fair Value Hierarchy(Millions of dollars)Level 1Level 2Level 3Netting andCollateralNet Carrying Value onBalance SheetCollateralPledged NotOffsetAssets:Commodity contracts$310$(243)$67$100 Liabilities:Commodity contracts$301$(301)$Embedded derivatives in commodity contracts 61 61 Represents the impact of netting assets,liabilities and cash collateral when a legal right of offset exists.As of June 30,2023,cash collateral of$31 million was netted withmark-to-market derivative liabilities.As of December 31,2022,cash collateral of$58 million was netted with mark-to-market derivative liabilities.We have no derivative contracts which are subject to master netting arrangements reflected gross on the balance sheet.Level 2 instruments include over-the-counter fixed swaps to mitigate the price risk from MPLXs sales of propane.The swap valuations are based on observableinputs in the form of forward prices based on Mont Belvieu propane forward spot prices and contain no significant unobservable inputs.Level 3 instruments relate to an embedded derivative liability for a natural gas purchase commitment embedded in a keepwhole processing agreement.The fairvalue calculation for these Level 3 instruments at June 30,2023 used significant unobservable inputs including:(1)NGL prices interpolated and extrapolated dueto inactive markets ranging from$0.54 to$1.34 per gallon with a weighted average of$0.72 per gallon and(2)the probability of renewal of 100 percent for thefive-year term of the natural gas purchase commitment and related keep-whole processing agreement.Increases or decreases in the fractionation spread resultin an increase or decrease in the fair value of the embedded derivative liability.The following is a reconciliation of the beginning and ending balances recorded for net liabilities classified as Level 3 in the fair value hierarchy.Three Months Ended June 30,Six Months Ended June 30,(Millions of dollars)2023202220232022Beginning balance$58$99$61$108 Unrealized and realized gain included in net income(3)(4)(3)(8)Settlements of derivative instruments(2)(3)(5)(8)Ending balance$53$92$53$92 The amount of total gain for the period included in earnings attributable to the changein unrealized losses relating to liabilities still held at the end of period:$(3)$(3)$(3)$(8)(a)(b)(a)(b)(a)(b)18Table of ContentsFair Values ReportedWe believe the carrying value of our other financial instruments,including cash and cash equivalents,receivables,accounts payable and certain accruedliabilities,approximate fair value.Our fair value assessment incorporates a variety of considerations,including the short-term duration of the instruments and theexpected insignificance of bad debt expense,which includes an evaluation of counterparty credit risk.The borrowings under our revolving credit facilities,whichinclude variable interest rates,approximate fair value.The fair value of our long-term debt is based on prices from recent trade activity and is categorized in level3 of the fair value hierarchy.The carrying and fair values of our debt were approximately$26.9 billion and$24.5 billion at June 30,2023,respectively,andapproximately$26.3 billion and$24.0 billion at December 31,2022,respectively.These carrying and fair values of our debt exclude the unamortized issuancecosts which are netted against our total debt.16.DerivativesFor further information regarding the fair value measurement of derivative instruments,including any effect of master netting agreements or collateral,see Note15.We do not designate any of our commodity derivative instruments as hedges for accounting purposes.Derivatives that are not designated as accounting hedges may include commodity derivatives used to hedge price risk on(1)inventories,(2)fixed price sales ofrefined products,(3)the acquisition of foreign-sourced crude oil,(4)the acquisition of ethanol for blending with refined products,(5)the sale of NGLs,(6)thepurchase of natural gas,(7)the purchase of soybean oil and(8)the sale of propane.The following table presents the fair value of derivative instruments as of June 30,2023 and December 31,2022 and the line items in the consolidated balancesheets in which the fair values are reflected.The fair value amounts below are presented on a gross basis and do not reflect the netting of asset and liabilitypositions permitted under the terms of our master netting arrangements including cash collateral on deposit with,or received from,brokers.We offset therecognized fair value amounts for multiple derivative instruments executed with the same counterparty in our financial statements when a legal right of offsetexists.As a result,the asset and liability amounts below will not agree with the amounts presented in our consolidated balance sheets.(Millions of dollars)June 30,2023December 31,2022Balance Sheet LocationAssetLiabilityAssetLiabilityCommodity derivativesOther current assets$348$361$310$301 Other current liabilities 7 10 Deferred credits and other liabilities 46 51 Includes embedded derivatives.The table below summarizes open commodity derivative contracts for crude oil,refined products,blending products,soybean oil and propane as of June 30,2023.Percentage of contractsthat expire next quarterPosition(Units in thousands of barrels)LongShortExchange-tradedCrude oil53.1t,081 79,120 Refined products86.9,695 14,661 Blending products49.6%1,958 4,433 Soybean oil76.6%4,610 5,150 Over-the-counterPropane50.59 Included in exchange-traded are spread contracts in thousands of barrels:Crude oil-20,150 long and 20,500 short;Refined products-2,449 long and 995 short.There are nospread contracts for blending products or soybean oil.(a)(a)(a)(a)(a)19Table of ContentsThe following table summarizes the effect of all commodity derivative instruments in our consolidated statements of income:Gain(Loss)(Millions of dollars)Three Months Ended June 30,Six Months Ended June 30,Income Statement Location2023202220232022Sales and other operating revenues$8$10$Cost of revenues50 17 111(325)Other income(1)1 1 Total$58$16$122$(324)17.DebtOur outstanding borrowings at June 30,2023 and December 31,2022 consisted of the following:(Millions of dollars)June 30,2023December 31,2022Marathon Petroleum Corporation:Senior notes$6,449$6,449 Notes payable1 1 Finance lease obligations493 522 Total6,943 6,972 MPLX LP:Senior notes20,700 20,100 Finance lease obligations7 8 Total20,707 20,108 Total debt27,650 27,080 Unamortized debt issuance costs(150)(142)Unamortized discount,net of unamortized premium(217)(238)Amounts due within one year(72)(1,066)Total long-term debt due after one year$27,211$25,634 MPLX Senior NotesOn February 9,2023,MPLX issued$1.6 billion aggregate principal amount of senior notes in a public offering,consisting of$1.1 billion aggregate principalamount of 5.00 percent senior notes due March 2033 and$500 million aggregate principal amount of 5.65 percent senior notes due March 2053.On February15,2023,MPLX used$600 million of the net proceeds to redeem all of its outstanding Series B preferred units.On March 13,2023,MPLX used the remainingproceeds to redeem all of MPLXs and MarkWests$1.0 billion aggregate principal amount of 4.50 percent senior notes due July 2023.The redemption resultedin a loss on extinguishment of debt of$9 million due to the immediate expense recognition of unamortized debt discount and issuance costs.20Table of ContentsAvailable Capacity under our Credit Facilities as of June 30,2023(Millions of dollars)TotalCapacityOutstandingBorrowingsOutstandingLettersof CreditAvailableCapacityWeightedAverageInterestRateExpirationMPC,excluding MPLXMPC bank revolving credit facility$5,000$1$4,999%July 2027MPC trade receivables securitization facility100 100 September 2023MPLXMPLX bank revolving credit facility2,000 2,000%July 2027 The committed borrowing and letter of credit issuance capacity of the trade receivables securitization facility is$100 million.In addition,the facility allows for the issuance ofletters of credit in excess of the committed capacity at the discretion of the issuing banks.As of June 30,2023,letters of credit in the total amount of$386 million were issuedand outstanding under the facility to secure contracts awarded by the Department of Energy to purchase crude oil from the Strategic Petroleum Reserve.18.RevenueThe following table presents our revenues from external customers disaggregated by segment and product line.Three Months Ended June 30,Six Months Ended June 30,(Millions of dollars)2023202220232022Refining&MarketingRefined products$32,864$48,864$64,787$82,457 Crude oil1,875 2,976 3,205 5,865 Services and other428 460 838 770 Total revenues from external customers35,167 52,300 68,830 89,092 MidstreamRefined products377 698 797 1,195 Services and other799 797 1,580 1,566 Total revenues from external customers1,176 1,495 2,377 2,761 Sales and other operating revenues$36,343$53,795$71,207$91,853 We do not disclose information on the future performance obligations for any contract with expected duration of one year or less at inception.As of June 30,2023,we do not have future performance obligations that are material to future periods.ReceivablesOn the accompanying consolidated balance sheets,receivables,less allowance for doubtful accounts primarily consists of customer receivables.Significant,non-customer balances included in our receivables at June 30,2023 include matching buy/sell receivables of$4.55 billion.(a)(a)21Table of Contents19.Supplemental Cash Flow InformationSix Months Ended June 30,(Millions of dollars)20232022Net cash provided by operating activities included:Interest paid(net of amounts capitalized)$584$519 Net income taxes paid to(received from)taxing authorities1,400 1,123 Non-cash investing and financing activities:Book value of equity method investment 25 Represents the book value of MPCs equity method investment in Watson Cogeneration Company at June 1,2022.See Note 13 for additional information.The consolidated statements of cash flows exclude changes to the consolidated balance sheets that did not affect cash.The following is a reconciliation ofadditions to property,plant and equipment to total capital expenditures:Six Months Ended June 30,(Millions of dollars)20232022Additions to property,plant and equipment per the consolidated statements of cash flows$938$993 Increase(decrease)in capital accruals18(3)Total capital expenditures$956$990 20.Other Current LiabilitiesThe following summarizes the components of other current liabilities:(Millions of dollars)June 30,2023December 31,2022Environmental credits liability$1,135$429 Accrued interest payable325 315 Other current liabilities587 423 Total other current liabilities$2,047$1,167 21.Accumulated Other Comprehensive Income(Loss)The following table shows the changes in accumulated other comprehensive income(loss)by component.Amounts in parentheses indicate debits.(Millions of dollars)PensionBenefitsOther BenefitsOtherTotalBalance as of December 31,2021$(117)$49$1$(67)Other comprehensive gain(loss)before reclassifications,net of tax of$(8)(19)3(6)(22)Amounts reclassified from accumulated other comprehensive loss:Amortization of prior service credit(23)(11)(34)Amortization of actuarial loss7 3 10 Settlement loss56 56 Tax effect(10)2 (8)Other comprehensive income(loss)11(3)(6)2 Balance as of June 30,2022$(106)$46$(5)$(65)(a)(a)(a)(a)(a)22Table of Contents(Millions of dollars)PensionBenefitsOther BenefitsOtherTotalBalance as of December 31,2022$(163)$165$2 Other comprehensive gain(loss)before reclassifications,net of tax of$0(4)3(3)(4)Amounts reclassified from accumulated other comprehensive loss:Amortization of prior service credit(22)(11)(33)Amortization of actuarial gain(3)(3)Settlement loss(2)(2)Tax effect7 3 10 Other comprehensive loss(24)(5)(3)(32)Balance as of June 30,2023$(187)$160$(3)$(30)These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost.See Note 22.22.Pension and Other Postretirement BenefitsThe following summarizes the components of net periodic benefit costs:Three Months Ended June 30,Six Months Ended June 30,(Millions of dollars)2023202220232022Pension BenefitsService cost$48$65$97$133 Interest cost29 24 58 47 Expected return on plan assets(42)(37)(84)(78)Amortization of prior service credit(11)(12)(22)(23)Amortization of actuarial(gain)loss(1)3(3)7 Settlement loss(2)54(2)56 Net periodic pension benefit cost$21$97$44$142 Other BenefitsService cost$5$5$10$13 Interest cost8 5 16 10 Amortization of prior service credit(6)(6)(11)(11)Amortization of actuarial loss 1 3 Net periodic other benefit cost$7$5$15$15 The components of net periodic benefit cost other than the service cost component are included in net interest and other financial costs on the consolidatedstatements of income.During the six months ended June 30,2023,we made no contributions to our funded pension plans.Benefit payments related to unfunded pension and otherpostretirement benefit plans were$7 million and$27 million,respectively,during the six months ended June 30,2023.23.Commitments and ContingenciesWe are the subject of,or a party to,a number of pending or threatened legal actions,contingencies and commitments involving a variety of matters,includinglaws and regulations relating to the environment.Some of these matters are discussed below.For matters for which we have not recorded a liability,we areunable to estimate a range of possible loss because the issues involved have not been fully developed through pleadings,discovery or court proceedings.However,the ultimate resolution of some of these contingencies could,individually or in the aggregate,be material.Environmental MattersWe are subject to federal,state,local and foreign laws and regulations relating to the environment.These laws generally provide for control of pollutantsreleased into the environment and require responsible parties to undertake remediation of hazardous(a)(a)(a)(a)23Table of Contentswaste disposal sites and certain other locations including presently or formerly owned or operated retail marketing sites.Penalties may be imposed fornoncompliance.At June 30,2023 and December 31,2022,accrued liabilities for remediation totaled$374 million and$387 million,respectively.It is not presently possible toestimate the ultimate amount of all remediation costs that might be incurred or the penalties,if any,that may be imposed.Receivables for recoverable costs fromcertain states,under programs to assist companies in clean-up efforts related to underground storage tanks at presently or formerly owned or operated retailmarketing sites,were$5 million at both June 30,2023 and December 31,2022.Governmental and other entities in various states have filed climate-related lawsuits against numerous energy companies,including MPC.The lawsuits allegedamages as a result of climate change and the plaintiffs are seeking unspecified damages and abatement under various tort theories.We are currently subjectto such proceedings in federal or state courts in California,Delaware,Maryland,Hawaii,Rhode Island,South Carolina and Oregon.Similar lawsuits may be filedin other jurisdictions.At this early stage,the ultimate outcome of these matters remains uncertain,and neither the likelihood of an unfavorable outcome nor theultimate liability,if any,can be determined.We are involved in a number of environmental enforcement matters arising in the ordinary course of business.While the outcome and impact on us cannot bepredicted with certainty,management believes the resolution of these environmental matters will not,individually or collectively,have a material adverse effecton our consolidated results of operations,financial position or cash flows.Other Legal ProceedingsIn July 2020,Tesoro High Plains Pipeline Company,LLC(“THPP”),a subsidiary of MPLX,received a Notification of Trespass Determination from the Bureau ofIndian Affairs(“BIA”)relating to a portion of the Tesoro High Plains Pipeline that crosses the Fort Berthold Reservation in North Dakota.The notificationdemanded the immediate cessation of pipeline operations and assessed trespass damages of approximately$187 million.After subsequent appeal proceedingsand in compliance with a new order issued by the BIA,in December 2020,THPP paid approximately$4 million in assessed trespass damages and ceased useof the portion of the pipeline that crosses the property at issue.In March 2021,the BIA issued an order purporting to vacate the BIAs prior orders related toTHPPs alleged trespass and direct the Regional Director of the BIA to reconsider the issue of THPPs alleged trespass and issue a new order.In April 2021,THPP filed a lawsuit in the District of North Dakota against the United States of America,the U.S.Department of the Interior and the BIA(together,the“U.S.Government Parties”)challenging the March 2021 order purporting to vacate all previous orders related to THPPs alleged trespass.On February 8,2022,theU.S.Government Parties filed their answer and counterclaims to THPPs suit claiming THPP is in continued trespass with respect to the pipeline and seekdisgorgement of pipeline profits from June 1,2013 to present,removal of the pipeline and remediation.We intend to vigorously defend ourselves against thesecounterclaims.We are also a party to a number of other lawsuits and other proceedings arising in the ordinary course of business.While the ultimate outcome and impact to uscannot be predicted with certainty,we believe that the resolution of these other lawsuits and proceedings will not,individually or collectively,have a materialadverse effect on our consolidated financial position,results of operations or cash flows.GuaranteesWe have provided certain guarantees,direct and indirect,of the indebtedness of other companies.Under the terms of most of these guarantee arrangements,we would be required to perform should the guaranteed party fail to fulfill its obligations under the specified arrangements.In addition to these financialguarantees,we also have various performance guarantees related to specific agreements.Guarantees related to indebtedness of equity method investeesLOOP and LOCAPMPC and MPLX hold interests in an offshore oil port,LOOP,and MPLX holds an interest in a crude oil pipeline system,LOCAP.Both LOOP and LOCAP havesecured various project financings with throughput and deficiency agreements.Under the agreements,MPC,as a shipper,is required to advance funds if theinvestees are unable to service their debt.Any such advances are considered prepayments of future transportation charges.The duration of the agreementsvaries but tend to follow the terms of the underlying debt,which extend through 2037.Our maximum potential undiscounted payments under these agreementsfor the debt principal totaled$171 million as of June 30,2023.Dakota Access PipelineMPLX holds a 9.19 percent indirect interest in a joint venture(“Dakota Access”)that owns and operates the Dakota Access Pipeline and Energy Transfer CrudeOil Pipeline projects,collectively referred to as the Bakken Pipeline system or DAPL.In 2020,the U.S.District Court for the District of Columbia(the“D.D.C.”)ordered the U.S.Army Corps of Engineers(“Army Corps”),which granted permits and an easement for the Bakken Pipeline system,to prepare an environmentalimpact statement(“EIS”)relating to an easement under Lake Oahe in North Dakota.The D.D.C.later vacated the easement.The Army Corps expects to releasea draft EIS in 2023.24Table of ContentsIn May 2021,the D.D.C.denied a renewed request for an injunction to shut down the pipeline while the EIS is being prepared.In June 2021,the D.D.C.issuedan order dismissing without prejudice the tribes claims against the Dakota Access Pipeline.The litigation could be reopened or new litigation challenging theEIS,once completed,could be filed.The pipeline remains operational.MPLX has entered into a Contingent Equity Contribution Agreement whereby it,along with the other joint venture owners in the Bakken Pipeline system,hasagreed to make equity contributions to the joint venture upon certain events occurring to allow the entities that own and operate the Bakken Pipeline system tosatisfy their senior note payment obligations.The senior notes were issued to repay amounts owed by the pipeline companies to fund the cost of construction ofthe Bakken Pipeline system.If the pipeline were temporarily shut down,MPLX would have to contribute its 9.19 percent pro rata share of funds required to payinterest accruing on the notes and any portion of the principal that matures while the pipeline is shutdown.MPLX also expects to contribute its 9.19 percent prorata share of any costs to remediate any deficiencies to reinstate the permit and/or return the pipeline into operation.If the vacatur of the easement permitresults in a permanent shutdown of the pipeline,MPLX would have to contribute its 9.19 percent pro rata share of the cost to redeem the bonds(including the 1percent redemption premium required pursuant to the indenture governing the notes)and any accrued and unpaid interest.As of June 30,2023,our maximumpotential undiscounted payments under the Contingent Equity Contribution Agreement were approximately$170 million.Crowley Blue Water Partners LLCIn connection with our 50 percent indirect interest in Crowley Blue Water Partners LLC,we have agreed to provide a conditional guarantee of up to 50 percent ofits outstanding debt balance in the event there is no charter agreement in place with an investment grade customer for the entitys three vessels as well as otherfinancial support in certain circumstances.As of June 30,2023,our maximum potential undiscounted payments under this arrangement were$97 million.Other guaranteesWe have entered into other guarantees with maximum potential undiscounted payments totaling$124 million as of June 30,2023,which primarily consist of acommitment to contribute cash to an equity method investee for certain catastrophic events in lieu of procuring insurance coverage,a commitment to fund ashare of the bonds issued by a government entity for construction of public utilities in the event that other industrial users of the facility default on their utilitypayments,a commitment to pay a termination fee on a supply agreement if terminated during the initial term,and leases of assets containing general leaseindemnities and guaranteed residual values.Contractual Commitments and ContingenciesCertain natural gas processing and gathering arrangements require us to construct natural gas processing plants,natural gas gathering pipelines and NGLpipelines and contain certain fees and charges if specified construction milestones are not achieved for reasons other than force majeure.In certain cases,certain producer customers may have the right to cancel the processing arrangements with us if there are significant delays that are not due to force majeure.25Table of ContentsItem 2.Managements Discussion and Analysis of Financial Condition and Results of OperationsThis section should also be read in conjunction with the unaudited consolidated financial statements and accompanying footnotes included under Item 1.Financial Statements and in conjunction with our Annual Report on Form 10-K for the year ended December 31,2022.DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTSThis Quarterly Report on Form 10-Q,particularly Managements Discussion and Analysis of Financial Condition and Results of Operations and Quantitative andQualitative Disclosures about Market Risk,includes forward-looking statements that are subject to risks,contingencies or uncertainties.You can identify forward-looking statements by words such as“anticipate,”“believe,”“commitment,”“could,”“design,”“estimate,”“expect,”“forecast,”“goal,”“guidance,”“intend,”“may,”“objective,”“opportunity,”“outlook,”“plan,”“policy,”“position,”“potential,”“predict,”“priority,”“project,”“prospective,”“pursue,”“seek,”“should,”“strategy,”“target,”“will,”“would”or other similar expressions that convey the uncertainty of future events or outcomes.Forward-looking statements include,among other things,statements regarding:future financial and operating results;environmental,social and governance(“ESG”)plans and goals,including those related to greenhouse gas emissions,diversity and inclusion and ESGreporting;future levels of capital,environmental or maintenance expenditures,general and administrative and other expenses;the success or timing of completion of ongoing or anticipated capital or maintenance projects;business strategies,growth opportunities and expected investments;consumer demand for refined products,natural gas,renewables and NGLs;the timing,amount and form of any future capital return transactions at MPC or MPLX;andthe anticipated effects of actions of third parties such as competitors,activist investors,federal,foreign,state or local regulatory authorities,or plaintiffsin litigation.Our forward-looking statements are not guarantees of future performance,and you should not rely unduly on them,as they involve risks,uncertainties andassumptions that we cannot predict.Forward-looking and other statements regarding our ESG plans and goals are not an indication that these statements arematerial to investors or required to be disclosed in our filings with the SEC.In addition,historical,current,and forward-looking ESG-related statements may bebased on standards for measuring progress that are still developing,internal controls and processes that continue to evolve,and assumptions that are subject tochange in the future.Material differences between actual results and any future performance suggested in our forward-looking statements could result from avariety of factors,including the following:general economic,political or regulatory developments,including inflation,interest rates,changes in governmental policies relating to refined petroleumproducts,crude oil,natural gas,NGLs or renewables,or taxation;the regional,national and worldwide availability and pricing of refined products,crude oil,natural gas,renewables,NGLs and other feedstocks;disruptions in credit markets or changes to credit ratings;the adequacy of capital resources and liquidity,including availability,timing and amounts of free cash flow necessary to execute business plans and toeffect any share repurchases or to maintain or increase the dividend;the potential effects of judicial or other proceedings on the business,financial condition,results of operations and cash flows;the timing and extent of changes in commodity prices and demand for crude oil,refined products,feedstocks or other hydrocarbon-based products,orrenewables;volatility in or degradation of general economic,market,industry or business conditions as a result of the COVID-19 pandemic,other infectious diseaseoutbreaks,natural hazards,extreme weather events,the military conflict between Russia and Ukraine,other conflicts,inflation,rising interest rates orotherwise;compliance with federal and state environmental,economic,health and safety,energy and other policies and regulations and enforcement actionsinitiated thereunder;adverse market conditions or other risks affecting MPLX;refining industry overcapacity or under capacity;foreign imports and exports of crude oil,refined products,natural gas and NGLs;changes in producer customers drilling plans or in volumes of throughput of crude oil,natural gas,NGLs,refined products,other hydrocarbon-basedproducts or renewables;non-payment or non-performance by our customers;changes in the cost or availability of third-party vessels,pipelines,railcars and other means of transportation for crude oil,natural gas,NGLs,feedstocks,refined products and renewables;the price,availability and acceptance of alternative fuels and alternative-fuel vehicles and laws mandating such fuels or vehicles;26Table of Contentspolitical and economic conditions in nations that consume refined products,natural gas,renewables and NGLs,including the United States and Mexico,and in crude oil producing regions,including the Middle East,Russia,Africa,Canada and South America;actions taken by our competitors,including pricing adjustments,the expansion and retirement of refining capacity and the expansion and retirement ofpipeline capacity,processing,fractionation and treating facilities in response to market conditions;completion of pipeline projects within the United States;changes in fuel and utility costs for our facilities;accidents or other unscheduled shutdowns affecting our refineries,machinery,pipelines,processing,fractionation and treating facilities or equipment,means of transportation,or those of our suppliers or customers;acts of war,terrorism or civil unrest that could impair our ability to produce refined products,receive feedstocks or to gather,process,fractionate ortransport crude oil,natural gas,NGLs,refined products or renewables;political pressure and influence of environmental groups and other stakeholders upon policies and decisions related to the production,gathering,refining,processing,fractionation,transportation and marketing of crude oil or other feedstocks,refined products,natural gas,NGLs,otherhydrocarbon-based products or renewables;labor and material shortages;our ability to successfully achieve our ESG goals and targets within the expected timeframe,if at all;the costs,disruption and diversion of managements attention associated with campaigns commenced by activist investors;personnel changes;andthe imposition of windfall profit taxes or maximum refining margin penalties on companies operating in the energy industry in California or otherjurisdictions.For additional risk factors affecting our business,see the risk factors described in our Annual Report on Form 10-K for the year ended December 31,2022.Weundertake no obligation to update any forward-looking statements except to the extent required by applicable law.EXECUTIVE SUMMARYBusiness UpdateOur results through the first six months of 2023 as compared to the first six months of 2022,were unfavorably impacted by market prices,however,the demandenvironment in which our business operates remains strong.Supply has remained constrained for a variety of reasons,including,but not limited to,effects fromrefinery closures and disruptions in the crude oil and petroleum-based products markets resulting from the Russia-Ukraine conflict.We are unable to predict thepotential effects that the continuance or escalation of the military conflict between Russia and Ukraine,and related sanctions or market disruptions,may have onour financial position and results.It remains uncertain how long these conditions may last or how severe they may become.In March 2023,the California legislature adopted Senate Bill No.2(such statute,together with any regulations contemplated or issued thereunder,SBx1-2),which authorizes the California Energy Commission(“CEC”)to establish a“maximum gross gasoline refining margin”with respect to certain of our refiningactivities in California,as well as establish fees for refiners for exceeding this margin.The law further expands on existing reporting requirements for refiners tothe CEC.It is uncertain whether,or when,the CEC will establish a maximum gross gasoline refining margin and impose associated fees.We will evaluate theimpact that SBx1-2 and any associated forthcoming CEC regulations may have on our current or anticipated future operations in California and results ofoperations when the regulations have been promulgated.Strategic UpdatesSouth Texas Gateway Terminal LLCOn June 15,2023,MPC agreed to sell its 25 percent interest in South Texas Gateway Terminal LLC(“South Texas Gateway”)to an affiliate of Gibson EnergyInc.(“Gibson Energy”).Pursuant to the purchase agreement,Gibson Energy agreed to pay$1.1 billion in cash,subject to closing adjustments,to acquire 100percent of the membership interests of South Texas Gateway from MPC and its other members.South Texas Gateway owns an oil export facility in the U.S.GulfCoast.The terminal is operated by a third party.The carrying value of MPCs 25 percent interest at June 30,2023 was$167 million.The deal is expected toclose in the third quarter.LF Bioenergy AcquisitionOn March 8,2023,MPC announced the acquisition of a 49.9 percent equity interest in LF Bioenergy,an emerging producer of renewable natural gas(“RNG”)inthe U.S.,for approximately$56 million,which included funding for on-going operations and project development.LF Bioenergy has been focused on developingand growing a portfolio of dairy farm-based,low carbon intensity RNG projects.Current projects are under various stages of development,with the first facilitynearing completion and27Table of Contentsexpected to be in service in the first half of 2023.LF Bioenergys management and origination teams continue to expand the portfolio with additional sanctionedprojects while progressing their existing pipeline of opportunities toward final investment decisions.As specific project milestones are achieved,MPC is expectedto fund its share of capital expenditures to build out the portfolio.Martinez Renewable Fuels Project Joint VentureThe Martinez Renewable Fuels facility reached full Phase I production capacity of 260 million gallons per year of renewable fuels during the first quarter of 2023.Pretreatment capabilities are expected to come online in the second half of 2023 and the facility is expected to be capable of producing 730 million gallons peryear by the end of 2023.South Texas Asset Repositioning(“STAR”)ProjectWe completed the STAR project at our Galveston Bay refinery,which is expected to add 40 mbpd of incremental crude capacity and 17 mbpd of residprocessing capacity.Share Repurchase AuthorizationOn May 2,2023,we announced that our board of directors approved an additional$5.0 billion share repurchase authorization in addition to the$5.0 billion sharerepurchase authorization announced on January 31,2023.Future repurchases under these authorizations will depend on the macro environment,cash availableafter opportunities for capital investment and growth of the business and market conditions.The authorizations have no expiration date.As of June 30,2023,MPC had$7.12 billion remaining under its share repurchase authorizations.See Note 8 to the unaudited consolidated financial statements for further discussion of our share repurchase authorizations.ResultsOur CODM evaluates the performance of our segments using segment adjusted EBITDA.Amounts included in income before income taxes and excluded fromsegment adjusted EBITDA include:(i)depreciation and amortization;(ii)net interest and other financial costs;(iii)turnaround expenses and(iv)otheradjustments as deemed necessary.These items are either:(i)believed to be non-recurring in nature;(ii)not believed to be allocable or controlled by thesegment;or(iii)are not tied to the operational performance of the segment.Select results are reflected in the following table.Three Months Ended June 30,Six Months Ended June 30,(Millions of dollars)2023202220232022Segment adjusted EBITDA for reportable segmentsRefining&Marketing$3,163$7,760$7,016$9,134 Midstream1,532 1,456 3,062 2,859 Total reportable segments$4,695$9,216$10,078$11,993 Reconciliation of segment adjusted EBITDA for reportable segments to incomebefore income taxesTotal reportable segments$4,695$9,216$10,078$11,993 Corporate(164)(156)(329)(294)Refining planned turnaround costs(392)(151)(749)(296)Renewable volume obligation requirements 238 238 Litigation 27 Depreciation and amortization(834)(819)(1,634)(1,624)Net interest and other financial costs(142)(312)(296)(574)Income before income taxes$3,163$8,016$7,070$9,470 Net income attributable to MPC per diluted share$5.32$10.95$11.44$12.15 28Table of ContentsNet income attributable to MPC was$2.23 billion,or$5.32 per diluted share,in the second quarter of 2023 compared to$5.87 billion,or$10.95 per dilutedshare,for the second quarter of 2022 and$4.95 billion,or$11.44 per diluted share,in the first six months of 2023 compared to$6.72 billion,or$12.15 perdiluted share,in the first six months of 2022.The decreases in net income attributable to MPC were largely due to lower Refining&Marketing margins.Refer to the Results of Operations section for a discussion of consolidated financial results and segment results for the second quarter of 2023 as compared tothe second quarter of 2022 and the first six months of 2023 compared to the first six months of 2022.MPLXWe owned approximately 647 million MPLX common units as of June 30,2023,with a market value of$21.97 billion based on the June 30,2023 closing price of$33.94 per common unit.On July 25,2023,MPLX declared a quarterly cash distribution of$0.7750 per common unit payable on August 14,2023,to unitholdersof record on August 4,2023.As a result,MPCs portion of this distribution is approximately$502 million.We received limited partner distributions of$1.0 billion from MPLX in the six months ended June 30,2023 and$913 million in the six months ended June 30,2022.During the six months ended June 30,2023,no MPLX units were repurchased.As of June 30,2023,approximately$846 million remained available under theauthorization for future unit repurchases.On February 9,2023,MPLX issued$1.1 billion aggregate principal amount of 5.00 percent senior notes due 2033 and$500 million aggregate principal amountof 5.65 percent senior notes due 2053 in an underwritten public offering.On February 15,2023,MPLX redeemed all of its 600,000 outstanding Series B preferred units at the redemption price of$1,000 per unit.The semi-annualdistribution due to Series B unitholders on February 15,2023,was also paid on that date,in the usual manner.On March 13,2023,MPLX redeemed all ofMPLXs and MarkWests$1.0 billion aggregate principal amount of 4.50 percent senior notes due July 2023 at par,plus accrued and unpaid interest.See Note 4 to the unaudited consolidated financial statements for additional information on MPLX.OVERVIEW OF SEGMENTSRefining&MarketingRefining&Marketing segment adjusted EBITDA depends largely on our refinery throughput,Refining&Marketing margin,refining operating costs anddistribution costs.Refining&Marketing margin is the difference between the prices of refined products sold and the costs of crude oil and other charge and blendstocks refined,including the costs to transport these inputs to our refineries and the costs of products purchased for resale.The crack spread is a measure of the differencebetween market prices for refined products and crude oil,commonly used by the industry as a proxy for the refining margin.Crack spreads can fluctuatesignificantly,particularly when prices of refined products do not move in the same direction as the cost of crude oil.As a performance benchmark and acomparison with other industry participants,we calculate Gulf Coast,Mid-Continent and West Coast crack spreads that we believe most closely track ouroperations and slate of products.The following are used for these crack spread calculations:The Gulf Coast crack spread uses three barrels of MEH crude producing two barrels of USGC CBOB gasoline and one barrel of USGC ULSD;The Mid-Continent crack spread uses three barrels of WTI crude producing two barrels of Chicago CBOB gasoline and one barrel of Chicago ULSD;andThe West Coast crack spread uses three barrels of ANS crude producing two barrels of LA CARBOB and one barrel of LA CARB Diesel.Our refineries can process significant amounts of sweet and sour crude oil,which typically can be purchased at a discount to crude oil referenced in our GulfCoast,Mid-Continent and West Coast crack spreads.The amount of these discounts,which we refer to as the sweet differential and sour differential,can varysignificantly,causing our Refining&Marketing margin to differ from blended crack spreads.In general,larger sweet and sour differentials will enhance ourRefining&Marketing margin.Future crude oil differentials will be dependent on a variety of market and economic factors,as well as U.S.energy policy.29Table of ContentsThe following table provides sensitivities showing an estimated change in annual Refining&Marketing segment adjusted EBITDA due to potential changes inmarket conditions.(Millions of dollars)Blended crack spread sensitivity(per$1.00/barrel change)$1,080 Sour differential sensitivity (per$1.00/barrel change)500 Sweet differential sensitivity (per$1.00/barrel change)500 Natural gas price sensitivity (per$1.00/MMBtu)310 Crack spread based on 40 percent MEH,40 percent WTI and 20 percent ANS with Gulf Coast,Mid-Continent and West Coast product pricing,respectively,andassumes all other differentials and pricing relationships remain unchanged.Sour crude oil basket consists of the following crudes:ANS,Argus Sour Crude Index,Maya and Western Canadian Select.We assume approximately 50 percent ofthe crude processed at our refineries in 2023 will be sour crude.Sweet crude oil basket consists of the following crudes:Bakken,Brent,MEH,WTI-Cushing and WTI-Midland.We assume approximately 50 percent of the crudeprocessed at our refineries in 2023 will be sweet crude.This is consumption-based exposure for our Refining&Marketing segment and does not include the sales exposure for our Midstream segment.In addition to the market changes indicated by the crack spreads,the sour differential and the sweet differential,our Refining&Marketing margin is impacted byfactors such as:the selling prices realized for refined products;the types of crude oil and other charge and blendstocks processed;our refinery yields;the cost of products purchased for resale;the impact of commodity derivative instruments used to hedge price risk;the potential impact of lower of cost or market adjustments to inventories in periods of declining prices;the potential impact of LIFO charges due to changes in historic inventory levels;andthe cost of purchasing RINs in the open market to comply with RFS2 requirements.Refining&Marketing segment adjusted EBITDA is also affected by changes in refinery operating costs in addition to committed distribution costs.Changes inoperating costs are primarily driven by the cost of energy used by our refineries,including purchased natural gas,and the level of maintenance costs.Distribution costs primarily include long-term agreements with MPLX,which as discussed below include minimum commitments to MPLX,and will negativelyimpact segment adjusted EBITDA in periods when throughput or sales are lower or refineries are idled.We have various long-term,fee-based commercial agreements with MPLX.Under these agreements,MPLX,which is reported in our Midstream segment,provides transportation,storage,distribution and marketing services to our Refining&Marketing segment.Certain of these agreements include commitments forminimum quarterly throughput and distribution volumes of crude oil and refined products and minimum storage volumes of crude oil,refined products and otherproducts.Certain other agreements include commitments to pay for 100 percent of available capacity for certain marine transportation and refining logisticsassets.MidstreamOur Midstream segment gathers,transports,stores and distributes crude oil,refined products,including renewable diesel,and other hydrocarbon-basedproducts,principally for our Refining&Marketing segment.Additionally,the segment markets refined products.The profitability of our pipeline transportationoperations primarily depends on tariff rates and the volumes shipped through the pipelines.The profitability of our marine operations primarily depends on thequantity and availability of our vessels and barges.The profitability of our light product terminal operations primarily depends on the throughput volumes at theseterminals.The profitability of our fuels distribution services primarily depends on the sales volumes of certain refined products.The profitability of our refininglogistics operations depends on the quantity and availability of our refining logistics assets.A majority of the crude oil and refined product shipments on ourpipelines and marine vessels and the refined product throughput at our terminals serve our Refining&Marketing segment and our refining logistics assets andfuels distribution services are used solely by our Refining&Marketing segment.As discussed above in the Refining&Marketing section,MPLX,which isreported in our Midstream segment,has various long-term,fee-based commercial agreements related to services provided to our Refining&Marketing segment.Under these agreements,MPLX has received various commitments of minimum throughput,storage and distribution volumes as well as commitments to pay forall available capacity of certain assets.The volume of crude oil that we transport is directly affected by the supply of,and refiner demand for,crude oil in themarkets served directly by our crude oil pipelines,terminals and marine operations.Key factors in this supply and demand balance are the production levels ofcrude oil by producers in various regions or fields,the availability and cost of alternative modes of transportation,the volumes of crude oil processed at refineriesand refinery and transportation system maintenance levels.The volume of refined products that we transport,store,distribute and market is directly affected bythe production levels of,and user demand for,refined products in the markets served by our refined product pipelines and marine operations.In most of ourmarkets,demand for gasoline and(a)(b)(c)(d)(a)(b)(c)(d)30Table of Contentsdistillate peaks during the summer driving season,which extends from May through September of each year,and declines during the fall and winter months.Aswith crude oil,other transportation alternatives and system maintenance levels influence refined product movements.Our Midstream segment also gathers,processes and transports natural gas and transports,fractionates,stores and markets NGLs.NGL and natural gas pricesare volatile and are impacted by changes in fundamental supply and demand,as well as market uncertainty,availability of NGL transportation and fractionationcapacity and a variety of additional factors that are beyond our control.Our Midstream segment profitability is affected by prevailing commodity prices primarilyas a result of processing or conditioning at our own or thirdparty processing plants,purchasing and selling or gathering and transporting volumes of natural gasat indexrelated prices and the cost of thirdparty transportation and fractionation services.To the extent that commodity prices influence the level of natural gasdrilling by our producer customers,such prices also affect profitability.RESULTS OF OPERATIONSThe following discussion includes comments and analysis relating to our results of operations.This discussion should be read in conjunction with Item 1.Financial Statements and is intended to provide investors with a reasonable basis for assessing our historical operations,but should not serve as the onlycriteria for predicting our future performance.Consolidated Results of OperationsThree Months Ended June 30,Six Months Ended June 30,(Millions of dollars)20232022Variance20232022VarianceRevenues and other income:Sales and other operating revenues$36,343$53,795$(17,452)$71,207$91,853$(20,646)Income from equity method investments199 147 52 332 289 43 Net gain on disposal of assets13 39(26)16 21(5)Other income269 257 12 346 459(113)Total revenues and other income36,824 54,238(17,414)71,901 92,622(20,721)Costs and expenses:Cost of revenues(excludes items below)31,762 44,207(12,445)61,056 79,275(18,219)Depreciation and amortization834 819 15 1,634 1,624 10 Selling,general and administrative expenses704 694 10 1,395 1,297 98 Other taxes219 190 29 450 382 68 Total costs and expenses33,519 45,910(12,391)64,535 82,578(18,043)Income from operations3,305 8,328(5,023)7,366 10,044(2,678)Net interest and other financial costs142 312(170)296 574(278)Income before income taxes3,163 8,016(4,853)7,070 9,470(2,400)Provision for income taxes583 1,799(1,216)1,406 2,081(675)Net income2,580 6,217(3,637)5,664 7,389(1,725)Less net income attributable to:Redeemable noncontrolling interest23 21 2 46 42 4 Noncontrolling interests331 323 8 668 629 39 Net income attributable to MPC$2,226$5,873$(3,647)$4,950$6,718$(1,768)Second Quarter 2023 Compared to Second Quarter 2022Net income attributable to MPC decreased$3.65 billion in the second quarter of 2023 compared to the second quarter of 2022 primarily due to lower Refining&Marketing margins in the second quarter of 2023.Revenues and other income decreased$17.41 billion primarily due to:decreased sales and other operating revenues of$17.45 billion primarily due to decreased Refining&Marketing segment average refined productsales prices of$1.13 per gallon and decreased refined product sales volumes of 34 mbpd;andincreased income from equity method investments of$52 million primarily due to increased income from Midstream equity affiliates.31Table of ContentsCosts and expenses decreased$12.39 billion primarily due to decreased cost of revenues of$12.45 billion mainly due to lower crude oil costs,partially offset byinsignificant items in selling,general and administrative expenses and other taxes.Net interest and other financial costs decreased$170 million largely due to increased interest income and decreased pension non-service costs,partially offsetby increased interest expense due to higher MPLX borrowings.We recorded a combined federal,state and foreign income tax provision of$583 million for the three months ended June 30,2023,which was lower than theU.S.statutory rate primarily due to net income attributable to noncontrolling interests,a benefit related to foreign derived intangible income,offset by state taxes.We recorded a combined federal,state and foreign income tax provision of$1.80 billion for the three months ended June 30,2022,which was higher than theU.S.statutory rate primarily due to state taxes offset by net income attributable to noncontrolling interests.Six Months Ended June 30,2023 Compared to Six Months Ended June 30,2022Net income attributable to MPC decreased$1.77 billion in the first six months of 2023 compared to the first six months of 2022 primarily due to lower Refining&Marketing margins in the first six months of 2023.Revenues and other income decreased$20.72 billion primarily due to:decreased sales and other operating revenues of$20.65 billion primarily due to decreased Refining&Marketing segment average refined productsales prices of$0.68 per gallon,partially offset by increased refined product sales volumes of 12 mbpd;increased income from equity method investments of$43 million largely due to increased income from Midstream equity affiliates,partially offset bydecreased income from Refining&Marketing equity affiliates;anddecreased other income of$113 million primarily due to lower income on RIN sales.Costs and expenses decreased$18.04 billion primarily due to:decreased cost of revenues of$18.22 billion primarily due to lower crude oil costs;increased selling,general and administrative expenses of$98 million primarily due to increased salaries and employee related expenses,contractservices and technology and communication expenses,partially offset by decreased employee benefit costs,credit card processing fees and insuranceexpenses;andincreased other taxes of$68 million primarily due to the reinstated Petroleum Superfund Tax which was effective January 1,2023.Net interest and other financial costs decreased$278 million largely due to increased interest income and decreased pension non-service costs,partially offsetby increased interest expense due to higher MPLX borrowings.We recorded a combined federal,state and foreign income tax expense of$1.41 billion for the six months ended June 30,2023,which was lower than the U.S.statutory rate primarily due to net income attributable to noncontrolling interests,a benefit related to foreign derived intangible income,offset by state taxes.Werecorded a combined federal,state and foreign income tax expense of$2.08 billion for the six months ended June 30,2022,which was higher than the U.S.statutory rate primarily due to state taxes offset by net income attributable to noncontrolling interests.Net income attributable to noncontrolling interests increased$39 million primarily due to an increase in MPLXs net income in the first six months of 2023.Segment ResultsWe classify our business in the following reportable segments:Refining&Marketing and Midstream.Segment adjusted EBITDA represents adjusted EBITDAattributable to the reportable segments.Amounts included in income before income taxes and excluded from segment adjusted EBITDA include:(i)depreciationand amortization;(ii)net interest and other financial costs;(iii)turnaround expenses and(iv)other adjustments as deemed necessary.These items are either:(i)believed to be non-recurring in nature;(ii)not believed to be allocable or controlled by the segment;or(iii)are not tied to the operational performance of thesegment.32Table of ContentsThe following shows the percentage of segment adjusted EBITDA by segment for the six months ended June 30,2023 and 2022.Refining&MarketingThe following includes key financial and operating data for the second quarter of 2023 compared to the second quarter of 2022 and the six months endedJune 30,2023 compared to the six months ended June 30,2022.33Table of ContentsIncludes intersegment sales to Midstream and sales destined for export.Three Months Ended June 30,Six Months Ended June 30,2023202220232022Refining&Marketing Operating StatisticsNet refinery throughput(mbpd)2,925 3,069 2,881 2,952 Refining&Marketing margin per barrel$22.10$37.54$24.08$26.93 Less:Refining operating costs per barrel5.15 5.19 5.41 5.20 Distribution costs per barrel5.15 4.76 5.21 4.77 Other income per barrel(0.08)(0.20)0.01(0.14)Refining&Marketing segment adjusted EBITDA per barrel$11.88$27.79$13.45$17.10 Less:Refining planned turnaround costs per barrel1.47 0.54 1.43 0.56 Depreciation and amortization per barrel1.82 1.70 1.82 1.75 Refining&Marketing segment income per barrel$8.59$25.55$10.20$14.79 Fees paid to MPLX per barrel included in distribution costs above$3.55$3.30$3.61$3.38 Sales revenue less cost of refinery inputs and purchased products,divided by net refinery throughput.See“Non-GAAP Measures”section for reconciliation and further information regarding this non-GAAP measure.Includes refining operating costs and major maintenance costs.Excludes planned turnaround and depreciation and amortization expense.Includes income(loss)from equity method investments,net gain(loss)on disposal of assets and other income.(a)(a)(b)(c)(d)(a)(b)(c)(d)34Table of ContentsThe following information presents certain benchmark prices in our marketing areas and market indicators that we believe are helpful in understanding theresults of our Refining&Marketing segment.The benchmark crack spreads below do not reflect the market cost of RINs necessary to meet EPA renewablevolume obligations for attributable products under the Renewable Fuel Standard.Three Months Ended June 30,Six Months Ended June 30,2023202220232022Benchmark Spot Prices(dollars per gallon)Chicago CBOB unleaded regular gasoline$2.44$3.55$2.41$3.07 Chicago ULSD2.44 3.97 2.59 3.41 USGC CBOB unleaded regular gasoline2.35 3.41 2.37 3.05 USGC ULSD2.39 3.99 2.63 3.49 LA CARBOB2.76 3.91 2.74 3.47 LA CARB diesel2.39 4.07 2.65 3.56 Market Indicators(dollars per barrel)WTI$73.56$108.52$74.77$101.77 MEH74.69 109.96 76.22 103.36 ANS78.43 112.54 78.73 104.43 Crack Spreads:Mid-Continent WTI 3-2-1$21.48$38.96$21.94$26.05 USGC MEH 3-2-116.59 33.67 18.89 24.31 West Coast ANS 3-2-124.49 46.30 27.06 36.38 Blended 3-2-120.13 38.31 21.75 27.42 Crude Oil Differentials:Sweet$(0.34)$0.35$(0.03)$0.23 Sour(5.77)(5.03)(7.50)(4.95)Blended 3-2-1 Mid-Continent/USGC/West Coast crack spread is 40/40/20 percent in 2023 and 2022.Second Quarter 2023 Compared to Second Quarter 2022Refining&Marketing segment revenues decreased$17.16 billion primarily due to decreased average refined product sales prices of$1.13 per gallon anddecreased refined product sales volumes of 34 mbpd.Net refinery throughput decreased 144 mbpd during the second quarter of 2023.Refining&Marketing segment adjusted EBITDA decreased$4.60 billion primarily due to decreases in per barrel margins and throughput and increaseddistribution costs,excluding depreciation and amortization,partially offset by decreased refining operating costs,excluding depreciation and amortization.Refining&Marketing segment adjusted EBITDA was$11.88 per barrel for the second quarter of 2023,versus$27.79 per barrel for the second quarter of 2022.Refining&Marketing margin was$22.10 per barrel for the second quarter of 2023 compared to$37.54 per barrel for the second quarter of 2022.Refining&Marketing margin is affected by our performance against the market indicators shown earlier,which use spot market values and an estimated mix of crudepurchases and product sales.Based on the market indicators and our crude oil throughput,we estimate a net negative impact of approximately$5 billion onRefining&Marketing margin for the second quarter of 2023 compared to the second quarter of 2022,primarily due to narrower crack spreads.Our reportedRefining&Marketing margin differs from market indicators due to the mix of crudes purchased and their costs,the effect of market structure on our crude oilacquisition prices,the effect of RIN prices on the crack spread,and other items like refinery yields,other feedstock variances and fuel margin from sales to directdealers.These factors had an estimated net positive effect of approximately$300 million on Refining&Marketing segment income in the second quarter of 2023compared to the second quarter of 2022.For the three months ended June 30,2023,refining operating costs,excluding depreciation and amortization,decreased$77 million,or$0.04 per barrel,largelydue to lower energy costs,partially offset by project expense associated with higher turnaround activity and routine maintenance expense.(a)(a)35Table of ContentsDistribution costs,excluding depreciation and amortization,increased$42 million,or$0.39 per barrel,and include fees paid to MPLX of$946 million and$922million for the second quarter of 2023 and 2022,respectively.The increase was primarily due to higher pipeline tariff rates and logistics fee escalations.Refining planned turnaround costs increased$241 million,or$0.93 per barrel,due to the scope and timing of turnaround activity.Depreciation and amortization increased$9 million,or$0.12 per barrel.We purchase RINs to satisfy a portion of our RFS2 compliance.Our expenses associated with purchased RINs were$694 million and$730 million,net ofbenefits related to retroactive changes in renewable volume obligation requirements,in the second quarter of 2023 and 2022,respectively.The RINs expense isincluded in Refining&Marketing margin.The decrease in the second quarter of 2023 was primarily due to increased RINs acquired with purchased product fromthird parties and the Martinez Renewable Fuels joint venture.Six Months Ended June 30,2023 Compared to Six Months Ended June 30,2022Refining&Marketing segment revenues decreased$20.30 billion primarily due to decreased average refined product sales prices of$0.68 per gallon,partiallyoffset by increased refined product sales volumes of 12 mbpd.Net refinery throughput decreased 71 mbpd in the first six months of 2023.Refining&Marketing segment adjusted EBITDA decreased$2.12 billion primarily driven by decreases in per barrel margins and throughput and increaseddistribution costs and refining operating costs,both excluding depreciation and amortization.Refining&Marketing segment adjusted EBITDA was$13.45 perbarrel for the first six months of 2023,versus$17.10 per barrel for the first six months of 2022.Refining&Marketing margin was$24.08 per barrel for the first six months of 2023 compared to$26.93 per barrel for the first six months of 2022.Refining&Marketing margin is affected by the market indicators shown earlier,which use spot market values and an estimated mix of crude purchases and product sales.Based on the market indicators and our crude oil throughput,we estimate a net negative impact of approximately$2 billion on Refining&Marketing margin forthe first six months of 2023 compared to the first six months of 2022,primarily due to narrower crack spreads.Our reported Refining&Marketing margin differsfrom market indicators due to the mix of crudes purchased and their costs,market structure on our crude oil acquisition prices,RIN prices on the crack spread,and other items like refinery yields,other feedstock variances and fuel margin from sales to direct dealers.These factors had an estimated net positive effect ofapproximately$600 million on Refining&Marketing segment income in the first six months of 2023 compared to the first six months of 2022.For the six months ended June 30,2023,refining operating costs,excluding depreciation and amortization,increased$43 million,or$0.21 per barrel,largelydue to project expense associated with higher turnaround activity,partially offset by lower energy costs.Distribution costs,excluding depreciation and amortization,increased$165 million for the first six months of 2023,or$0.44 per barrel,and include fees paid toMPLX of$1.88 billion and$1.80 billion for the first six months of 2023 and 2022,respectively.The increase was primarily due to higher pipeline tariff rates andlogistics fee escalations.Refining planned turnaround costs increased$453 million,or$0.87 per barrel,due to the scope and timing of turnaround activity.Depreciation and amortization increased$12 million,or$0.07 per barrel.We purchase RINs to satisfy a portion of our RFS2 compliance.Our expenses associated with purchased RINs were$1.16 billion and$1.30 billion,net ofbenefits related to retroactive changes in renewable volume obligation requirements,in the first six months of 2023 and 2022,respectively.The RINs expense isincluded in Refining&Marketing margin.The decrease in the first six months of 2023,was primarily due to increased RINs acquired with purchased productfrom third parties and the Martinez Renewable Fuels joint venture.36Table of ContentsSupplemental Refining&Marketing StatisticsThree Months Ended June 30,Six Months Ended June 30,2023202220232022Refining&Marketing Operating StatisticsCrude oil capacity utilization percent93 100 91 96 Refinery throughput(mbpd):Crude oil refined2,698 2,896 2,632 2,761 Other charge and blendstocks227 173 249 191 Net refinery throughput2,925 3,069 2,881 2,952 Sour crude oil throughput percent46 48 44 47 Sweet crude oil throughput percent54 52 56 53 Refined product yields(mbpd):Gasoline1,497 1,536 1,503 1,510 Distillates1,033 1,123 1,029 1,051 Propane67 74 67 71 NGLs and petrochemicals227 224 192 193 Heavy fuel oil61 54 46 70 Asphalt83 91 83 89 Total2,968 3,102 2,920 2,984 Refined product export sales volumes(mbpd)295 326 297 298 Based on calendar-day capacity,which is an annual average that includes down time for planned maintenance and other normal operating activities.Product yields include renewable production.Represents fully loaded export cargoes fo
2023-09-05
56页
5星级
UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-Q(Mark One)QUARTERLY REPO.
2023-09-05
122页
5星级
UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM10-Q(Mark One)QUARTERLY REPORT PURSUANT TO SECTION13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended July 29,2023ORTRANSITION REPORT PURSUANT TO SECTION13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _ to _Commission File Number 1-6049TARGET CORPORATION(Exact name of registrant as specified in its charter)Minnesota(State or other jurisdiction of incorporation or organization)1000 Nicollet Mall,Minneapolis,Minnesota(Address of principal executive offices)41-0215170(I.R.S.Employer Identification No.)55403(Zip Code)612-304-6073(Registrants telephone number,including area code)Securities registered pursuant to Section 12(b)of the Act:Title of each classTrading Symbol(s)Name of each exchange on which registeredCommon stock,par value$0.0833 per shareTGTNew York Stock ExchangeIndicate by check mark whether the registrant(1)has filed all reports required to be filed by Section13 or 15(d)of the Securities Exchange Act of 1934during the preceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filingrequirements for the past 90 days.Yes NoIndicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule405 ofRegulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required to submit such files).Yes NoIndicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company,or anemerging growth company.See the definitions of large accelerated filer,accelerated filer,smaller reporting company,and emerging growth companyin Rule 12b-2 of the Exchange Act.Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company If an emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant is a shell company(as defined in Rule12b-2 of the Exchange Act).Yes NoTotal shares of common stock,par value$0.0833,outstanding at August18,2023,were 461,605,464.Table of ContentsIndex to NotesTARGET CORPORATIONTABLE OF CONTENTSPARTIFINANCIAL INFORMATIONItem 1.Financial Statements(unaudited)Consolidated Statements of Operations1Consolidated Statements of Comprehensive Income2Consolidated Statements of Financial Position3Consolidated Statements of Cash Flows4Consolidated Statements of Shareholders Investment5Notes to Consolidated Financial Statements8Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations14Item 3.Quantitative and Qualitative Disclosures About Market Risk23Item 4.Controls and Procedures23PARTIIOTHER INFORMATIONItem 1.Legal Proceedings24Item 1A.Risk Factors24Item 2.Unregistered Sales of Equity Securities and Use of Proceeds24Item 3.Defaults Upon Senior Securities24Item 4.Mine Safety Disclosures24Item 5.Other Information24Item 6.Exhibits25Signatures26FINANCIAL STATEMENTSTable of ContentsIndex to NotesPARTI.FINANCIAL INFORMATIONItem 1.Financial StatementsConsolidated Statements of OperationsThreeMonthsEndedSix Months Ended(millions,exceptpersharedata)(unaudited)July 29,2023July 30,2022July 29,2023July 30,2022Sales$24,384$25,653$49,332$50,483Other revenue389384763724Total revenue24,77326,03750,09551,207Cost of sales17,79820,14236,18438,603Selling,general and administrative expenses5,1845,00210,2099,764Depreciation and amortization(exclusive of depreciation included incost of sales)5945721,1771,173Operating income1,1973212,5251,667Net interest expense141112288224Net other income(16)(8)(39)(23)Earnings before income taxes1,0722172,2761,466Provision for income taxes23734491274Net earnings$835$183$1,785$1,192Basic earnings per share$1.81$0.40$3.87$2.57Diluted earnings per share$1.80$0.39$3.86$2.55Weighted average common shares outstandingBasic461.6461.5461.3463.8Diluted462.5463.6462.7466.8Antidilutive shares2.91.32.41.0See accompanying Notes to Consolidated Financial Statements.TARGET CORPORATIONQ2 2023 Form 10-Q1FINANCIAL STATEMENTSTable of ContentsIndex to NotesConsolidated Statements of Comprehensive IncomeThreeMonthsEndedSix Months Ended(millions)(unaudited)July 29,2023July 30,2022July 29,2023July 30,2022Net earnings$835$183$1,785$1,192Other comprehensive income,net of taxPension benefit liabilities111322Cash flow hedges and currency translation adjustment(4)(28)(9)162Other comprehensive income(loss)(3)(17)(6)184Comprehensive income$832$166$1,779$1,376See accompanying Notes to Consolidated Financial Statements.TARGET CORPORATIONQ2 2023 Form 10-Q2FINANCIAL STATEMENTSTable of ContentsIndex to NotesConsolidated Statements of Financial Position(millions,except footnotes)(unaudited)July 29,2023January 28,2023July 30,2022AssetsCash and cash equivalents$1,617$2,229$1,117Inventory12,68413,49915,320Other current assets1,7972,1182,016Total current assets16,09817,84618,453Property and equipmentLand6,5046,2316,161Buildings and improvements35,88934,74633,694Fixtures and equipment7,9367,4396,744Computer hardware and software3,1783,0392,684Construction-in-progress2,6412,6882,245Accumulated depreciation(23,201)(22,631)(21,708)Property and equipment,net32,94731,51229,820Operating lease assets2,8402,6572,542Other noncurrent assets1,3211,3201,655Total assets$53,206$53,335$52,470Liabilities and shareholders investmentAccounts payable$12,278$13,487$14,891Accrued and other current liabilities5,9485,8835,905Current portion of long-term debt and other borrowings1,1061301,649Total current liabilities19,33219,50022,445Long-term debt and other borrowings14,92616,00913,453Noncurrent operating lease liabilities2,7982,6382,543Deferred income taxes2,3342,1961,862Other noncurrent liabilities1,8261,7601,575Total noncurrent liabilities21,88422,60319,433Shareholders investmentCommon stock383838Additional paid-in capital6,6106,6086,502Retained earnings5,7675,0054,421Accumulated other comprehensive loss(425)(419)(369)Total shareholders investment11,99011,23210,592Total liabilities and shareholders investment$53,206$53,335$52,470Common Stock Authorized 6,000,000,000 shares,$0.0833 par value;461,600,640,460,346,947,and 460,236,393 shares issued andoutstanding as of July29,2023,January28,2023,and July30,2022,respectively.Preferred Stock Authorized 5,000,000 shares,$0.01 par value;no shares were issued or outstanding during any period presented.See accompanying Notes to Consolidated Financial Statements.TARGET CORPORATIONQ2 2023 Form 10-Q3FINANCIAL STATEMENTSTable of ContentsIndex to NotesConsolidated Statements of Cash FlowsSix Months Ended(millions)(unaudited)July 29,2023July 30,2022Operating activitiesNet earnings$1,785$1,192Adjustments to reconcile net earnings to cash provided by operating activities:Depreciation and amortization1,3501,329Share-based compensation expense107122Deferred income taxes141227Noncash losses/(gains)and other,net11108Changes in operating accounts:Inventory815(1,418)Other assets62(179)Accounts payable(1,137)(784)Accrued and other liabilities264(644)Cash provided by(required for)operating activities3,398(47)Investing activitiesExpenditures for property and equipment(2,825)(2,523)Proceeds from disposal of property and equipment64Other investments(2)1Cash required for investing activities(2,821)(2,518)Financing activitiesChange in commercial paper,net1,545Reductions of long-term debt(72)(113)Dividends paid(996)(842)Repurchase of stock(2,646)Shares withheld for taxes on share-based compensation(121)(175)Stock option exercises2Cash required for financing activities(1,189)(2,229)Net decrease in cash and cash equivalents(612)(4,794)Cash and cash equivalents at beginning of period2,2295,911Cash and cash equivalents at end of period$1,617$1,117Supplemental informationLeased assets obtained in exchange for new finance lease liabilities$20$107Leased assets obtained in exchange for new operating lease liabilities33797See accompanying Notes to Consolidated Financial Statements.TARGET CORPORATIONQ2 2023 Form 10-Q4FINANCIAL STATEMENTSTable of ContentsIndex to NotesConsolidated Statements of Shareholders InvestmentCommonStockAdditionalAccumulated OtherStockParPaid-inRetainedComprehensive(millions)(unaudited)SharesValueCapitalEarnings(Loss)/IncomeTotalJanuary 29,2022471.3$39$6,421$6,920$(553)$12,827Net earnings1,0091,009Other comprehensive income201201Dividends declared(426)(426)Repurchase of stock(0.1)(10)(10)Accelerated share repurchase pendingfinal settlement(8.9)(1)(751)(1,998)(2,750)Stock options and awards1.41(78)(77)April 30,2022463.7$39$5,592$5,495$(352)$10,774Net earnings183183Other comprehensive loss(17)(17)Dividends declared(502)(502)Repurchase of stock(3.6)(1)870(755)114Stock options and awards0.14040July 30,2022460.2$38$6,502$4,421$(369)$10,592Net earnings712712Other comprehensive income161161Dividends declared(502)(502)Stock options and awards0.15656October 29,2022460.3$38$6,558$4,631$(208)$11,019Net earnings876876Other comprehensive loss(211)(211)Dividends declared(502)(502)Stock options and awards5050January 28,2023460.3$38$6,608$5,005$(419)$11,232TARGET CORPORATIONQ2 2023 Form 10-Q5FINANCIAL STATEMENTSTable of ContentsIndex to NotesConsolidated Statements of Shareholders InvestmentCommonStockAdditionalAccumulated OtherStockParPaid-inRetainedComprehensive(millions)(unaudited)SharesValueCapitalEarnings(Loss)/IncomeTotalJanuary 28,2023460.3$38$6,608$5,005$(419)$11,232Net earnings950950Other comprehensive loss(3)(3)Dividends declared(507)(507)Stock options and awards1.3(67)(67)April 29,2023461.6$38$6,541$5,448$(422)$11,605Net earnings835835Other comprehensive loss(3)(3)Dividends declared(516)(516)Stock options and awards6969July 29,2023461.6$38$6,610$5,767$(425)$11,990We declared$1.10 and$1.08 dividends per share for the three months ended July29,2023 and July30,2022,respectively,and$4.14 pershare for the fiscal year ended January28,2023.See accompanying Notes to Consolidated Financial Statements.TARGET CORPORATIONQ2 2023 Form 10-Q6FINANCIAL STATEMENTSTable of ContentsINDEXIndex to NotesINDEX TO NOTESNotes to Consolidated Financial Statements8Note 1Accounting Policies8Note 2Revenue9Note 3Fair Value Measurements10Note 4Supplier Finance Programs10Note 5Property and Equipment11Note 6Commercial Paper and Long-Term Debt11Note 7Derivative Financial Instruments11Note 8Share Repurchase12Note 9Pension Benefits12Note 10Accumulated Other Comprehensive Income(Loss)13TARGET CORPORATIONQ2 2023 Form 10-Q7FINANCIAL STATEMENTSTable of ContentsNOTESIndex to NotesNotes to Consolidated Financial Statements(unaudited)1.Accounting PoliciesThese unaudited condensed consolidated financial statements are prepared in accordance with the rules and regulations of the Securitiesand Exchange Commission applicable to interim financial statements.While these statements reflect all normal recurring adjustments thatare,in the opinion of management,necessary for fair presentation of the results of the interim period,they do not include all of theinformation and footnotes required by United States generally accepted accounting principles(U.S.GAAP)for complete financial statements.These condensed consolidated financial statements should be read in conjunction with the financial statement disclosures in our most recentForm10-K.We use the same accounting policies in preparing quarterly and annual financial statements.We operate as a single segment that is designed to enable guests to purchase products seamlessly in stores or through our digital channels.Nearly all of our revenues are generated in the U.S.The vast majority of our long-lived assets are located within the U.S.Due to the seasonal nature of our business,quarterly revenues,expenses,earnings,and cash flows are not necessarily indicative of theresults that may be expected for the full year.TARGET CORPORATIONQ2 2023 Form 10-Q8FINANCIAL STATEMENTSTable of ContentsNOTESIndex to Notes2.RevenueMerchandise sales represent the vast majority of our revenues.We also earn revenues from a variety of other sources,most notably creditcard profit-sharing income from our arrangement with TD Bank Group(TD).RevenueThreeMonthsEndedSix Months Ended(millions)July 29,2023July 30,2022July 29,2023July 30,2022Apparel&accessories$4,101$4,617$8,068$8,856Beauty&household essentials 7,5137,20815,19514,261Food&beverage 5,3925,26811,38910,773Hardlines 3,3833,8666,7747,579Home furnishings&dcor 3,9554,6477,8108,918Other40479696Sales24,38425,65349,33250,483Credit card profit sharing169181343366Other220203420358Other revenue389384763724Total revenue$24,773$26,037$50,095$51,207Includes apparel for women,men,boys,girls,toddlers,infants and newborns,as well as jewelry,accessories,and shoes.Includes beauty and personal care,baby gear,cleaning,paper products,and pet supplies.Includes dry grocery,dairy,frozen food,beverages,candy,snacks,deli,bakery,meat,produce,and food service in our stores.Includes electronics(including video game hardware and software),toys,entertainment,sporting goods,and luggage.Includes furniture,lighting,storage,kitchenware,small appliances,home dcor,bed and bath,home improvement,school/officesupplies,greeting cards and party supplies,and other seasonal merchandise.Merchandise sales We record almost all retail store revenues at the point of sale.Digitally originated sales may include shipping revenueand are recorded upon delivery to the guest or upon guest pickup at the store.Sales are recognized net of expected returns,which weestimate using historical return patterns and our expectation of future returns.As of July29,2023,January28,2023,and July30,2022,theaccrual for estimated returns was$177 million,$174 million,and$175 million,respectively.Revenue from Target gift card sales is recognized upon gift card redemption,which is typically within one year of issuance.Gift Card Liability ActivityJanuary 28,2023Gift Cards IssuedDuring CurrentPeriod But NotRedeemed RevenueRecognized FromBeginning LiabilityJuly 29,2023(millions)Gift card liability$1,240$399$(679)$960Included in Accrued and Other Current Liabilities.Net of estimated breakage.(a)(b)(c)(d)(e)(a)(b)(c)(d)(e)(b)(a)(a)(b)TARGET CORPORATIONQ2 2023 Form 10-Q9FINANCIAL STATEMENTSTable of ContentsNOTESIndex to NotesOther RevenueCredit card profit sharing We receive payments under a credit card program agreement with TD.Under the agreement,we receive apercentage of the profits generated by the Target Credit Card and Target MasterCard receivables in exchange for performing accountservicing and primary marketing functions.TD underwrites,funds,and owns Target Credit Card and Target MasterCard receivables,controlsrisk management policies,and oversees regulatory compliance.Other Includes advertising revenue,Shipt membership and service revenues,commissions earned on third-party sales throughT,rental income,and other miscellaneous revenues.3.Fair Value MeasurementsFair value measurements are reported in one of three levels reflecting the significant inputs used to determine fair value.Financial Instruments Measured On a RecurringBasisFairValue(millions)ClassificationMeasurementLevelJuly 29,2023January 28,2023July 30,2022AssetsShort-term investmentsCash and Cash EquivalentsLevel 1$739$1,343$189Prepaid forward contractsOther Current AssetsLevel 1232726Interest rate swapsOther Current AssetsLevel 234Interest rate swapsOther Noncurrent AssetsLevel 27290LiabilitiesInterest rate swapsOther Current LiabilitiesLevel 26Interest rate swapsOther Noncurrent LiabilitiesLevel 2130816Significant Financial Instruments Not Measured at FairValue (millions)July 29,2023January 28,2023July 30,2022Carrying AmountFair ValueCarrying AmountFair ValueCarrying AmountFair ValueLong-term debt,including current portion$14,147$13,344$14,141$13,688$11,511$11,529The carrying amounts of certain other current assets,commercial paper,accounts payable,and certain accrued and other currentliabilities approximate fair value due to their short-term nature.The fair value of debt is generally measured using a discounted cash flow analysis based on current market interest rates for thesame or similar types of financial instruments and would be classified as Level 2.These amounts exclude commercial paper,fairvalue hedge adjustments,and lease liabilities.4.Supplier Finance ProgramsWe have arrangements with several financial institutions to act as our paying agents to certain vendors.The arrangements also permit thefinancial institutions to provide vendors with an option,at our vendors sole discretion,to sell their receivables from Target to the financialinstitutions.A vendors election to receive early payment at a discounted amount from the financial institutions does not change the amountthat we must remit to the financial institutions or our payment date,which is up to 120 days from the invoice date.We do not pay any fees or pledge any security to these financial institutions under these arrangements.The arrangements can be terminatedby either party with notice ranging up to 120 days.Our outstanding vendor obligations eligible for early payment under these arrangements totaled$3.7billion,$3.4billion,and$4.6billion as ofJuly29,2023,January28,2023,and July30,2022,respectively,and are included within Accounts Payable on our Consolidated Statementsof Financial Position.Our outstanding vendor obligations do not represent actual receivables sold by our vendors to the financial institutions,which may be lower.(a)(b)(a)(b)TARGET CORPORATIONQ2 2023 Form 10-Q10FINANCIAL STATEMENTSTable of ContentsNOTESIndex to Notes5.Property and EquipmentWe review long-lived assets for impairment when store performance expectations,events,or changes in circumstancessuch as a decisionto relocate or close a store,office,or distribution center,discontinue a project,or make significant software changesindicate that theassets carrying value may not be recoverable.We recognized impairment charges of$33 million for the three and six months ended July29,2023.We recognized impairment charges of$27 million and$50 million for the three and six months ended July30,2022,respectively.These impairment charges are included in Selling,General and Administrative Expenses(SG&A).6.Commercial Paper and Long-Term DebtWe obtain short-term financing from time to time under our commercial paper program.For the six months ended July29,2023 and July30,2022,the maximum amounts outstanding were$90million and$1.5billion,respectively,and the average daily amounts outstanding were$2million and$538million,respectively,at a weighted average annual interest rate of 4.9 percent and 1.1 percent,respectively.No balanceswere outstanding as of July29,2023.As of July30,2022,$1.5billion was outstanding and is classified within Current Portion of Long-TermDebt and Other Borrowings on our Consolidated Statements of Financial Position.7.Derivative Financial InstrumentsOur derivative instruments consist of interest rate swaps used to mitigate interest rate risk.As a result,we have counterparty credit exposureto large global financial institutions,which we monitor on an ongoing basis.Note 3 to the Consolidated Financial Statements provides the fairvalue and classification of these instruments.We were party to interest rate swaps with notional amounts totaling$2.45billion as of July29,2023 and January28,2023,and$2.25billionas of July30,2022.We pay a floating rate and receive a fixed rate under each of these agreements.All of the agreements are designated asfair value hedges,and all were considered to be perfectly effective under the shortcut method during the three and six months ended July29,2023 and July30,2022.During 2023,we amended interest rate swaps with notional amounts totaling$1.5billion to replace the London Interbank Offered Rate(LIBOR)with the daily Secured Overnight Financing Rate(SOFR)as part of our planned reference rate reform activities.These amendmentsdid not result in any change to our application of hedge accounting or any impact to our consolidated financial statements.We were party to forward-starting interest rate swaps with notional amounts totaling$2.15billion as of July30,2022.During 2022,weterminated all remaining forward-starting interest rate swap agreements.The resulting gains upon termination were recorded in AccumulatedOther Comprehensive Loss and will be recognized as a reduction to Net Interest Expense over the respective term of the debt.Effect of Hedges on Debt(millions)July 29,2023January 28,2023July 30,2022Long-term debt and other borrowingsCarrying amount of hedged debt$2,305$2,366$2,263Cumulative hedging adjustments,included in carrying amount(136)(74)22TARGET CORPORATIONQ2 2023 Form 10-Q11FINANCIAL STATEMENTSTable of ContentsNOTESIndex to NotesEffect of Hedges on Net Interest ExpenseThree Months EndedSix Months Ended(millions)July 29,2023July 30,2022July 29,2023July 30,2022Gain(loss)on fair value hedges recognized in Net Interest ExpenseInterest rate swaps designated as fair value hedges$(71)$49$(62)$(55)Hedged debt71(49)6255Gain on cash flow hedges recognized in Net Interest Expense612Total$6$12$8.Share RepurchaseWe periodically repurchase shares of our common stock under a board-authorized repurchase program through a combination of openmarket transactions,accelerated share repurchase(ASR)arrangements,and other privately negotiated transactions with financialinstitutions.We did not repurchase any of our shares during the six months ended July 29,2023.Share Repurchase ActivityThree Months EndedSix Months Ended(millions,except per share data)July 29,2023July 30,2022 July 29,2023July 30,2022 Number of shares purchased12.512.5Average price paid per share$211.58$211.57Total investment$2,636$2,646Includes activity related to the ASR arrangement that we entered into during the first quarter of 2022 because final settlement occurred inthe second quarter of 2022.Under the ASR arrangement,we repurchased 12.5 million shares for a total cash investment of$2.6billion.We did not enter into an ASR arrangement during any other periods presented.9.Pension BenefitsWe provide pension plan benefits to eligible team members.Net Pension Benefits ExpenseThreeMonths EndedSix Months Ended(millions)ClassificationJuly 29,2023July 30,2022July 29,2023July 30,2022Service cost benefits earnedSG&A$19$23$39$46Interest cost on projected benefitobligationNet Other Income42308359Expected return on assetsNet Other Income(67)(58)(134)(117)Amortization of lossesNet Other Income115130Prior service costNet Other Income8101110Total$3$20$28(a)(a)(a)TARGET CORPORATIONQ2 2023 Form 10-Q12FINANCIAL STATEMENTSTable of ContentsNOTESIndex to Notes10.Accumulated Other Comprehensive Income(Loss)Change in Accumulated Other Comprehensive Income(Loss)CashFlowHedgesCurrencyTranslationAdjustmentPensionTotal(millions)January 28,2023$300$(23)$(696)$(419)Amounts reclassified from AOCI,net of tax(9)3(6)July 29,2023$291$(23)$(693)$(425)TARGET CORPORATIONQ2 2023 Form 10-Q13MANAGEMENTS DISCUSSION AND ANALYSISTable of ContentsFINANCIAL SUMMARYIndex to NotesItem 2.Managements Discussion and Analysis of Financial Condition and Results of OperationsFinancial SummarySecond quarter 2023 included the following notable items:GAAP and Adjusted diluted earnings per share were$1.80.Total revenue was$24.8 billion,a decrease of(4.9)percent,reflecting a total sales decrease of(4.9)percent and a 1.3 percent increasein other revenue.Comparable sales decreased(5.4)percent,reflecting a(4.8)percent decrease in traffic and a(0.7)percent decrease in averagetransaction amount.Comparable stores-originated sales declined(4.3)percent.Comparable digitally-originated sales declined(10.5)percent.Operating income of$1.2 billion was 273.0 percent higher than the comparable prior-year period.See Business Environment below foradditional information.Cash flow provided by operating activities was$3.4 billion for the six months ended July29,2023,compared with$47 million cash flowrequired for operating activities for the six months ended July30,2022.The drivers of the operating cash flow increase are described onpage 21.Earnings Per ShareThree Months EndedSix Months EndedJuly 29,2023July 30,2022ChangeJuly 29,2023July 30,2022ChangeGAAP diluted earnings per share$1.80$0.39357.6%$3.86$2.5551.1justments0.03Adjusted diluted earnings per share$1.80$0.39357.6%$3.86$2.5949.2%Note:Amounts may not foot due to rounding.Adjusted diluted earnings per share(Adjusted EPS),a non-GAAP metric,excludes the impactof certain items.Management believes that Adjusted EPS is useful in providing period-to-period comparisons of the results of our operations.A reconciliation of non-GAAP financial measures to GAAP measures is provided on page19.We report after-tax return on invested capital(ROIC)because we believe ROIC provides a meaningful measure of our capital allocationeffectiveness over time.For the trailing twelve months ended July29,2023,after-tax ROIC was 13.7 percent,compared with 18.4 percent forthe trailing twelve months ended July30,2022.The calculation of ROIC is provided on page 20.Business EnvironmentDuring the first two quarters of 2023,sales growth in our Frequency categories(Beauty&Household Essentials and Food&Beverage)wasmore than offset by accelerating decreases in our Discretionary categories(Apparel&Accessories,Hardlines,and Home Furnishings&Dcor).This trend of decreased Discretionary category sales began in 2022.In response to this trend,during 2022 we took actions andemployed strategies to align inventories with sales trends.These actions,as well as improvements in the supply chain,have resulted indecreased inventory as of July 29,2023 compared with January 28,2023 and July 30,2022.These actions and improvements have alsoresulted in a reduction in costs related to managing elevated inventory levels and reduced our working capital investment.Along with supply chain improvements,we have experienced a significant decrease in freight costs due to a decline in freight rates comparedto 2022.We have also experienced lower digital fulfillment costs due to a decrease in digital sales and a continued shift by our guests tolower-cost same-day fulfillment options.We continue to experience higher inventory shrink,as a percentage of sales,relative to historical levels including significantly highershrink rates at certain stores.We believe that this trend is pervasive across the retail industry.Increased shrink has had,and if current trendspersist will continue to have,an adverse impact on our results of operations,including potential impairment of our long-lived assets.The Gross Margin Rate analysis on page 17 and the Inventory section on page 21 provide additional information.TARGET CORPORATIONQ2 2023 Form 10-Q14MANAGEMENTS DISCUSSION AND ANALYSISTable of ContentsFINANCIAL SUMMARYIndex to NotesAnalysis of Results of OperationsSummary of Operating IncomeThreeMonthsEndedSix Months Ended(dollars in millions)July 29,2023July 30,2022ChangeJuly 29,2023July 30,2022ChangeSales$24,384$25,653(4.9)%$49,332$50,483(2.3)%Other revenue3893841.37637245.5Total revenue24,77326,037(4.9)50,09551,207(2.2)Cost of sales17,79820,142(11.6)36,18438,603(6.3)Selling,general and administrative expenses5,1845,0023.610,2099,7644.6Depreciation and amortization(exclusive ofdepreciation included in cost of sales)5945723.91,1771,1730.4Operating income$1,197$321273.0%$2,525$1,66751.5%RateAnalysisThree Months EndedSix Months EndedJuly 29,2023July 30,2022July 29,2023July 30,2022Gross margin rate27.0!.5&.7#.5%SG&A expense rate20.919.220.419.1Depreciation and amortization expense rate(exclusive ofdepreciation included in cost of sales)2.42.22.32.3Operating income margin rate4.81.25.03.3Note:Gross margin rate is calculated as gross margin(sales less cost of sales)divided by sales.All other rates are calculated by dividing theapplicable amount by total revenue.SalesSales include all merchandise sales,net of expected returns,and our estimate of gift card breakage.We use comparable sales to evaluatethe performance of our stores and digital channel sales by measuring the change in sales for a period over the comparable prior-year periodof equivalent length.Comparable sales include all sales,except sales from stores open less than 13 months,digital acquisitions we haveowned less than 13 months,stores that have been closed,and digital acquisitions that we no longer operate.Comparable sales measuresvary across the retail industry.As a result,our comparable sales calculation is not necessarily comparable to similarly titled measuresreported by other companies.Digitally originated sales include all sales initiated through mobile applications and our websites.Our storesfulfill the majority of digitally originated sales,including shipment from stores to guests,store Order Pickup or Drive Up,and delivery viaShipt.Digitally originated sales may also be fulfilled through our distribution centers,our vendors,or other third parties.Sales growthfrom both comparable sales and new storesrepresents an important driver of our long-term profitability.We expect thatcomparable sales growth will drive the majority of our total sales growth.We believe that our ability to successfully differentiate our guestsshopping experience through a careful combination of merchandise assortment,price,convenience,guest experience,and other factors will,over the long-term,drive both increasing shopping frequency(number of transactions,or traffic)and the amount spent each visit(averagetransaction amount).TARGET CORPORATIONQ2 2023 Form 10-Q15MANAGEMENTS DISCUSSION AND ANALYSISTable of ContentsANALYSIS OF RESULTS OF OPERATIONSComparableSalesThreeMonthsEndedSix Months EndedJuly 29,2023July 30,2022July 29,2023July 30,2022Comparable sales change(5.4)%2.6%(2.8)%3.0%Drivers of change in comparable salesNumber of transactions(traffic)(4.8)2.7(2.0)3.3Average transaction amount(0.7)0.0(0.8)(0.3)Comparable Sales by ChannelThreeMonthsEndedSix Months EndedJuly 29,2023July 30,2022July 29,2023July 30,2022Stores originated comparable sales change(4.3)%1.3%(1.8)%2.3%Digitally originated comparable sales change(10.5)9.0(7.0)6.1SalesbyChannelThreeMonthsEndedSix Months EndedJuly 29,2023July 30,2022July 29,2023July 30,2022Stores originated83.1.1.8.9%Digitally originated16.917.917.218.1Total100000%Salesby Fulfillment ChannelThreeMonthsEndedSix Months EndedJuly 29,2023July 30,2022July 29,2023July 30,2022Stores97.6.6.4.6%Other2.43.42.63.4Total100000%Note:Sales fulfilled by stores include in-store purchases and digitally originated sales fulfilled by shipping merchandise from stores to guests,Order Pickup,Drive Up,and Shipt.Sales by Product CategoryThree Months EndedSix Months EndedJuly 29,2023July 30,2022July 29,2023July 30,2022Apparel&accessories17auty&household essentials31283128Food&beverage22212321Hardlines14151415Home furnishings&dcor16181618Total100000%Note 2 to the Financial Statements provides additional product category sales information.The collective interaction of a broad array ofmacroeconomic,competitive,and consumer behavioral factors,as well as sales mix and the transfer of sales to new stores,makes furtheranalysis of sales metrics infeasible.We monitor the percentage of purchases that are paid for using RedCards(RedCard Penetration)because our internal analysis hasindicated that a meaningful portion of the incremental purchases on RedCards are also incremental sales for Target.Guests receive a 5percent discount on virtually all purchases when they use a RedCard at Target.For the three months ended July29,2023 and July30,2022,total RedCard Penetration was 18.6 percent and 20.1 percent,respectively.For the six months ended July29,2023 and July30,2022,totalRedCard Penetration was 18.8 percent and 20.2 percent,respectively.TARGET CORPORATIONQ2 2023 Form 10-Q16MANAGEMENTS DISCUSSION AND ANALYSISTable of ContentsANALYSIS OF RESULTS OF OPERATIONSGross Margin RateQuarter-to-DateYear-to-DateFor the three months ended July29,2023,our gross margin rate was 27.0 percent compared with 21.5 percent in the comparable prior-yearperiod.For the six months ended July29,2023,our gross margin rate was 26.7 percent compared with 23.5 percent in the comparable prior-year period.For both the three and six months ended July29,2023,the increase reflected the net impact ofmerchandising benefit,includinglower clearance and promotional markdown rates and other costs compared with the prior-year,which included the impact ofinventory impairments and other actions;lower freight costs;andretail price increases;lower digital fulfillment costs due to a decrease in digital volume and a shift by our guests to lower-cost same-day fulfillment options;andhigher inventory shrink.Business Environment on page 14 provides additional information.TARGET CORPORATIONQ2 2023 Form 10-Q17MANAGEMENTS DISCUSSION AND ANALYSISTable of ContentsANALYSIS OF RESULTS OF OPERATIONSSelling,General,and Administrative Expense RateFor the three months ended July29,2023,our SG&A expense rate was 20.9 percent compared with 19.2 percent for the comparable prior-year period.For the six months ended July 29,2023,our SG&A expense rate was 20.4 percent compared with 19.1 percent for thecomparable prior-year period.The increase reflected the deleveraging impact of lower sales and the net impact of cost increases across ourbusiness,including investments in team member pay and benefits.Store DataChange in Number of StoresThree Months EndedSix Months EndedJuly 29,2023July 30,2022July 29,2023July 30,2022Beginning store count1,9541,9331,9481,926Opened551112Closed(4)(1)(4)(1)Ending store count1,9551,9371,9551,937Number of Stores andNumber of StoresRetail Square Feet Retail Square FeetJuly 29,2023January 28,2023July 30,2022July 29,2023January 28,2023July 30,2022170,000 or more sq.ft.27427427348,99548,98548,79850,000 to 169,999 sq.ft.1,5341,5271,521191,947191,241190,73449,999 or less sq.ft.1471471434,4044,3584,256Total1,9551,9481,937245,346244,584243,788In thousands;reflects total square feet less office,supply chain facilities,and vacant space.Other Performance FactorsNet Interest ExpenseNet interest expense was$141 million and$288 million for the three and six months ended July29,2023,respectively,compared with$112million and$224 million in the respective comparable prior-year periods.The increase in net interest expense was primarily due to higheraverage debt levels in addition to higher floating interest rates for the three and six months ended July29,2023 compared with the prior-yearperiods.Provision for Income TaxesOur effective income tax rate for the three and six months ended July29,2023 was 22.2 percent and 21.6 percent,respectively,comparedwith 15.8 percent and 18.7 percent in the respective comparable prior-year periods.The increase reflects higher pretax earnings in thecurrent year,resulting in a smaller tax rate benefit from ongoing and discrete tax items.(a)(a)TARGET CORPORATIONQ2 2023 Form 10-Q18MANAGEMENTS DISCUSSION AND ANALYSISTable of ContentsRECONCILIATION OF NON-GAAP FINANCIAL MEASURESIndex to NotesReconciliation of Non-GAAP Financial Measures to GAAP MeasuresTo provide additional transparency,we have disclosed non-GAAP adjusted diluted earnings per share(Adjusted EPS).This metric excludescertain items presented below.We believe this information is useful in providing period-to-period comparisons of the results of ouroperations.This measure is not in accordance with,or an alternative to,U.S.GAAP.The most comparable GAAP measure is dilutedearnings per share.Adjusted EPS should not be considered in isolation or as a substitution for analysis of our results as reported inaccordance with GAAP.Other companies may calculate Adjusted EPS differently,limiting the usefulness of the measure for comparisonswith other companies.Reconciliation of Non-GAAP Adjusted EPSThree Months EndedJuly 29,2023July 30,2022(millions,except per share data)PretaxNet ofTaxPer SharePretaxNet ofTaxPer ShareGAAP and adjusted diluted earnings per share$1.80$0.39Reconciliation of Non-GAAP Adjusted EPSSix Months EndedJuly 29,2023July 30,2022(millions,except per share data)PretaxNet ofTaxPer SharePretaxNet ofTaxPer ShareGAAP diluted earnings per share$3.86$2.55AdjustmentsOther$20$15$0.03Adjusted diluted earnings per share$3.86$2.59Note:Amounts may not foot due to rounding.Other items unrelated to current period operations,none of which were individually significant.Earnings before interest expense and income taxes(EBIT)and earnings before interest expense,income taxes,depreciation,andamortization(EBITDA)are non-GAAP financial measures.We believe these measures provide meaningful information about our operationalefficiency compared with our competitors by excluding the impact of differences in tax jurisdictions and structures,debt levels,and,forEBITDA,capital investment.These measures are not in accordance with,or an alternative to,GAAP.The most comparable GAAP measureis net earnings.EBIT and EBITDA should not be considered in isolation or as a substitution for analysis of our results as reported inaccordance with GAAP.Other companies may calculate EBIT and EBITDA differently,limiting the usefulness of the measures forcomparisons with other companies.EBIT and EBITDAThreeMonthsEndedSix Months Ended(dollars in millions)July 29,2023July 30,2022ChangeJuly 29,2023July 30,2022ChangeNet earnings$835$183356.5%$1,785$1,19249.8% Provision for income taxes23734591.249127479.4 Net interest expense14111226.328822428.7EBIT$1,213$329268.8%$2,564$1,69051.8% Total depreciation and amortization 6836505.01,3501,3291.5EBITDA$1,896$97993.6%$3,914$3,01929.6%Represents total depreciation and amortization,including amounts classified within Depreciation and Amortization and within Cost ofSales.(a)(a)(a)(a)TARGET CORPORATIONQ2 2023 Form 10-Q19MANAGEMENTS DISCUSSION AND ANALYSISTable of ContentsRECONCILIATION OF NON-GAAP FINANCIAL MEASURESIndex to NotesWe have also disclosed after-tax ROIC,which is a ratio based on GAAP information,with the exception of the add-back of operating leaseinterest to operating income.We believe this metric is useful in assessing the effectiveness of our capital allocation over time.Othercompanies may calculate ROIC differently,limiting the usefulness of the measure for comparisons with other companies.After-Tax Return on Invested Capital(dollars in millions)Trailing Twelve MonthsNumeratorJuly 29,2023July 30,2022Operating income$4,706$5,773 Net other income6554EBIT4,7715,827 Operating lease interest 10288-Income taxes 9861,282Net operating profit after taxes$3,887$4,633DenominatorJuly 29,2023July 30,2022July 31,2021Current portion of long-term debt and other borrowings$1,106$1,649$1,190 Noncurrent portion of long-term debt14,92613,45311,589 Shareholders investment11,99010,59214,860 Operating lease liabilities 3,1042,8232,695-Cash and cash equivalents1,6171,1177,368Invested capital$29,509$27,400$22,966Average invested capital$28,454$25,183After-tax return on invested capital13.7.4%Represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under ouroperating leases were owned or accounted for as finance leases.Calculated using the discount rate for each lease and recorded asa component of rent expense within SG&A.Operating lease interest is added back to operating income in the ROIC calculation tocontrol for differences in capital structure between us and our competitors.Calculated using the effective tax rates,which were 20.2 percent and 21.7 percent for the trailing twelve months ended July29,2023and July 30,2022,respectively.For the trailing twelve months ended July 29,2023 and July 30,2022,includes tax effect of$1.0billion and$1.3 billion,respectively,related to EBIT and$20million and$19 million,respectively,related to operating leaseinterest.Total short-term and long-term operating lease liabilities included within Accrued and Other Current Liabilities and NoncurrentOperating Lease Liabilities,respectively.Average based on the invested capital at the end of the current period and the invested capital at the end of the comparable priorperiod.(a)(b)(c)(d)(a)(b)(c)(d)TARGET CORPORATIONQ2 2023 Form 10-Q20MANAGEMENTS DISCUSSION AND ANALYSISTable of ContentsANALYSIS OF FINANCIAL CONDITIONIndex to NotesAnalysis of Financial ConditionLiquidity and Capital ResourcesCapital AllocationWe follow a disciplined and balanced approach to capital allocation based on the following priorities,ranked in order of importance:first,wefully invest in opportunities to profitably grow our business,create sustainable long-term value,and maintain our current operations andassets;second,we maintain a competitive quarterly dividend and seek to grow it annually;and finally,we return any excess cash toshareholders by repurchasing shares within the limits of our credit rating goals.Our cash and cash equivalents balance was$1.6 billion,$2.2 billion,and$1.1 billion as of July29,2023,January28,2023,and July30,2022,respectively.Our cash and cash equivalents balance included short-term investments of$739 million,$1.3 billion,and$189 million asof July29,2023,January28,2023,and July30,2022,respectively.Our investment policy is designed to preserve principal and liquidity ofour short-term investments.This policy allows investments in large money market funds or in highly-rated direct short-term instruments thatmature in 60 days or less.We also place dollar limits on our investments in individual funds or instruments.Operating Cash FlowsCash flows provided by operating activities were$3.4 billion for the six months ended July29,2023,compared with$47 million of cash flowsrequired for operating activities for the six months ended July30,2022.For the six months ended July29,2023,operating cash flowsincreased as a result of higher net earnings and an improvement in working capital,including lower inventory levels,compared with the sixmonths ended July30,2022.InventoryInventory was$12.7 billion as of July29,2023,compared with$13.5 billion and$15.3 billion at January28,2023 and July30,2022,respectively.The decrease from the balance as of July30,2022 primarily reflects actions taken to align inventory levels with sales trends andimprovements in the supply chain,including reduced in-transit inventory.The Business Environment section on page 14 provides additional information.Investing Cash FlowsCash required for investing activities increased to$2.8 billion for the six months ended July 29,2023,compared to$2.5 billion for the sixmonths ended July 30,2022,due to capital investments.DividendsWe paid dividends totaling$499 million($1.08 per share)and$996 million($2.16 per share)for the three and six months ended July29,2023,respectively,and$417 million($0.90 per share)and$841 million($1.80 per share)for the three and six months ended July30,2022,respectively,a per share increase of 20.0 percent.We declared dividends totaling$516 million($1.10 per share)during the second quarter of2023 and$502 million($1.08 per share)during the second quarter of 2022,a per share increase of 1.9 percent.We have paid dividendsevery quarter since our 1967 initial public offering,and it is our intent to continue to do so in the future.Share RepurchaseWe did not repurchase any shares during the six months ended July29,2023.See Part II,Item 2,Unregistered Sales of Equity Securitiesand Use of Proceeds of this Quarterly Report on Form 10-Q and Note 8 to the Financial Statements for more information.TARGET CORPORATIONQ2 2023 Form 10-Q21MANAGEMENTS DISCUSSION AND ANALYSISTable of ContentsANALYSIS OF FINANCIAL CONDITIONIndex to NotesFinancingOur financing strategy is to ensure liquidity and access to capital markets,to maintain a balanced spectrum of debt maturities,and tomanage our net exposure to floating interest rate volatility.Within these parameters,we seek to minimize our borrowing costs.Our ability toaccess the long-term debt and commercial paper markets has provided us with ample sources of liquidity.Our continued access to thesemarkets depends on multiple factors,including the condition of debt capital markets,our operating performance,and maintaining strongcredit ratings.As of July29,2023,our credit ratings were as follows:CreditRatingsMoodysStandardandPoorsFitchLong-term debtA2AACommercial paperP-1A-1F1If our credit ratings were lowered,our ability to access the debt markets,our cost of funds,and other terms for new debt issuances could beadversely impacted.Each of the credit rating agencies reviews its rating periodically,and there is no guarantee our current credit ratings willremain the same as described above.We have the ability to obtain short-term financing from time to time under our commercial paper program and credit facilities.Our committed$1.0 billion 364-day and$3.0 billion unsecured revolving credit facilities that will expire in October 2023 and October 2027,respectively,backstop our commercial paper program.No balances were outstanding under either credit facility at any time during 2023 or 2022.We didnot have any balances outstanding under our commercial paper program as of July 29,2023,and we had$1.5 billion outstanding as ofJuly30,2022.Note 6 to the Financial Statements provides additional information.Most of our long-term debt obligations contain covenants related to secured debt levels.In addition to a secured debt level covenant,ourcredit facilities also contain a debt leverage covenant.We are,and expect to remain,in compliance with these covenants.Additionally,as ofJuly29,2023,no notes or debentures contained provisions requiring acceleration of payment upon a credit rating downgrade,except thatcertain outstanding notes allow the note holders to put the notes to us if within a matter of months of each other we experience both(i)achange in control and(ii)our long-term credit ratings are either reduced and the resulting rating is non-investment grade,or our long-termcredit ratings are placed on watch for possible reduction and those ratings are subsequently reduced and the resulting rating is non-investment grade.We believe our sources of liquidity,namely operating cash flows,credit facility capacity,and access to capital markets,will continue to beadequate to meet our contractual obligations,working capital and planned capital expenditures,finance anticipated expansion and strategicinitiatives,fund debt maturities,pay dividends,and execute purchases under our share repurchase program for the foreseeable future.New Accounting PronouncementsWe do not expect any recently issued accounting pronouncements to have a material effect on our financial statements.TARGET CORPORATIONQ2 2023 Form 10-Q22MANAGEMENTS DISCUSSION AND ANALYSIS&SUPPLEMENTAL INFORMATIONTable of ContentsFORWARD LOOKING STATEMENTS&CONTROLS AND PROCEDURESIndex to NotesForward-Looking StatementsThis report contains forward-looking statements,which are based on our current assumptions and expectations.These statements aretypically accompanied by the words“expect,”“may,”“could,”“believe,”“would,”“might,”“anticipates,”or similar words.The principal forward-looking statements in this report include:our financial performance,statements regarding the adequacy of and costs associated with oursources of liquidity,the funding of debt maturities,the execution of our share repurchase program,our expected capital expenditures andnew lease commitments,the expected compliance with debt covenants,the expected impact of new accounting pronouncements,ourintentions regarding future dividends,the expected return on plan assets,the expected outcome of,and adequacy of our reserves for,claims,litigation,and the resolution of tax matters,and changes in our assumptions and expectations.All such forward-looking statements are intended to enjoy the protection of the safe harbor for forward-looking statements contained in thePrivate Securities Litigation Reform Act of 1995,as amended.Although we believe there is a reasonable basis for the forward-lookingstatements,our actual results could be materially different.The most important factors which could cause our actual results to differ from ourforward-looking statements are set forth in our description of risk factors included in Part I,Item 1A,Risk Factors of our Form10-K for thefiscal year ended January28,2023,which should be read in conjunction with the forward-looking statements in this report.Forward-lookingstatements speak only as of the date they are made,and we do not undertake any obligation to update any forward-looking statement.Item 3.Quantitative and Qualitative Disclosures About Market RiskThere have been no material changes in our primary risk exposures or management of market risks from those disclosed in Part II,Item 7A,Quantitative and Qualitative Disclosures About Market Risk of our Form10-K for the fiscal year ended January28,2023.Item 4.Controls and ProceduresChanges in Internal Control Over Financial ReportingDuring the most recently completed fiscal quarter,there were no changes which materially affected,or are reasonably likely to materiallyaffect,our internal control over financial reporting.Evaluation of Disclosure Controls and ProceduresAs of the end of the period covered by this quarterly report,we conducted an evaluation,under supervision and with the participation ofmanagement,including the chief executive officer and chief financial officer,of the effectiveness of the design and operation of our disclosurecontrols and procedures pursuant to Rules13a-15 and 15d-15 of the Securities Exchange Act of 1934,as amended(Exchange Act).Basedupon that evaluation,our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effectiveat a reasonable assurance level.Disclosure controls and procedures are defined by Rules13a-15(e)and 15d-15(e)of the Exchange Act ascontrols and other procedures that are designed to ensure that information required to be disclosed by us in reports filed with the SEC underthe Exchange Act is recorded,processed,summarized,and reported within the time periods specified in the SECs rules and forms.Disclosure controls and procedures include,without limitation,controls and procedures designed to ensure that information required to bedisclosed by us in reports filed under the Exchange Act is accumulated and communicated to our management,including our principalexecutive and principal financial officers,or persons performing similar functions,as appropriate,to allow timely decisions regarding requireddisclosure.TARGET CORPORATIONQ2 2023 Form 10-Q23SUPPLEMENTAL INFORMATIONTable of ContentsIndex to NotesPARTII.OTHER INFORMATIONItem 1.Legal ProceedingsFor the quarterly period ended July29,2023,no response is required under Item 103 of Regulation S-K,nor have there been any materialdevelopments for any previously reported legal proceedings.Item 1A.Risk FactorsThere have been no material changes to the risk factors described in Part I,Item 1A,Risk Factors of our Form 10-K for the fiscal year endedJanuary28,2023.Item 2.Unregistered Sales of Equity Securities and Use of ProceedsOn August 11,2021,our Board of Directors authorized a$15 billion share repurchase program with no stated expiration.Under the program,we have repurchased 23.8million shares of common stock at an average price of$223.52,for a total investment of$5.3billion.As of July29,2023,the dollar value of shares that may yet be purchased under the program is$9.7 billion.There were no Target common stock purchasesmade during the three months ended July29,2023 by Target or any affiliated purchaser of Target,as defined in Rule 10b-18(a)(3)underthe Exchange Act.Item 3.Defaults Upon Senior SecuritiesNot applicable.Item 4.Mine Safety DisclosuresNot applicable.Item 5.Other InformationOn May 31,2023,Brian C.Cornell,Targets Chair of the Board and Chief Executive Officer,terminated a written plan for the sale of Targetcommon stock that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c)under the Exchange Act as they existed atthe time of adoption.This written plan was adopted on December 2,2022,was scheduled to expire on August 18,2023,and provided for thesale of 105,000 shares of Target common stock in the aggregate.35,000 shares of Target common stock were sold pursuant to the writtenplan prior to its termination.TARGET CORPORATIONQ2 2023 Form 10-Q24SUPPLEMENTAL INFORMATIONTable of ContentsIndex to NotesItem 6.Exhibits3.1Amended and Restated Articles of Incorporation of Target Corporation(as amended through June 9,2010)(filed asExhibit(3)A to Targets Current Report on Form 8-K on June 10,2010 and incorporated herein by reference).3.2Bylaws of Target Corporation(as amended and restated through January 11,2023)(filed as Exhibit 3.2 to TargetsCurrent Report on Form 8-K on January 12,2023 and incorporated herein by reference).31.1*Certification of the Chief Executive Officer Pursuant to Section302 of the Sarbanes-Oxley Act of 200231.2*Certification of the Chief Financial Officer Pursuant to Section302 of the Sarbanes-Oxley Act of 200232.1*Certification of the Chief Executive Officer Pursuant to 18 U.S.C.Section1350,As Adopted Pursuant to Section906 ofthe Sarbanes-Oxley Act of 200232.2*Certification of the Chief Financial Officer Pursuant to 18 U.S.C.Section1350,As Adopted Pursuant to Section906 ofthe Sarbanes-Oxley Act of 2002101.INS*Inline XBRL Instance Document101.SCH*Inline XBRL Taxonomy Extension Schema Document101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document104*Cover Page Interactive Data File(formatted as Inline XBRL and contained in Exhibit 101)*Filed herewith.*Furnished herewith.TARGET CORPORATIONQ2 2023 Form 10-Q25SUPPLEMENTAL INFORMATIONTable of ContentsIndex to NotesSIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf bythe undersigned thereunto duly authorized.TARGET CORPORATIONDated:August 25,2023By:/s/Michael J.FiddelkeMichael J.FiddelkeExecutive Vice President andChief Financial Officer(Duly Authorized Officer andPrincipal Financial Officer)/s/Matthew A.LiegelMatthew A.LiegelSenior Vice President,Chief Accounting Officerand ControllerTARGET CORPORATIONQ2 2023 Form 10-Q26Exhibit 31.1CERTIFICATION OF THE CHIEF EXECUTIVE OFFICERPURSUANT TO SECTION302 OF THE SARBANES-OXLEY ACT OF 2002CertificationsI,Brian C.Cornell,certify that:1.I have reviewed this Quarterly Report on Form10-Q of Target Corporation;2.Based on my knowledge,this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made,in light of the circumstances under which such statements were made,not misleading withrespect to the period covered by this report;3.Based on my knowledge,the financial statements,and other financial information included in this report,fairly present in all materialrespects the financial condition,results of operations and cash flows of the registrant as of,and for,the periods presented in thisreport;4.The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures(asdefined in Exchange Act Rules13a-15(e)and 15d-15(e)and internal control over financial reporting(as defined in Exchange ActRules13a-15(f)and 15d-15(f)for the registrant and have:a.designed such disclosure controls and procedures,or caused such disclosure controls and procedures to be designed underour supervision,to ensure that material information relating to the registrant,including its consolidated subsidiaries,is madeknown to us by others within those entities,particularly during the period in which this report is being prepared;b.designed such internal control over financial reporting,or caused such internal control over financial reporting to be designedunder our supervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles;c.evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures,as of the end of the period covered by thisreport based on such evaluation;andd.disclosed in this report any change in the registrants internal control over financial reporting that occurred during theregistrants most recent fiscal quarter(the registrants fourth fiscal quarter in the case of an annual report)that has materiallyaffected,or is reasonably likely to materially affect,the registrants internal control over financial reporting;and5.The registrants other certifying officer and I have disclosed,based on our most recent evaluation of internal control over financialreporting,to the registrants auditors and the audit committee of the registrants board of directors(or persons performing theequivalent functions):a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the registrants ability to record,process,summarize and report financialinformation;andb.any fraud,whether or not material,that involves management or other employees who have a significant role in theregistrants internal control over financial reporting.Dated:August 25,2023/s/Brian C.CornellBrian C.CornellChair of the Board and Chief Executive OfficerExhibit 31.2CERTIFICATION OF THE CHIEF FINANCIAL OFFICERPURSUANT TO SECTION302 OF THE SARBANES-OXLEY ACT OF 2002CertificationsI,Michael J.Fiddelke,certify that:1.I have reviewed this Quarterly Report on Form10-Q of Target Corporation;2.Based on my knowledge,this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made,in light of the circumstances under which such statements were made,not misleading withrespect to the period covered by this report;3.Based on my knowledge,the financial statements,and other financial information included in this report,fairly present in all materialrespects the financial condition,results of operations and cash flows of the registrant as of,and for,the periods presented in thisreport;4.The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures(asdefined in Exchange Act Rules13a-15(e)and 15d-15(e)and internal control over financial reporting(as defined in Exchange ActRules13a-15(f)and 15d-15(f)for the registrant and have:a.designed such disclosure controls and procedures,or caused such disclosure controls and procedures to be designed underour supervision,to ensure that material information relating to the registrant,including its consolidated subsidiaries,is madeknown to us by others within those entities,particularly during the period in which this report is being prepared;b.designed such internal control over financial reporting,or caused such internal control over financial reporting to be designedunder our supervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles;c.evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures,as of the end of the period covered by thisreport based on such evaluation;andd.disclosed in this report any change in the registrants internal control over financial reporting that occurred during theregistrants most recent fiscal quarter(the registrants fourth fiscal quarter in the case of an annual report)that has materiallyaffected,or is reasonably likely to materially affect,the registrants internal control over financial reporting;and5.The registrants other certifying officer and I have disclosed,based on our most recent evaluation of internal control over financialreporting,to the registrants auditors and the audit committee of the registrants board of directors(or persons performing theequivalent functions):a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the registrants ability to record,process,summarize and report financialinformation;andb.any fraud,whether or not material,that involves management or other employees who have a significant role in theregistrants internal control over financial reporting.Dated:August 25,2023/s/Michael J.FiddelkeMichael J.FiddelkeExecutive Vice President and Chief Financial OfficerExhibit32.1CERTIFICATION OF THE CHIEF EXECUTIVE OFFICERPURSUANT TO 18 U.S.C.SECTION1350,AS ADOPTEDPURSUANT TO SECTION906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Quarterly Report on Form10-Q of Target Corporation,a Minnesota corporation(“the Company”),for the quarter endedJuly29,2023,as filed with the Securities and Exchange Commission on the date hereof(“the Report”),the undersigned officer of theCompany certifies pursuant to 18 U.S.C.Section1350,as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002,that,to theofficers knowledge:1.the Report fully complies with the requirements of Section13(a)or 15(d)of the Securities Exchange Act of 1934;and2.the information contained in the Report fairly presents,in all material respects,the financial condition and results of operations of theCompany.Dated:August 25,2023/s/Brian C.CornellBrian C.CornellChair of the Board and Chief Executive OfficerExhibit 32.2CERTIFICATION OF THE CHIEF FINANCIAL OFFICERPURSUANT TO 18 U.S.C.SECTION1350,AS ADOPTEDPURSUANT TO SECTION906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Quarterly Report on Form10-Q of Target Corporation,a Minnesota corporation(“the Company”),for the quarter endedJuly29,2023,as filed with the Securities and Exchange Commission on the date hereof(“the Report”),the undersigned officer of theCompany certifies pursuant to 18 U.S.C.Section1350,as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002,that,to theofficers knowledge:1.the Report fully complies with the requirements of Section13(a)or 15(d)of the Securities Exchange Act of 1934;and2.the information contained in the Report fairly presents,in all material respects,the financial condition and results of operations of theCompany.Dated:August 25,2023/s/Michael J.FiddelkeMichael J.FiddelkeExecutive Vice President and Chief Financial Officer
2023-09-05
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GLENCOE Glencore Half-Year Report 2023 NEWS RELEASE Baar,8 August 2023 Glencores Chief Executive Officer,Gary Nagle,commented:“The strength of our diversified business model across industrial and marketing,focusing on metals and energy,has again proved itself adept in a range of market conditions.“Against the backdrop of a normalisation of commodity market imbalances and volatility,primarily across the energy spectrum,our Marketing and Industrial segments posted a healthy earnings performance,delivering Group Adjusted EBITDA of$9.4 billion,cash generated by operating activities of$8.4 billion and Net income attributable to equity holders of$4.6 billion.“Reflecting these solid headline earnings,together with a$3.7 billion release of net working capital,including$1.4 billion of readily marketable inventories,net funding remained static over the period,after disbursing$5.2 billion of shareholder returns,$2.5 billion of net capital expenditure and$2.7 billion of final 2022 tax payments in Australia and Colombia.Net debt finished the period at$1.5 billion.“Our shareholder returns framework of managing Net debt,in the ordinary course of business,around a$10 billion cap,with deleveraging periodically returned to shareholders,informed todays announcement of additional“top-up”returns of c.$2.2 billion,lifting total announced shareholder returns this year to c.$9.3 billion.“As the world moves towards a low-carbon economy,we remain focused on supporting the energy needs of today whilst investing in our transition metals portfolio.Over the year to date,we committed$1.25 billion,mainly on purchasing the balance of the large,long-life MARA copper project,not already held by Glencore,and acquiring a minority stake in Alunorte,a world class alumina refinery,thereby providing Glencore with long-term exposure to lower-quartile carbon alumina.“We look to the future confident that we have the right pathway to succeed in a Net-zero economy and create sustainable long-term value for all stakeholders,while operating in a responsible and ethical manner across all aspects of our business.”US$million H1 2023 H1 2022 Change 22 Key statement of income and cash flows highlights1:Revenue 107,415 134,435 (20)255,984 Adjusted EBITDA 9,397 18,918 (50)34,060 Adjusted EBIT 6,305 15,415 (59)26,657 Net income for the period attributable to equity holders 4,568 12,085 (62)17,320 Earnings per share(Basic)(US$)0.36 0.92 (61)1.33 US$million 30.06.2023 31.12.2022 Change%Key financial position highlights:Total assets 121,754 132,583 (8)Total equity 41,173 45,219 (9)Net funding2 27,533 27,500 0 Net debt2 1,542 75 1,956 Ratios:Net debt to Adjusted EBITDA3 0.06 0.00 n.m 1 Refer to basis of presentation on page 7.2 Refer to page 10.3 H1 2023 ratio based on last 12 months Adjusted EBITDA,refer to APMs section for reconciliation.Adjusted measures referred to as Alternative performance measures(APMs)which are not defined or specified under the requirements of International Financial Reporting Standards;refer to APMs section on page 73 for definitions and reconciliations and to note 3 of the financial statements for reconciliation of Adjusted EBIT/EBITDA.HIGHLIGHTS Glencore Half-Year Report 2023 Marketing Adjusted EBIT of$1.8 billion,annualising above our$2.2-3.2 billion p.a.long-term guidance range,down 52%period-on-period from last years exceptionally strong performance Industrial Assets Adjusted EBITDA of$7.4 billion,down 51%,impacted primarily by lower pricing,particularly in coal,as well as inflationary cost impacts across the asset base,much of it having lagged and been heavily influenced by the surge in energy prices during 2022.$9.4 billion Adjusted EBITDA,down 50%,reflecting the normalisation of primarily energy market imbalances and volatility from the extreme levels seen in 2022 Net income attributable to equity holders was$4.6 billion($12.1 billion in H1 2022),down 61justed EBITDA mining margins were 25%in our metals operations and 50%in our energy operations,compared to 43%and 66%respectively during H1 2022$1.25 billion of recent investment commitments in transition metals,comprising:$700 million to acquire a 30%equity stake in Alunorte and a 45%equity stake in Mineraco Rio do Norte S.A.,from Norsk Hydro;$475 million to acquire the remaining 56.25%interest in the MARA copper project,not already owned,from Pan American Silver,taking Glencore to 100%ownership;$73 million to acquire the remaining 18%in Polymet not already owned,a 50:50 JV partner in the New Range Copper Nickel venture with Teck Resources in Minnesota.After consideration of near-term cash commitments and potential M&A,period-end Net debt of$1.5 billion,supported c.$2.2 billion of“top-up”shareholder payments,lifting total 2023 announced shareholder returns to c.$9.3 billion.This additional return will be effected by way of a c.$1 billion($0.08 per share)special cash distribution and a new$1.2 billion buyback programme intended to run until release of our full year results in February 2024.The special cash distribution of$0.08 per share will be paid alongside the$0.22 per share second tranche of the cash distribution announced in February 2023 Available committed liquidity of$12.9 billion;bond maturities maintained around a cap of$3 billion in any given year In June 2023,Glencore agreed to dispose of its interest in Viterra in a cash and shares transaction with Bunge.For its 50%stake,Glencore will receive$1.0 billion in cash and c.$3.1 billion in Bunge stock(basis Bunges stock price at the date of announcement,but worth c.$3.8 billion(up 23%)as of 4 August 2023).The merger is expected to close in mid-2024.Spot illustrative annualised free cash flow generation of c.$7.3 billion from Adjusted EBITDA of c.$17.4 billion Shareholders gave broad support for the progress of our Climate Action Transition Plan at the 2023 AGM,with c.70%voting in favour We recognise that some shareholders chose not to support this resolution and we will continue to engage with shareholders so as to ensure their views are fully understood We will publish an update on this engagement,in accordance with the UK Corporate Governance Code,within six months of the 2023 AGM For further information please contact:Investors Martin Fewings t: 41 41 709 2880 m: 41 79 737 5642 Media Charles Watenphul t: 41 41 709 2462 m: 41 79 904 3320 Glencore LEI:2138002658CPO9NBH955 Please refer to the end of this document for disclaimers including on forward-looking statements.HIGHLIGHTS Glencore Half-Year Report 2023 Notes for Editors Glencore is one of the worlds largest global diversified natural resource companies and a major producer and marketer of more than 60 commodities that advance everyday life.Through a network of assets,customers and suppliers that spans the globe,we produce,process,recycle,source,market and distribute the commodities that support decarbonisation while meeting the energy needs of today.With around 140,000 employees and contractors and a strong footprint in over 35 countries in both established and emerging regions for natural resources,our marketing and industrial activities are supported by a global network of more than 40 offices.Glencores customers are industrial consumers,such as those in the automotive,steel,power generation,battery manufacturing and oil sectors.We also provide financing,logistics and other services to producers and consumers of commodities.Glencore is proud to be a member of the Voluntary Principles on Security and Human Rights and the International Council on Mining and Metals.We are an active participant in the Extractive Industries Transparency Initiative.We recognise our responsibility to contribute to the global effort to achieve the goals of the Paris Agreement by decarbonising our own operational footprint.We believe that we should take a holistic approach and have considered our commitment through the lens of our global industrial emissions.Against a 2019 baseline,we are committed to reducing our Scope 1,2 and 3 industrial emissions by 15%by the end of 2026,50%by the end of 2035 and we have an ambition to achieve net zero industrial emissions by the end of 2050.For more detail see our 2022 Climate Report on the publication page of our website at Half-Year Report 2023 Following 2022,a year characterised by extreme global geopolitical and economic turbulence,generating extraordinary energy market dislocation,volatility,supply disruption and record prices for many coal and gas benchmarks,2023 has,for the most part,seen energy trade flows rebalance and normalise,with coal,oil and gas prices materially declining over H1 2023.In addition to the significant weakening in energy markets,the recent overall cycle of inflation,tighter monetary conditions and limited global economic growth,contributed to average period-over-period price reductions in copper,cobalt,nickel and zinc of 11%,59%,13%and 26%respectively.While lower energy prices have recently tempered some of the inflationary pressures in key Western markets,the restart of previously shuttered energy-intensive industries,including some steel,zinc and aluminium production,has been limited by weak end-user markets,particularly in Europe.At the same time,the reopening of China,following the lifting of Covid restrictions in late 2022,accelerated demand from domestic consumer sectors through Q2 2023,which together with continued investment in infrastructure and the energy transition,somewhat neutralised the persistent weakness in the property market,keeping Chinas base metals demand positive and visible inventories low.Against the backdrop of a normalisation of commodity market imbalances and volatility,earnings from our Marketing and Industrial segments fell,reducing Group Adjusted EBITDA to$9.4 billion,down 50%period-on-period.Net income before significant items declined 61%to$4.2 billion,while significant items,largely reflecting a gain on the sale of Cobar,increased Net Income attributable to equity holders to$4.6 billion.Marketing,nonetheless,posted a robust result,with Adjusted EBIT of$1.8 billion,annualising above our$2.2-3.2 billion p.a.long-term guidance range,albeit it was 52low last years exceptionally strong performance.The more subdued energy market environment saw Adjusted EBIT from Energy Products fall 66%to$1.0 billion,while Metals and Minerals Adjusted EBIT fell 18%to$0.8 billion,in line with the generally weaker macroeconomic sentiment.Industrial Adjusted EBITDA declined 51%to$7.4 billion for the period,impacted primarily by lower pricing,particularly in coal,as well as inflationary cost impacts across the asset base,much of it having lagged and been heavily influenced by the surge in energy prices during 2022.Coal Adjusted EBITDA decreased 49%to$4.5 billion,while significantly weaker gas markets were largely responsible for a 77%reduction in Oil Adjusted EBITDA to$131 million.Similarly in our industrial metals,weaker period-on-period prices were largely responsible for a 48cline in Adjusted EBITDA to$3.1 billion,with realised cobalt hydroxide pricing,being particularly weak.Lower production was also a factor,including mine sequencing at Collahuasi and the impact of last years Raglan strike on own-source refined nickel production during the period,with both operations expected to strongly recover in H2.Associated with the return to more normal commodity markets and volatility levels,the prior period required investment in net working capital was partially released,whereby non-RMI net working capital recorded an inflow of$2.2 billion over the half,primarily reflecting a$2.1 billion reduction in net initial margin calls and$1.1 billion of lower net physical forward commodity contract valuations,all primarily due to lower energy prices(oil,gas,coal),less the final amount of$0.5 billion paid in respect of the DOJ resolutions and a$0.9 billion reduction in deferred income.These various inflows were sufficient to settle$2.7 billion,due in H1 2023,in respect of 2022 final income tax payments in Australia and Colombia,fund$2.5 billion of net capital expenditure and$5.2 billion of shareholder distributions and buybacks,such that net funding was largely flat over the period.Due to a$1.4 billion reduction in RMI,net debt increased from$0.1 billion to$1.5 billion.Our shareholder returns framework of managing Net debt,in the ordinary course of business,around a$10 billion cap,with deleveraging,after the base distribution,periodically returned to shareholders,informs our announcement of additional“top-up”returns of c.$2.2 billion,lifting total shareholder returns this year to c.$9.3 billion.This“top-up”payment will be effected by way of a c.$1 billion($0.08 per share)special distribution and a new$1.2 billion buyback programme intended to run until the release of our full year results in February 2024.The special distribution of$0.08 per share will be paid alongside the second tranche of the 2022 distribution,lifting the total payment to$0.30 per share on 22 September.At our 2023 AGM,shareholders gave broad support for the progress of our 3-year Climate Action Transition Plan,with c.70%voting in favour,recognising the importance of maintaining a strategy that remains resilient to the risks and opportunities of the evolving energy transition,along with encouragement to continue our focus on progressing towards our ambition of achieving net zero industrial emissions by 2050.We recognise that some shareholders chose not to support this resolution and we will continue to engage with shareholders so as to ensure their views are fully understood.We will publish an update on this engagement,in accordance with the UK Corporate Governance Code,within six months of the 2023 AGM.CHIEF EXECUTIVE OFFICERS REVIEW Glencore Half-Year Report 2023 We recognise our ongoing responsibility to not only deliver financial performance but also make a positive contribution to society and create lasting benefits for stakeholders in a manner that is responsible,transparent and respects the rights of all.The implementation of our relaunched SafeWork framework in mid-2021 has been a key focus for our industrial assets and commodity departments.Good progress has been made Group-wide,but I am saddened to report that we recorded the loss of one life at Glencores managed operations over the year to date.We believe that consistent application and reinforcement of our SafeWork framework,through strong visible leadership,can drive and deliver the safety culture and operating discipline we are looking for,and get all our people home safe.Aligned with our business strategy of supporting the energy needs of today,whilst investing in our transition metals portfolio,we are of the view that the likely scale and pace of global mine project development,in certain critical minerals,will struggle to meet the commodity demand that the transition is expected to create and require.Glencore is well placed to participate in bridging this gap in supply through the flexibility that exists in our business to respond to global needs.We are directing most of our capital expenditure,in large part funded through the earnings of our energy business,towards development of our transition metals portfolio.Although the following transactions still require final approvals,during the year to date we concluded an agreement with Norsk Hydro to acquire a 30%equity stake in Alunorte and a 45%equity stake in Mineraco Rio do Norte S.A,securing lower-quartile carbon alumina units for our Marketing business.In copper,we agreed to acquire Pan American Silvers 56.25%interest in the large MARA brownfield copper project in Argentina,taking Glencores stake to 100%,and we also agreed to acquire the remaining minorities(c.18%),in Polymet,being the 50:50 JV partner in the New Range Copper Nickel venture with Teck Resources in Minnesota.On a more transformational scale,we approached Teck Resources in late March with a proposal to merge Glencore and Teck to create,via a demerger,two leading standalone businesses:MetalsCo:a world-class standalone transition metals focused business,comprising Glencores and Tecks metals and minerals assets,Glencores metals and energy(excluding coal)marketing,recycling and distribution businesses;and CoalCo:a highly cash-generative standalone coal and carbon steel materials business comprising Glencores and Tecks coal assets,Glencores ferroalloys assets and Glencores coal and ferroalloys marketing businesses.Our proposal for the merger of the two companies was rejected by Teck and,while we remain willing to pursue the above merger-demerger,we have submitted an alternative proposal to acquire Tecks steelmaking coal business(“EVR”)for cash,to allow for a value accretive demerger of the combined coal and carbon steel materials business(“CoalCo”).If such a transaction were to materialise,Glencore would demerge CoalCo,once Glencore has sufficiently delevered,which is expected approximately 12-24 months from close.In this regard,Glencore would manage its post-demerger balance sheet,post servicing its formulaic base distribution,to a revised c.US$5 billion net debt cap,down from the current level of c.US$10 billion,alongside our continued commitment to minimum strong BBB/Baa ratings.In the calculation of“top-up”shareholder returns for the current period,we positioned for an amount of$2.0 billion towards such potential transaction,as a reasonable balance between rewarding shareholders today,and ensuring that the company is appropriately capitalised to seamlessly effect an EVR transaction and allow for the subsequent demerger of CoalCo as soon as practicable.Glencore is fully committed to ensuring that a transaction with Teck would benefit Canada and is open to working with Teck to identify a comprehensive suite of commitments for the benefit of all relevant stakeholders.Furthermore,in June 2023,Glencore,Canada Pension Plan Investment Board and British Columbia Investment Management Corporation(collectively the JV partners in Viterra),concluded an agreement to merge Viterra with Bunge in a cash and stock transaction to create a premier diversified global agribusiness solutions company.For its 50%stake,Glencore will receive$1.0 billion in cash and c.$3.1 billion in Bunge stock(basis Bunges stock price at the date of announcement,but worth c.$3.8 billion(up 23%)as of 4 August 2023).The merger is expected to close in mid-2024.Glencore continues to cooperate with the previously disclosed and ongoing investigation by the Office of the Attorney General of Switzerland into Glencore International AG for failure to have the organisational measures in place to prevent alleged corruption and an investigation of similar scope by the Dutch Public Prosecution Service.The timing and outcome of these investigations remain uncertain.The independent compliance monitors mandated under our resolutions with the DOJ have been appointed and commenced their work.We look forward to working with them co-operatively and constructively as they review our Ethics and Compliance programme.CHIEF EXECUTIVE OFFICERS REVIEW Glencore Half-Year Report 2023 Moderating inflation and supportive government policy in China across key end-user sectors,are bringing a more positive macroeconomic backdrop in H2 2023.Low metal inventories,higher production costs,geopolitical uncertainty and energy transition demand are all supportive of above-average real-term prices through the cycle and into the longer term.The strength of our diversified business model across industrial and marketing,focusing on metals and energy,has proved itself adept in a range of market conditions,giving us a solid foundation to successfully navigate the near-term macroeconomic uncertainty,as well as meet the resource needs of the future.I would like to thank all our employees for their efforts and significant contribution during the first half.As always,we remain focused on operating responsibly and ethically and creating sustainable long-term value for all our stakeholders.Gary Nagle Chief Executive Officer Glencore Half-Year Report 2023 The financial information in the Financial and Operational Review is presented on a segmental measurement basis,including all references to revenue(see note 3)and has been prepared on the basis as outlined in note 2 of the condensed consolidated interim financial statements,with the exception of the accounting treatment applied to relevant material associates and joint ventures for which Glencores attributable share of revenues and expenses are presented.In addition,the Peruvian listed Volcan,while a subsidiary of the Group,is accounted for using the equity method for internal reporting and analysis due to the relatively low economic interest(23%)held by the Group.The Groups results are presented on an“adjusted”basis,using alternative performance measures(APMs)which are not defined or specified under the requirements of IFRS,but are derived from the financial statements,prepared in accordance with IFRS,reflecting how Glencores management assesses the performance of the Group.The APMs are provided in addition to IFRS measures to aid in the comparability of information between reporting periods and segments and to aid in the understanding of the activities taking place across the Group by adjusting for Significant items and by aggregating or disaggregating(notably in the case of relevant material associates and joint ventures accounted for on an equity basis)certain IFRS measures.APMs are also used to approximate the underlying operating cash flow generation of the operations(Adjusted EBITDA).Significant items(see reconciliation below)are items of income and expense,which,due to their nature and variable financial impact or the expected infrequency of the events giving rise to them,are separated for internal reporting,and analysis of Glencores results,to aid in providing an understanding and comparative basis of the underlying financial performance.APMs used by Glencore may not be comparable with similarly titled measures and disclosures by other companies.APMs have limitations as an analytical tool,and a user of the financial statements should not consider these measures in isolation from,or as a substitute for,analysis of the Groups results of operations;and they may not be indicative of the Groups historical operating results,nor are they meant to be a projection or forecast of its future results.Alternative performance measures are denoted by the symbol and are further defined and reconciled to the underlying IFRS measures in the APMs section on page 73.Select average commodity prices Spot 30 Jun 2023 Spot 31 Dec 2022 Average H1 2023 Average H1 2022 Change in average%S&P GSCI Industrial Metals Index 408 451 443 534 (17)S&P GSCI Energy Index 245 288 258 350 (26)LME(cash)copper price($/t)8,322 8,365 8,709 9,759 (11)LME(cash)zinc price($/t)2,382 3,003 2,839 3,819 (26)LME(cash)lead price($/t)2,144 2,337 2,127 2,261 (6)LME(cash)nickel price($/t)20,346 29,886 24,185 27,659 (13)Gold price($/oz)1,919 1,824 1,934 1,876 3 Silver price($/oz)23 24 23 23 Fastmarkets cobalt standard grade,Rotterdam($/lb)(low-end)14 19 15 37 (59)Ferro-chrome 50%Cr import,CIF main Chinese ports,contained Cr(/lb)101 100 106 116 (9)Iron ore(Platts 62R North China)price($/DMT)109 112 112 130 (14)Coal API4($/t)100 185 129 277 (53)Coal Newcastle(6,000)($/t)138 399 204 321 (36)Oil price Brent($/bbl)75 86 80 102 (22)Currency table Spot 30 Jun 2023 Spot 31 Dec 2022 Average H1 2023 Average H1 2022 Change in average%AUD:USD 0.67 0.68 0.68 0.72 (6)USD:CAD 1.32 1.36 1.35 1.27 6 EUR:USD 1.09 1.08 1.08 1.10 (2)GBP:USD 1.27 1.20 1.23 1.30 (5)USD:CHF 0.90 0.92 0.91 0.94 (3)USD:KZT 451 463 452 450 USD:ZAR 18.85 17.04 18.22 15.40 18 FINANCIAL AND OPERATIONAL REVIEW Glencore Half-Year Report 2023 Following 2022,a year characterised by extreme global macroeconomic and geopolitical events resulting in extraordinary energy market dislocation,volatility,risk,supply disruptions and record prices for various coal and gas benchmarks,2023 has,for the most part,seen international energy trade flows rebalance and normalise,with coal,oil and gas prices materially declining.In this context,income for the period attributable to equity holders decreased from$12,085 million in H1 2022 to$4,568 million in H1 2023 and EPS decreased from$0.92 per share to$0.36 per share.Further to such vastly different energy environment,the recent cycle of inflation,tighter monetary conditions and limited Chinese economic growth,contributed to average period-over-period price reductions in copper,cobalt,nickel and zinc of 11%,59%,13%and 26%respectively.Overall,largely reflecting the lower commodity prices and market volatility,Adjusted EBITDA was$9,397 million and Adjusted EBIT was$6,305 million in H1 2023,decreases of 50%and 59%respectively compared to H1 2022.The H1 2023 Adjusted EBIT contribution from the Marketing segment was$1,773 million,a decrease of 52%from the record H1 2022 period,reflecting the return to a more stable market environment,following the extreme market volatility levels,dislocations and complexities exhibited during H1 2022.The Adjusted EBITDA contribution from the Industrial segment was$7,410 million,a decrease of 51%period-over-period,largely due to lower coal prices,where average Newc and API4 index prices were down 36%and 53%respectively from H1 2022.In Metals,cobalt metal pricing and low payabilities for cobalt hydroxides weighed heavily on our African Copper operations,while own source production was lower at INO(nickel)and Collahuasi(copper)due,respectively,to a lengthy prior year strike and mine phasing,with both operations expected to strongly recover in H2.Furthermore,the lag effect of 2022s continuing higher inflation reads,ultimately significantly impacted H1 2023s period-over-period earnings,although we are seeing these cost headwinds now moderating.Adjusted EBITDA mining margins were 25%in our metal operations and 50%in our energy operations,compared to 43%and 66%respectively during H1 2022.See pages 19 and 20.Adjusted EBITDA/EBIT Adjusted EBITDA by business segment is as follows:H1 2023 H1 2022 US$million Marketing activities Industrial activities Adjusted EBITDA Marketing activities Industrial activities Adjusted EBITDA Change%Metals and minerals 833 3,056 3,889 1,013 5,877 6,890 (44)Energy products 1,193 4,658 5,851 3,177 9,465 12,642 (54)Corporate and other1 (39)(304)(343)(303)(311)(614)(44)Total 1,987 7,410 9,397 3,887 15,031 18,918 (50)Adjusted EBIT by business segment is as follows:H1 2023 H1 2022 US$million Marketing activities Industrial activities Adjusted EBIT Marketing activities Industrial activities Adjusted EBIT Change%Metals and minerals 803 1,301 2,104 985 3,969 4,954 (58)Energy products 1,009 3,557 4,566 2,986 8,124 11,110 (59)Corporate and other1 (39)(326)(365)(303)(346)(649)(44)Total 1,773 4,532 6,305 3,668 11,747 15,415 (59)1 Corporate and other Marketing activities includes$132 million pre-significant items(2022:$284 million)of Glencores equity accounted share of Viterra.Marketing activities Marketing delivered strong results,in a return to a more normal backdrop,following the elevated levels of market volatility,disruption and rapidly changing global commodity flows which characterised much of H1 2022.Such rebalancing and calming of markets can be seen in our lower reported VaR levels,discussed below.Marketing Adjusted EBITDA and EBIT,at$1,987 million and$1,773 million respectively,were lower by 49%and 52%compared to H1 2022,mainly driven by our oil and gas departments exceptionally high base period.Metals and minerals Adjusted EBIT was down 18%over H1 2022,largely reflecting the negative economic headwinds stemming from slowing global growth,inflationary pressures,central bank interest rate rises,and only limited growth in the key Chinese market.During the period,agricultural markets also saw relatively more stable conditions compared to H1 2022,albeit market volatilities were still elevated.Our 50%share of earnings(captured within Corporate and Other)was$132 million(post-interest and tax and pre-significant items)compared to$284 million in the comparable period.In June 2023,Glencore agreed to dispose of its interest in Viterra in a cash-and-shares transaction with Bunge(see note 16).Industrial activities Industrial Adjusted EBITDA declined by 51%to$7,410 million(Adjusted EBIT was$4,532 million,compared to$11,747 million in 2022),driven by a$4.4 billion lower contribution from our Coal operations,owing to the substantial average period-over-period decreases in key pricing benchmarks,as well as markedly lower cobalt hydroxide realisations,some temporary constraints on own source production in H1,and significant inflationary cost pressures as noted above.FINANCIAL AND OPERATIONAL REVIEW Glencore Half-Year Report 2023 Earnings A summary of the differences between reported Adjusted EBIT and income attributable to equity holders,including significant items,is set out in the following table:US$million H1 2023 H1 2022 Adjusted EBIT 6,305 15,415 Net finance and income tax expense in relevant material associates and joint ventures1 (269)(366)Proportionate adjustment Volcan1 91 70 Net finance costs (839)(596)Income tax expense2 (1,364)(3,633)Non-controlling interests 281 (41)Income attributable to equity holders of the Parent pre-significant items 4,205 10,849 Earnings per share(Basic)pre-significant items(US$)3 0.33 0.82 Significant items Share of Associates significant items4 (79)Movement in unrealised inter-segment profit elimination5 176 488 Gain on acquisitions and disposals of non-current assets6 679 1,463 Other expense net7 (18)(502)(Impairments)/reversal of impairments8 (47)40 Income tax expense2 (367)(284)Non-controlling interests share of significant items9 19 31 Total significant items 363 1,236 Income attributable to equity holders of the Parent 4,568 12,085 Earnings per share(Basic)(US$)0.36 0.92 1 Refer to note 3 of the interim financial statements and to APMs section for reconciliations.2 Refer to other reconciliations section for the allocation of the total income tax expense between pre-significant and significant items.3 Based on weighted average number of shares,refer to note 18 of the interim financial statements.4 Recognised within share of income from associates and joint ventures,see note 3 of the interim financial statements.5 Recognised within cost of goods sold,see note 3 of the interim financial statements.6 Refer to note 5 of the interim financial statements and to APMs section for reconciliations.7 Recognised within other income/(expense)net,see note 6 of the interim financial statements and to APMs section for reconciliations.8 Refer to note 8 of the interim financial statements and to APMs section for reconciliations.9 Recognised within non-controlling interests,refer to APMs section.Significant items Significant items are items of income and expense,which,due to their nature and variable financial impact or the expected infrequency of the events giving rise to them,are separated for internal reporting,and analysis of Glencores results,to aid in providing an understanding and comparative basis of the underlying financial performance.In H1 2023,Glencore recognised a net income,after tax and non-controlling interests,of$363 million(2022:$1,236 million)in significant items comprised primarily of:Movement in unrealised inter-segment profit elimination of$176 million(2022:$488 million).See note 3.Gain on acquisitions and disposals of non-current assets of$679 million(2022:$1,463 million),primarily related to the disposal of Cobar in June 2023.The 2022 gain resulted from the acquisition of the remaining 66.67%interest in Cerrejn($1,029 million)and the disposal of Ernest Henry($512 million).See note 5.Other net income/(expense)net expense of$18 million(2022:$502 million)see note 6.Balance primarily comprises:$190 million(2022:net losses of$290 million)of net foreign exchange gains,whereby 2022 primarily related to realised foreign currency losses,recycled from other comprehensive income,recognised on intragroup restructuring.$81 million(2022:$153 million)relating to various legal matters and related costs(legal,expert and compliance),including in respect of the various investigations(see note 28).$87 million(2022:gain of$41 million)of mark-to-market losses on equity investments/derivative positions accounted for as held for trading,including the commodity price linked deferred consideration related to the sale of Mototolo in 2018 and the ARM Coal non-discretionary dividend obligation.$Nil(2022:$83 million)of closed site rehabilitation provisioning,being the movements in restoration,rehabilitation and decommissioning estimates related to sites that are no longer operational.Impairments of$47 million(2022:reversal of impairments of$40 million),see note 8.The current period charge relates to advances and loans,with no individually material item.The 2022 various impairment reversals resulted from significantly improved conditions in the oil and gas markets,particularly over the short-term,none of which were individually material.Income tax expenses of$367 million(2022:$284 million)see income taxes below.FINANCIAL AND OPERATIONAL REVIEW Glencore Half-Year Report 2023 Net finance costs Net finance costs were$839 million during H1 2023,up$243 million(27%)compared to$596 million in the comparable reporting period.Interest expense for 2023 was$1,160 million,up 58%compared to H1 2022,due to higher average base floating rates(mainly SOFR).Interest income was$321 million,up from$140 million in H1 2022,due also to higher average base rates.Income taxes An income tax expense of$1,731 million was recognised during H1 2023,compared to an expense of$3,917 million during H1 2022.Adjusting for$367 million of income tax expenses(2022:$284 million)relating to significant items(primarily on account of foreign exchange fluctuations and tax losses not recognised),the H1 2023 pre-significant items income tax expense was$1,364 million(2022:$3,633 million).The 2023 calculated effective tax rate,pre-significant items,was 31.9%,compared to 27.9%in H1 2022.Current and non-current assets Total assets were$121,754 million as at 30 June 2023,compared to$132,583 million as at 31 December 2022.Current assets decreased from$69,223 million to$62,833 million,due primarily to a decrease in inventories,trade receivables,fair values of our physical forward contracts and derivative hedging instruments(other financial assets),as well as margin calls paid in respect of the Groups hedging activities,all on account of lower commodity prices at period end relative to 31 December 2022.Non-current assets decreased from$63,360 million to$58,921 million,primarily due to the reclassification of the investment in Viterra($3.8 billion)to assets held for sale(see note 16),following the announcement of an agreed disposal of this business,and a net decrease in property,plant and equipment with capital expenditure over the period being below depreciation and amortisation expense.Current and non-current liabilities Total liabilities were$80,581 million as at 30 June 2023,compared to$87,364 million as at 31 December 2022.Current liabilities decreased from$53,420 million to$46,643 million,primarily due to a decrease in fair values of our physical forward contracts and derivative hedging instruments(other financial liabilities),on account of the lower energy related commodity prices noted above,income tax payable,following the settlement of 2022 income tax accruals notably in Australia and Colombia,provisions(final payment of the DOJ resolutions see note 22)and a decrease in current borrowings(see note 20).Non-current liabilities as at period end were$33,944 million,consistent with the prior year.Movements relating to current and non-current borrowings are set out below in the net funding and net debt movement reconciliation and in note 20.Equity Total equity was$41,173 million as at 30 June 2023,compared to$45,219 million as at 31 December 2022,the movements being primarily the income for the period of$4,268 million,including non-controlling interests and a decrease in other comprehensive income noted below,offset by$8,028 million of approved shareholder distributions and buybacks concluded during the period.Other comprehensive income/(loss)A loss of$285 million was recognised during H1 2023,compared to an loss of$641 million during H1 2022,relating to net mark-to-market losses of$13 million(2022:$1,139 million)with respect to various minority investments(see note 12)and foreign exchange translation loss of foreign operations of$315 million(2022:$188 million loss),primarily our South African ZAR-denominated subsidiaries,offset by foreign exchange losses recycled to the statement of income of$Nil(2022:$509 million)and net defined benefit plan remeasurements of$31 million(2022:$115 million).Cash flow and net funding/debt Net funding US$million 30.06.2023 31.12.2022 Total borrowings as per financial statements 28,662 28,777 Proportionate adjustment net funding2 734 646 Cash and cash equivalents (1,863)(1,923)Net funding 27,533 27,500 FINANCIAL AND OPERATIONAL REVIEW Glencore Half-Year Report 2023 Cash and non-cash movements in net funding US$million H1 2023 H1 2022 H2 2022 Cash generated by operating activities before working capital changes 8,408 18,290 14,625 Proportionate adjustment Adjusted EBITDA1 1,011 1,236 1,166 Non-cash adjustments included within EBITDA 24 11 24 Net interest paid1 (631)(465)(604)Tax paid1 (5,462)(3,735)(2,169)Dividends received from associates1 362 88 471 Funds from operations 3,712 15,425 13,513 Net working capital changes2 3,651 (8,725)(4,758)Increase in long-term advances and loans (200)Acquisition and disposal of subsidiaries net2 571 762 (153)Purchase and sale of investments net2 (33)(164)292 Purchase and sale of property,plant and equipment net2 (2,478)(2,044)(2,499)Margin receipts/(payments)in respect of financing related hedging activities 258 (1,389)(435)Proceeds received on acquisition of non-controlling interests in subsidiaries 9 Distributions paid and transactions of own shares net (5,181)(2,164)(5,375)Cash movement in net funding 509 1,501 585 Net funding acquired in business combinations (6)(20)Change in lease obligations (341)(149)(230)Foreign currency revaluation of borrowings and other non-cash items (195)1,518 132 Total movement in net funding (33)2,850 487 Net funding,beginning of period (27,500)(30,837)(27,987)Net funding,end of period (27,533)(27,987)(27,500)Less:Readily marketable inventories1 25,991 25,679 27,425 Net debt,end of period (1,542)(2,308)(75)1 Refer to APMs section for definition and reconciliations.2 Refer to Other reconciliations section.The reconciliation in the table above is the method by which management reviews movements in net funding and net debt and comprises key movements in cash and any significant non-cash items.Net funding as at 30 June 2023 was$27,533 million,consistent with the prior year and net debt(net funding less readily marketable inventories)increased by$1.5 billion over the period to$1,542 million.Funds from operations were$3,712 million,heavily constrained by the lag effect of settlement in H1 2023,of 2022 final income tax payments,most notably in Australia($1.8 billion)and Colombia($0.9 billion),due to the high coal concentrated industrial earnings in 2022.RMI reduced by$1.4 billion,while$2.2 billion of net non-RMI working capital inflows were realised during the period,mainly on account of a$2.1 billion reduction in net initial margin calls and lower net physical forward commodity contract valuations of$1.1 billion,all due primarily to lower energy prices(oil,gas,coal),less the final amount of$0.5 billion paid in respect of the DOJ investigations and a$0.9 billion reduction in deferred income.These various inflows countered$2,478 million of net capital expenditure and$5,181 million of shareholder distributions and buybacks,such that net funding was largely flat over the period,with a$1.5 billion increase in net debt to$1,542 million.Business and investment acquisitions and disposals Net inflows from business acquisitions were$547 million over the period,compared to an inflow of$598 million in H1 2022,mainly comprising proceeds from the sale of Cobar($761 million),offset by the purchase of the remaining 75%interest,not previously owned,in the Noranda Income Fund(Canadian electrolytic zinc refinery)for$199 million(including assumed debt).The net inflow in 2022 comprised proceeds from the sale of Ernest Henry for$584 million(see note 24).Liquidity and funding activities In April 2023(effective May 2023),Glencore refinanced its core short-and medium-term revolving credit facilities.As at 30 June 2023,the overall facilities comprise:$9,060 million one-year revolving credit facility with a one-year borrowers term-out option(to May 2025);and$3,900 million medium-term revolving credit facility(to May 2028).As in previous years,these committed unsecured facilities contain no financial covenants,no rating triggers,no material adverse change clauses and no external factor clauses.As at 30 June 2023,Glencore had available committed liquidity amounting to$12,926 million(31 December 2022:$13,000 million).In light of the Groups extensive funding activities,maintaining investment grade credit rating status is a financial priority.The Groups credit ratings are currently Baa1(positive outlook)from Moodys and BBB (positive outlook)from Standard&Poors.Glencores publicly stated objective,as part of its overall financial policy package,is to seek and maintain a minimum of strong Baa/BBB credit ratings from Moodys and Standard&Poors respectively.In support thereof,Glencore targets a maximum 2x Net debt/Adjusted EBITDA ratio through the cycle,augmented by a Net debt cap of c.$10 billion.FINANCIAL AND OPERATIONAL REVIEW Glencore Half-Year Report 2023 The Group is exposed to a number of risks and uncertainties in its business which could impact its ability to effectively execute its strategy over the remaining six months of the year and cause actual results to differ materially from expected and/or historical results.The Directors consider that the principal risks and uncertainties as summarised below and detailed in the Glencore 2022 Annual Report on pages 89 to 103,available at ,remain appropriate for the remainder of 2023,when read together with the information provided in this report.Being a resources company,we are subject to the inherent risk of sustained low prices for our main commodities,particularly affecting our Industrial business.The revenue and earnings of substantial parts of our Industrial asset activities and,to a lesser extent,our Marketing activities,are dependent upon prevailing commodity prices.Liquidity risk is the risk that we are unable to meet our payment obligations when due,or are unable,on an ongoing basis,to borrow funds in the market at an acceptable price to fund our commitments.This affects us as a global company usually selling in US dollars but having costs in a large variety of other currencies.We are subject to the risk of non-performance by our suppliers,customers,and hedging counterparties,in particular via our Marketing activities.We control and operate assets in many countries across the globe,some of which are categorised as developing,complex or having unstable political or social environments.As a result,we are exposed to a wide range of political,economic,regulatory,social and tax environments.Regulatory regimes applicable to resource companies can often be subject to adverse and short-term changes.We are exposed to extensive laws and regulations,including those relating to bribery and corruption,sanctions,taxation,anti-trust,financial markets regulation and rules,environmental protection,use of hazardous substances,product safety and dangerous goods regulations,post-closure reclamation,employment of labour and occupational health and safety standards.In addition,there are a number of high expectations regarding the need to act ethically in our business and we are exposed to the risk that unethical business practices may,by themselves,harm our ability to engage with certain business partners,and/or give rise to questions whether we are committed to complying with applicable laws.The ever-increasing reliance on digital technologies has brought with it a corresponding rise in cyber-related risks,ranging from the proliferation of ransomware to nation-state activity and the monetisation of cybercrime.Our industrial production,operations,environmental management,health and safety management,communications,transaction processing,and risk management all rely on information technologies,while our long supply chains involve numerous third parties that are exposed to the same cyber risks.Industrial operations are inherently hazardous.The success of Glencores business is dependent on a safe and healthy workforce and work environment.Our operations around the world can have direct or indirect impacts on the environment and host communities.Our ability to manage and mitigate these may impact maintenance of our operating licences as well as affect future projects,acquisitions and our reputation.FINANCIAL AND OPERATIONAL REVIEW Glencore Half-Year Report 2023 We have a geographically diverse business,operating in both developed and developing countries in an array of different contexts.A perception that we are not respecting human rights or generating local sustainable benefits could have a negative impact on our ability to operate effectively,our reputation with stakeholders,our ability to secure access to new resources,our capacity to attract and retain the best talent and ultimately,our financial performance.Catastrophic or natural disaster events at our industrial assets can have disastrous impacts on workers,communities and the environment,while also impacting production and resulting in substantial financial costs and harm to our reputation.These events may arise due to natural causes(flood,earthquake,drought)or due to infrastructure or equipment failure(tailing storage facility failure),or both.Climate change may increase physical risks to our assets and related infrastructure,largely driven from extreme weather events and water-related risks such as flooding or water scarcity.Our industrial activities are subject to significant risks throughout each operations life cycle,from project planning through initiation,development,operation and/or expansion and ultimate closure.The global transition to a low-carbon economy may affect our business through regulations to reduce emissions,carbon pricing mechanisms,reduced access to capital,permitting risks and fluctuating energy costs,as well as changing demand for the commodities we produce and market.As at 30 June 2023,Glencore had available committed liquidity amounting to$12,926 million.Based on these available liquidity resources and the Groups financial forecasts and projections,which take into account reasonably possible changes in performance and consideration of the principal risks and uncertainties noted above,the Directors believe the Group can continue as a going concern for the foreseeable future,a period not less than 12 months from the date of this report.The Investigations Committee is continuing to manage the Companys response to the government investigations(see notes 22 and 28)and the Company continues to cooperate with the relevant authorities.The timing and outcome of the outstanding investigations remain uncertain.One of the tools used by Glencore to monitor and limit its primary market risk exposure,namely commodity price risk related to its physical marketing activities,is the use of a value at risk(VaR)computation.VaR is a risk measurement technique,which estimates the potential loss that could occur on risk positions as a result of movements in risk factors over a specified time horizon,given a specific level of confidence.The VaR methodology is a statistically defined,probability-based approach that takes into account market volatilities,as well as risk diversification by recognising offsetting positions and correlations between commodities and markets.In this way,risks can be measured consistently across markets and commodities and risk measures can be aggregated to derive a single risk value.Glencores Board,as part of its annual review process in H2 2022,approved a Group VaR limit(excluding LNG)of$150 million,while maintaining a separate multipronged LNG risk reporting and control structure,including the calculation and highlighting of VaR outcomes including LNG.Glencore uses a one-day VaR approach based on a Monte Carlo simulation with a weighted data history computed at a 95%confidence level.Average market risk VaR(one day 95%)during H1 2023,excluding LNG,was$95 million,with an observable high of$130 million and a low of$39 million.Including LNG,average market risk VaR(one day 95%)during H1 2023 was$115 million,while the equivalent average VaR during H1 2022 was$138 million.The Groups market risk VaR(one day 95%),excluding LNG,as at 30 June 2023 was$39 million($73 million,including LNG).There were no limit breaches during the period.FINANCIAL AND OPERATIONAL REVIEW Glencore Half-Year Report 2023 Earlier in 2023,the Directors recommended a cash distribution,in respect of the 2022 financial year,of$0.44 per share amounting to some$5.6 billion,accounting for own shares held as at 31 December 2022,which was approved at the Companys AGM.The first tranche of the distribution of$0.22 per ordinary share amounting to$2,749 million was paid on 1 June 2023.The second tranche of$0.22 per ordinary share is due on 22 September 2023,in accordance with the Companys announcement of the 2023 Distribution timetable made on 15 February 2023.The Directors have now declared a further cash distribution of$0.08 per ordinary share,amounting to c.$1 billion,to be paid concurrently with the$0.22 per ordinary share second tranche of the previously approved distribution.The Company will also conduct a buy-back of its own shares up to the value of$1.2 billion,with intended completion by the time of the Groups full year results announcement in February 2024.The cash distribution is to be effected as a reduction of the capital contribution reserves of the Company.As such,this distribution would be exempt from Swiss withholding tax.As at 30 June 2023,Glencore plc had CHF11 billion of such capital contribution reserves in its statutory accounts.The distribution is ordinarily paid in US dollars.Shareholders on the Jersey register may elect to receive the distribution in sterling,euros or Swiss francs,the exchange rates of which will be determined by reference to the rates applicable to the US dollar at the time.Shareholders on the Johannesburg register will receive their distribution in South African rand.Further details on distribution payments,together with currency election and distribution mandate forms,are available from the Groups website()or from the Companys Registrars.In May 2023,Patrice Merrin retired from the Board.Following her retirement,the following changes in the composition of the Board Committees have taken place:ECC Committee:Cynthia Carroll has replaced Patrice Merrin as Chair of the Committee;Remuneration Committee:Martin Gilbert has replaced Cynthia Carroll as Chair of the Committee.Cynthia Carroll remains a member of the Committee;Investigations Committee:Liz Hewitt has replaced Patrice Merrin as a member of the Committee.Glencore Half-Year Report 2023 Marketing Adjusted EBIT of$1,773 million was a strong result in the context of the last 10 years,consistent with H1 2021 and some 12%lower than H1 2020.However,reflecting the presence of extreme market volatility and dislocation that prevailed for much of 2022,particularly in energy markets,Marketing Adjusted EBIT in H1 2023 was 52%lower than in H1 2022.2023 is characterised to date by international energy trade flows,due to various supply and demand factors,largely rebalancing and normalising,with oil and notably natural gas prices having therefore trended lower.Coal prices,including due to their high correlation with LNG,also materially reduced.While the resulting lower energy price environment offers some relief for businesses and consumers,the recent cycle of cost inflation taking hold,associated central bank interest rate rises to contain such inflation and only modest Chinese economic growth,have all collectively limited global growth.High profile banking failures in the U.S.and Europe also contributed to risk aversion,with metals prices,in addition to energy,responding accordingly.Nevertheless,there have been pockets of strong demand(EVs,aerospace,renewables,power transmission spending,etc)and relevant geographic/sector-specific metals premiums have been relatively strong.Against the above backdrop,Adjusted EBIT from the Energy products business was$1,009 million,a 66crease from the record-setting prior period,and Adjusted EBIT from Metals and minerals was$803 million,a decrease of 18%compared to H1 2022.Viterra(reported within corporate and other)contributed$132 million on an attributable,after-tax basis,which was$152 million(54%)lower than in H1 2022.In June 2023,Glencore agreed to dispose of its interest in Viterra in a cash-and-shares transaction with Bunge(see note 16).US$million Metals and minerals Energy products Corporate and other1 H1 2023 Metals and minerals Energy products Corporate and other1 H1 2022 Revenue 34,952 56,479 91,431 43,013 71,298 114,311 Adjusted EBITDA 833 1,193 (39)1,987 1,013 3,177 (303)3,887 Adjusted EBIT 803 1,009 (39)1,773 985 2,986 (303)3,668 Adjusted EBITDA margin 2.4%2.1%n.m.2.2%2.4%4.5%n.m.3.4%1 Corporate and other Marketing activities includes$132 million pre-significant items(H1 2022:$284 million)of Glencores equity accounted share of Viterra.Selected marketing volumes sold Units H1 2023 H1 2022 Change%Copper metal and concentrates1 mt 1.7 1.7 Zinc metal and concentrates1 mt 1.2 1.3 (8)Lead metal and concentrates1 mt 0.4 0.4 Gold toz 992 979 1 Silver toz 26,177 35,657 (27)Nickel kt 174 186 (6)Ferroalloys2 mt 4.6 4.6 Alumina/aluminium mt 4.8 5.2 (8)Iron ore mt 41.1 30.7 34 Thermal coal2 mt 36 35 3 Metallurgical coal2 mt 1.2 1.7 (29)Crude oil mbbl 307 302 2 Oil products mbbl 272 279 (3)1 Estimated metal unit contained.2 Includes agency volumes.Having started the year at$8,365/t,the improving demand outlook from China,following relaxation of Covid-19 restrictions in late 2022,and weak mine supply growth,supported prices moving rapidly to the$9,300/t level in early H1 2023.Demand sentiment in North America and Europe has since weakened and the outlook for China remains uncertain,such that speculative positioning moved net-short during the latter part of H1 2023,with prices progressively declining,ending H1 2023 effectively unchanged over the period,supported by a tightly balanced market and low visible inventories.North American and European cathode markets remained relatively stable during H1 2023,with generally good order books and consumption.In China,solid refined copper demand was supported by strong energy transition demand.Spot smelter treatment and refining charges moved higher during H1 2023,after logistics disruptions to flows of copper concentrate earlier in the year and Chinese smelters undertaking seasonal maintenance.The expectation of a progressive increase in concentrate mine supply during 2023 continued to drive treatment and refining charges higher,with Chinas CSPT setting its Q3 2023 import buying guidance at$95/9.5c,the highest level in 5 years.However,given scheduled expansions in smelting capacity over the next few years,there is likely to be increased competition for concentrates from late 2024.Looking forward,we continue to expect mine supply growth to be constrained by aging assets,a diminished project pipeline and geopolitical conditions,with new projects likely to experience delays.In the near term,global demand sentiment is dependent on MARKETING ACTIVITIES Glencore Half-Year Report 2023 the outlook for and implications of fiscal policies,and stimulus measures taken by China to support its economic growth.In the longer term,demand will be driven by population growth and rising living standards in emerging economies,supported by climate change policies and decarbonisation measures,expected to result in increased copper usage,given its crucial role in accelerating the clean energy transition,from renewable power generation and distribution,to energy storage and electric vehicles(EVs).Cobalt metal prices averaged$15.21/lb in H1 2023,59%lower than H1 2022.Pricing commenced the year at$18.75/lb amid a downward trend,reaching$15/lb in late February.Consumer goods demand,post the negative demand shock in 2022,showed sequential improvement each month through H1 2023,albeit off a low base.By late Q2,demand had progressed to the extent that hydroxide availability in China was tightening.Elsewhere,demand in key metal segments,such as aerospace,continued to post double digit demand growth,helping to lift metal pricing to$14.25/lb as at end of June 2023,bouncing off the lows of around$12.90/lb in early June,with alloy grade premiums in excess of$2/lb.Cobalt hydroxide payabilities commenced the year at 58-61%,reflecting the large hydroxide stock overhang,basis the 2022 consumer goods demand shock and large supply chain destocking.By May,the payable range reached historical lows of 51-53%,with subsequent market tightening factors then inducing a rally to 63-66%by the end of H1.For much of the first half,the cobalt market was heavily influenced by negative factors,both on the demand and supply side,which resulted in continued inventory build.However,consumer goods demand,which still rivals EVs among the largest demand segments,continues to show sequential recovery.EV supply chain demand has underwhelmed somewhat YTD,despite healthy sales.We believe that the structural cobalt demand fundamentals remain intact,as we move closer to a step-up in cobalt-intensive Western EV build-out.Excess hydroxide stocks should erode as demand sectors synchronise growth,accelerated by strategic and proactive stockpiling of critical minerals.We note that since the reporting period closed,China has embarked on its latest,and most significant,round of strategic stockpiling.Zinc demand growth slightly recovered in China versus 2022,albeit from a low base,yet it remains sluggish in the rest of the world(RoW).China imported metal towards the end of Q2 for the first time in 18 months,with net imports being 50kt YTD May 2023,compared to a net export position in 2022,with imports expected to continue in H2 2023.The combination of additional zinc smelting capacity,and fragility of demand in some sectors,particularly construction,saw average zinc prices decline by 26%from$3,819/t in H1 2022 to$2,839/t in H1 2023.Despite Chinas capacity expansions,visible metal inventories continue to be at historically low levels of around 5 days of global consumption,which,combined with pockets of stronger demand recovery in the US and Europe,sustained ex-China metal premiums at elevated levels.In the concentrates market,2023 annual benchmark smelting terms were agreed at$274/dmt(up$44/dmt from 2022)with price participation,supported mainly by the surplus of concentrates accumulated in 2022,amid a large proportion of European zinc smelter capacity being offline.Ex-China mine supply faced various operational disruptions in 2023,as well as mines going onto price-driven care and maintenance,leading spot TCs lower from highs of$270/dmt early in the year to$160-190/dmt by June 2023.In the lead market,average LME prices declined to$2,127/mt in H1 2023(-6%vs H1 2022),with exchange stocks nearing historical lows in both SHFE and LME.Annual 2023 benchmark terms for concentrates were agreed at$111/dmt(-15%year-over-year(YoY),the low spot TCs and elevated lead metal premiums in the RoW indicating continued tight market conditions.Amid mounting macro headwinds and subdued manufacturing activity,global stainless steel production,which makes up over 60%of primary nickel demand,was down year-on-year,as growth in China( 4.5%)was insufficient to offset the drop in RoW(-10%).In contrast,nickel consumption from batteries continues to increase,supported by the sharp rise of EV demand in the US and Europe,while nickel consumption growth in China is being held back by the high penetration of nickel-free LFP batteries.At the same time,nickel demand from the alloy and special steel segments remains robust,buoyed by strong end-use demand from key sectors such as oil&gas,aerospace and defence.The low-grade(or Class II)nickel market remains in surplus,due to the ongoing expansion of nickel pig iron(NPI)production in Indonesia.Furthermore,intermediates production(mixed hydroxide precipitate and nickel matte)continued to ramp up in Indonesia,which is being used as feed in support of new nickel cathode production in China,resulting in the high-grade(or Class I)market shifting into a modest surplus.The LME nickel price has been trending lower since the beginning of the year.Visible inventories appear to have bottomed in Q2 2023,with stock levels remaining at multiyear lows.Global demand for ferrochrome remained flat in H1 2023 compared to the previous year,primarily due to strong consumption in China being offset by weak demand from RoW.More seaborne ferrochrome units were directed to China,with imports up 69%YoY.Chrome ore prices were up 20%YoY,due to limited supply growth and ongoing logistics constraints out of South Africa.Ferrovanadium prices decreased by 13%during H1 2023,due to weak demand from the steel sector and a 15%YoY increase in Chinese production.Vanadium consumption in the aerospace sector remains robust having recovered to pre-pandemic levels.MARKETING ACTIVITIES Glencore Half-Year Report 2023 Global pig iron production recovered around 1%YoY in H1 2023,mostly from China( 3%)and India( 5%),offsetting losses elsewhere.However,the landscape in China has shifted,whereby lower consumer confidence has impacted real estate,but manufacturing and infrastructure spending beat market expectations.Iron ore seaborne supply remained strong in H1 2023( 4%YoY),largely due to minimal weather disruption.Owing to Chinese steel-mill profitability remaining relatively low,mills have generally maintained low inventories and interest in lower-value feedstock.China has also indicated that it might curb steel output during H2,which would clearly be relevant to iron ore markets.Compared to the highly volatile 2022,the aluminium price environment in H1 2023 was significantly more stable.In January,the 3m price reached a high of$2,680/t,reflecting a stronger macroeconomic outlook in China and RoW.However,disappointing economic data from China and rising interest rates thereafter,resulted in price declines to between$2,150/t and$2,500/t,with the half-year period ending around the lower end at$2,152/t.After a steep decline in H2 2022,premiums in Europe and the US retraced somewhat during the period.The Midwest premium closed the period at 23c/lb,with the CIF Main Japanese Port Premium increasing from$75/t to$115/t,supported by robust demand in adjacent Asian markets.Alumina prices started and finished the period around$330/t,although they temporarily increased earlier in the year to around$370/t.On 19 June 2023,the SHFE became the first futures exchange to launch a physical deliverable alumina contract,with Glencore being the buyer of the first transaction on the exchange.Bauxite prices remained rangebound,albeit at historically elevated levels,during H1 2023.An Indonesian export ban came into effect on 11 June 2023,with Guinea having progressively increased its output to make up for the supply shortfall.Global seaborne thermal coal demand grew 10%YoY during H1 2023.Chinese imported coal demand was a significant growth driver,more than offsetting declines in demand from Europe,Japan,Korea and Taiwan.In terms of supply,Indonesian coal production and exports grew significantly during H1 2023,with exports rising 20%YoY,while weather and other operational disruptions were less severe in H1 2023,compared to H1 2022.Average index prices for the period were:GCNewc($204/t),API4($129/t)and API2($136/t),down 43%,52%and 53%respectively from their 2022 averages.Global production of blast furnace pig iron,the main driver of coking coal demand increased by c.1%YoY with growth in China and India offsetting weakness elsewhere.Premium HCC prices averaged$294/t YTD 2023,19low the$364/t average in 2022.Crude oil prices in H1 2023 traded in a much narrower range compared to 2022.The initial rally in January,driven by optimism around a China post-Covid recovery and expected supply disruptions from Russia,saw prices reach$90/bbl.Concerns around Chinas economic recovery,global monetary tightening,dollar strength and growing recessionary fears then hurt the near-term outlook for oil,exacerbated by turmoil in the US and European banking sector,pushing oil prices,in March,down to a 15-month low of$73/bbl.For the remainder of H1,uncertainty,regarding the strength of Chinas demand recovery,and consensus on potential Opec cuts,trapped the market in a narrow trading range of$70-$80/bbl.Gas prices declined sharply over the course of H1 to close at$12/mmbtu($23/mmbtu:31 December 2022),a continuation of the trend towards the end of 2022.Unseasonally mild weather in the northern hemisphere,lower gas demand and improving supply fundamentals weighed on spot gas prices across all key markets.Oil refining margins remained elevated versus historical averages.In shipping,overall tanker freight markets weakened in H1 2023 from 2022 highs,but earnings in all tanker sectors remained strong on a multi-year cycle.Glencore Half-Year Report 2023 Industrial Adjusted EBITDA declined by 51%to$7,410 million compared to$15,031 million in H1 2022.This decrease substantially relates to lower coal Adjusted EBITDA,reflecting the progressive significant reductions in energy prices,including coal,from the heavily disrupted market dislocation levels seen in H1 2022.Adjusted EBITDA from Metals and minerals assets of$3,056 million decreased by 48%compared to the prior period.In particular,lower cobalt pricing weighed heavily on African Copper earnings,with period-over-period cobalt hydroxide realisations(via lower payabilities)underperforming the already sharp nearly 60ll in average metal prices,as discussed above in the Marketing section.Lower own source production from INO(nickel)and Collahuasi(copper),due to a lengthy prior year strike and mine phasing,respectively,had a sizeable negative period-over-period earnings impact,with both operations expected to strongly increase production levels in H2 2023.Furthermore,cost inflation,across a broad range of categories,increased our overall period-over-period unit cost positions,as the lag effect of 2022s accelerating inflation readings took hold in our businesses,although we are seeing these pressures now moderating.Adjusted EBITDA from Energy products assets was$4,658 million compared to$9,465 million in the comparable period,due to the significantly lower coal prices,and to a lesser extent oil and gas,as noted above.As a result,Adjusted EBITDA mining margins were 25%(43%in H1 2022)in our metals operations and 50%(H1 2022:66%)in our energy operations.Industrial capex at$2,469 million was 26%higher than the comparable period.US$million Metals and minerals Energy products Corporate and other H1 2023 Metals and minerals Energy products Corporate and other H1 2022 Revenue 17,423 13,137 4 30,564 21,206 19,574 3 40,783 Adjusted EBITDA 3,056 4,658 (304)7,410 5,877 9,465 (311)15,031 Adjusted EBIT 1,301 3,557 (326)4,532 3,969 8,124 (346)11,747 Adjusted EBITDA mining margin 25P5CfT%Production from own sources Total1 H1 2023 H1 2022 Change%Copper kt 488.0 510.2 (4)Cobalt kt 21.7 20.7 5 Zinc kt 434.7 480.7 (10)Lead kt 87.4 95.1 (8)Nickel kt 46.4 57.8 (20)Gold koz 369 334 10 Silver koz 9,446 12,579 (25)Ferrochrome kt 717 786 (9)Coal mt 54.2 55.4 (2)1 Controlled industrial assets and joint ventures only.Production is on a 100sis,except for joint ventures,where the Groups attributable share of production is included.INDUSTRIAL ACTIVITIES Glencore Half-Year Report 2023 US$million Revenue Adjusted EBITDA Adjusted EBITDA mining margin2,3 Depreciation and amortisation Adjusted EBIT Capital expenditure Sustaining Expansionary Total Copper assets Africa 1,173 172 15%(297)(125)212 37 249 Collahuasi1 978 610 62%(139)471 116 262 378 Antamina1 709 519 73%(180)339 165 5 170 Other South America 1,101 529 48%(317)212 235 31 266 Australia 164 24 15%(5)19 Polymet (17)(17)1 1 2 Custom metallurgical 5,029 287 (85)202 102 11 113 Intergroup revenue elimination (101)Copper 9,053 2,124 45%(1,023)1,101 831 347 1,178 Zinc assets Kazzinc 1,801 337 19%(293)44 134 21 155 Australia 1,604 (16)(1%)(125)(141)111 8 119 European custom metallurgical 1,796 153 (51)102 30 6 36 North America 575 83 (24)59 27 27 Volcan 27 27 Other Zinc 8 1 13%1 Zinc 5,784 585 9%(493)92 302 35 337 Nickel assets Integrated Nickel Operations 688 88 13%(158)(70)91 137 228 Australia 463 144 31%(14)130 7 7 Koniambo 180 (252)(140%)(14)(266)Nickel 1,331 (20)(2%)(186)(206)98 137 235 Ferroalloys 1,255 398 32%(53)345 49 7 56 Aluminium/Alumina (31)(31)2 2 Metals and minerals 17,423 3,056 25%(1,755)1,301 1,282 526 1,808 Coking Australia 1,070 542 51%(127)415 65 65 Thermal Australia 5,888 3,434 58%(610)2,824 321 321 Thermal South Africa 784 191 24%(146)45 87 87 Cerrejn 1,242 390 31%(124)266 118 118 Prodeco (30)(1)(31)1 1 Coal(own production)8,984 4,527 50%(1,008)3,519 592 592 Coal other revenue(buy-in coal)670 Oil E&P assets 209 94 45%(55)39 3 3 Oil refining assets 3,274 37 (38)(1)35 1 36 Energy products 13,137 4,658 50%(1,101)3,557 630 1 631 Corporate and other 4 (304)(22)(326)30 30 Total Industrial activities 30,564 7,410 35%(2,878)4,532 1,912 557 2,469 1 Represents the Groups share of these JVs.2 Adjusted EBITDA mining margin for Metals and Minerals is Adjusted EBITDA excluding non-mining assets as described below($2,537 million(H1 2022:$5,387 million)divided by Revenue excluding non-mining assets and intergroup revenue elimination($10,124 million(H1 2022:$12,611 million)i.e.the weighted average EBITDA margin of the mining assets.Non-mining assets are the Copper custom metallurgical assets,Zinc European custom metallurgical assets,Zinc North America(principally smelting/processing),the Aluminium/Alumina group and Volcan(equity accounted with no relevant revenue)as noted in the table above.Glencore Half-Year Report 2023 US$million Revenue Adjusted EBITDA Adjusted EBITDA mining margin2,3 Depreciation and amortisation Adjusted EBIT Capital expenditure Sustaining Expansionary Total Copper assets Africa 1,834 987 54%(240)747 170 20 190 Collahuasi1 1,097 799 73%(143)656 78 43 121 Antamina1 833 626 75%(166)460 149 2 151 Other South America 1,119 567 51%(255)312 245 245 Australia 198 54 27%(31)23 44 44 Polymet (7)(7)4 4 Custom metallurgical 5,362 265 (85)180 79 79 Intergroup revenue elimination (200)Copper 10,243 3,291 60%(920)2,371 769 65 834 Zinc assets Kazzinc 1,893 547 29%(281)266 111 29 140 Australia 1,869 450 24%(320)130 179 11 190 European custom metallurgical 2,366 78 (59)19 34 25 59 North America 1,067 113 (57)56 12 12 Volcan 6 6 Other Zinc 141 29 21%(12)17 8 8 Zinc 7,336 1,223 26%(729)494 344 65 409 Nickel assets Integrated Nickel Operations 1,201 596 50%(165)431 69 137 206 Australia 634 284 45%(13)271 12 12 Koniambo 440 (14)(3%)(19)(33)5 5 Nickel 2,275 866 38%(197)669 86 137 223 Ferroalloys 1,352 470 35%(62)408 48 4 52 Aluminium/Alumina 28 28 2 2 Iron ore (1)(1)Metals and minerals 21,206 5,877 43%(1,908)3,969 1,249 271 1,520 Coking Australia 1,440 923 64%(103)820 55 55 Thermal Australia 7,635 5,031 66%(718)4,313 174 174 Thermal South Africa 1,587 993 63%(209)784 54 54 Cerrejn 2,936 2,037 69%(219)1,818 92 92 Prodeco (77)(77)Coal(own production)13,598 8,907 66%(1,249)7,658 375 375 Coal other revenue(buy-in coal)888 Oil E&P assets 498 443 89%(55)388 10 10 Oil refining assets 4,590 115 (37)78 51 51 Energy products 19,574 9,465 66%(1,341)8,124 436 436 Corporate and other 3 (311)(35)(346)11 11 Total Industrial activities 40,783 15,031 54%(3,284)11,747 1,685 282 1,967 3 Energy products EBITDA margin is Adjusted EBITDA for coal and Oil E&P(but excluding Oil refining)($4,621 million(H1 2022:$9,350 million),divided by the sum of coal revenue from own production and Oil E&P revenue($9,193 million(H1 2022:$14,096 million).INDUSTRIAL ACTIVITIES Glencore Half Year Report 2023 Production from own sources Copper assets1 H1 2023 H1 2022 Changerican Copper(Katanga,Mutanda)Copper metal kt 120.2 110.0 9 Cobalt2 kt 20.4 19.0 7 Collahuasi3 Copper in concentrates kt 114.4 127.8 (10)Silver in concentrates koz 1,612 1,803 (11)Gold in concentrates koz 20 19 5 Antamina4 Copper in concentrates kt 68.3 77.2 (12)Zinc in concentrates kt 77.1 72.2 7 Silver in concentrates koz 1,950 2,606 (25)Other South America(Antapaccay,Lomas Bayas)Copper metal kt 29.8 35.0 (15)Copper in concentrates kt 82.7 73.7 12 Gold in concentrates and in dor koz 56 29 93 Silver in concentrates and in dor koz 609 643 (5)Cobar Copper in concentrates kt 15.0 18.8 (20)Silver in concentrates koz 180 212 (15)Total Copper department Copper kt 430.4 442.5 (3)Cobalt kt 20.4 19.0 7 Zinc kt 77.1 72.2 7 Gold koz 76 48 58 Silver koz 4,351 5,264 (17)Production from own sources Zinc assets1 H1 2023 H1 2022 Change%Kazzinc Zinc metal kt 49.5 67.5 (27)Zinc in concentrates kt 22.5 6.4 252 Lead metal kt 8.8 9.8 (10)Lead in concentrates kt 7.5 n.m.Copper metal5 kt 5.0 10.3 (51)Gold koz 288 277 4 Silver koz 1,107 1,440 (23)Silver in concentrates koz 263 n.m.Australia(Mount Isa,Townsville,McArthur River)Zinc in concentrates kt 263.4 276.0 (5)Copper metal kt 35.1 29.0 21 Lead in concentrates kt 71.1 79.9 (11)Silver koz 338 238 42 Silver in concentrates koz 2,421 2,690 (10)North America(Matagami,Kidd)6 Zinc in concentrates kt 22.2 39.9 (44)Copper in concentrates kt 11.4 16.3 (30)Silver in concentrates koz 869 749 16 Other Zinc:South America(Bolivia,Peru)6 Zinc in concentrates kt 18.7 (100)Lead in concentrates kt 5.4 (100)Copper in concentrates kt 0.7 (100)Silver in concentrates koz 2,108 (100)Total Zinc department Zinc kt 357.6 408.5 (12)Lead kt 87.4 95.1 (8)Copper kt 51.5 56.3 (9)Gold koz 288 277 4 Silver koz 4,998 7,225 (31)INDUSTRIAL ACTIVITIES Glencore Half-Year Report 2023 Production from own sources Nickel assets1 H1 2023 H1 2022 Change%Integrated Nickel Operations(INO)(Sudbury,Raglan,Nikkelverk)Nickel metal kt 18.1 27.7 (35)Nickel in concentrates kt 0.1 (100)Copper metal kt 3.9 7.2 (46)Copper in concentrates kt 2.2 4.2 (48)Cobalt metal kt 0.2 0.3 (33)Gold koz 5 9 (44)Silver koz 97 90 8 Platinum koz 12 17 (29)Palladium koz 33 50 (34)Rhodium koz 1 2 (50)Murrin Murrin Nickel metal kt 15.6 17.1 (9)Cobalt metal kt 1.1 1.4 (21)Koniambo Nickel in ferronickel kt 12.7 12.9 (2)Total Nickel department Nickel kt 46.4 57.8 (20)Copper kt 6.1 11.4 (46)Cobalt kt 1.3 1.7 (24)Gold koz 5 9 (44)Silver koz 97 90 8 Platinum koz 12 17 (29)Palladium koz 33 50 (34)Rhodium koz 1 2 (50)Production from own sources Ferroalloys assets1 H1 2023 H1 2022 Changerrochrome7 kt 717 786 (9)Vanadium Pentoxide mlb 9.3 9.9 (6)Total production Custom metallurgical assets1 H1 2023 H1 2022 Change%Copper(Altonorte,Pasar,Horne,CCR)Copper metal kt 251.4 232.0 8 Copper anode kt 225.3 238.2 (5)Zinc(Portovesme,San Juan de Nieva,Nordenham,Northfleet,CEZ Refinery)Zinc metal kt 345.3 350.9 (2)Lead metal kt 123.7 159.0 (22)Coal assets1 H1 2023 H1 2022 Change%Australian coking coal mt 3.7 3.9 (5)Australian semi-soft coal mt 1.9 1.8 6 Australian thermal coal(export)mt 26.7 27.6 (3)Australian thermal coal(domestic)mt 3.2 3.0 7 South African thermal coal(export)mt 6.6 6.3 5 South African thermal coal(domestic)mt 1.9 2.0 (5)Cerrejn mt 10.2 10.8 (6)Total Coal department mt 54.2 55.4 (2)Oil assets H1 2023 H1 2022 Change%Glencore entitlement interest basis Equatorial Guinea kboe 1,996 2,545 (22)Cameroon kbbl 354 587 (40)Total Oil department kboe 2,350 3,132 (25)1 Controlled industrial assets and joint ventures only.Production is on a 100sis,except for joint ventures,where the Groups attributable share of production is included.2 Cobalt contained in concentrates and hydroxides.3 The Groups pro-rata share of Collahuasi production(44%).4 The Groups pro-rata share of Antamina production(33.75%).5 Copper metal includes copper contained in copper concentrates and blister.6 North and South American assets sold or closed since the beginning of 2022:Matagami(Canada)completed mining in June 2022,Bolivian Zinc sold in March 2022,Peruvian Zinc sold in December 2022.7 The Groups attributable 79.5%share of the Glencore-Merafe Chrome Venture INDUSTRIAL ACTIVITIES Glencore Half-Year Report 2023 Copper assets Own sourced copper production of 488,000 tonnes was 22,200 tonnes(4%)lower than H1 2022,consistent with our expectations around mining sequences at Collahuasi and Antamina,and lower copper by-products outside the Copper department.African Copper Own sourced copper production of 120,200 tonnes was 10,200 tonnes(9%)higher than H1 2022,mainly reflecting higher milling throughput at Mutanda and the ongoing management of geotechnical constraints at Katanga.Own sourced cobalt production of 20,400 tonnes was 1,400 tonnes(7%)higher than H1 2022,reflecting improved cobalt recoveries at Katanga.Collahuasi Attributable copper production of 114,400 tonnes was 13,400 tonnes(10%)lower than H1 2022,which is aligned with planned lower grades as the next phase of the mine plan is developed.Higher grades and throughput are expected in H2 2023.Antamina Aligned with planned mining sequencing,attributable copper production of 68,300 tonnes was 8,900 tonnes(12%)lower than H1 2022,while zinc production of 77,100 tonnes was 4,900 tonnes(7%)higher.The impact of heavy rains in March,which temporarily disrupted the pipeline from mine to port,has been resolved.Other South America Copper production of 112,500 tonnes was 3,800 tonnes(3%)higher than H1 2022,reflecting higher copper grades and recoveries at Antapaccay(9,000 tonnes),partially offset by anticipated lower grades(5,200 tonnes)at Lomas Bayas.Cobar Cobar(Australian copper)mine was sold on 16 June 2023.Copper custom metallurgical assets Copper anode production of 225,300 tonnes was 12,900 tonnes(5%)lower than H1 2022,reflecting maintenance at Altonorte and a scheduled 17-day maintenance shutdown at Horne.Copper cathode production of 251,400 tonnes was 19,400 tonnes(8%)higher than H1 2022,reflecting increased contributions from CCR and Pasar.Zinc assets Own sourced zinc production of 434,700 tonnes was 46,000 tonnes(10%)lower than H1 2022,mainly reflecting the 2022 disposals of South American zinc operations(18,700 tonnes)and the closure of Matagami(17,300 tonnes).Kazzinc Own sourced zinc production of 72,000 tonnes was in line with H1 2022,reflecting Zhairems ramp-up offset by delayed processing of own-sourced material at Kazzincs smelters,in favour of third-party material.Own sourced lead production of 16,300 tonnes was 6,500 tonnes(66%)higher than H1 2022,due to Zhairems ramp up.Own sourced copper production of 5,000 tonnes was 5,300(51%)lower than H1 2022,due to lower copper grades at the Maleevsky mine,together with furnace downtime at the copper smelter.Own sourced gold production of 288,000 ounces was 4%higher than H1 2022.Australia Zinc production of 263,400 tonnes was 12,600 tonnes(5%)lower than H1 2022,as heavy rains impacted Mount Isa production in Q1 2023 and McArthur River processed lower-grade feedstocks in accordance with its mine plan.Lead production of 71,100 tonnes was 8,800 tonnes(11%)lower than H1 2022 for the same reasons.Copper production of 35,100 tonnes was 6,100 tonnes(21%)higher than H1 2022,reflecting partial recovery from Covid-related absenteeism and other issues in the base period.North America Zinc production of 22,200 tonnes was 17,700 tonnes(44%)lower than H1 2022,mainly reflecting the closure of Matagami mine in mid-2022.Kidd production was broadly in line with H1 2022.South America Following disposal of the Bolivian mines at the end of H1 2022 and Los Quenuales in December 2022,no operating assets remain in this grouping.Zinc custom metallurgical assets Zinc metal production of 345,300 tonnes was broadly in line with H1 2022,reflecting the suspension of Nordenham in H2 2022,given recent periods of high European power prices,largely offset by production from CEZ,consolidated from April 2023,following Glencores increased ownership from 25%to 100%.Lead metal production of 123,700 tonnes was 35,300 tonnes(22%)lower than H1 2022,reflecting lower bullion received at Northfleet from Mount Isa,Portovesmes partial care and maintenance,and planned lower production from the active Nordenham lead line.INDUSTRIAL ACTIVITIES Glencore Half-Year Report 2023 Nickel assets Own sourced nickel production of 46,400 tonnes was 11,400 tonnes(20%)lower than H1 2022,primarily reflecting higher INO third party production(versus own sourced),in large part necessitated by the strike at Raglan mine in 2022.Integrated Nickel Operations(INO)Own sourced nickel production of 18,100 tonnes was 9,700 tonnes(35%)lower than H1 2022,due to the strike at Raglan in 2022,which impacted H1 2023 nickel production,given the long lead time from ore mining in Northern Quebec to finished nickel production in Norway.Total refinery production of 47,100 tonnes was 4,700 tonnes(11%)higher than H1 2022.Murrin Murrin Own sourced nickel production of 15,600 tonnes was 1,500 tonnes(9%)lower than H1 2022 due to longer than planned maintenance.Koniambo Nickel production of 12,700 tonnes was broadly in line with H1 2022.The sequential improvement over Q1 2023(2,700 tonnes or 54%)reflected furnace modifications made during Q1s planned maintenance.Ferroalloys assets Attributable ferrochrome production of 717,000 tonnes was 69,000 tonnes(9%)below H1 2022 due to planned additional smelter offline days.Coal assets Coal production of 54.2 million tonnes was broadly in line with H1 2022.Australian coking Production of 3.7 million tonnes was 0.2 million tonnes(5%)lower than H1 2022,with the Newlands mine ceasing production in February 2023.Australian thermal and semi-soft Production of 31.8 million tonnes was 0.6 million tonnes(2%)lower than H1 2022,mainly reflecting the Newlands closure,partially offset by increased production from Mangoola and Ulan,both operationally constrained during the base period.South African thermal Production of 8.5 million tonnes was modestly(2%)higher than H1 2022.Cerrejn Production of 10.2 million tonnes was 0.6 million tonnes(6%)lower than H1 2022,reflecting community blockades and weather impacts.Oil assets(non-operated)Exploration and production Entitlement interest oil and gas production of 2.4 million barrels of oil equivalent was 0.8 million barrels(25%)lower than H1 2022,due to natural field decline at Bolongo in Cameroon and the reduction of Glencores entitlement percentage interest in an Equatorial Guinea block,following the recovery of historical costs under a production sharing contract.Glencore Half-Year Report 2023 We confirm that to the best of our knowledge:the condensed set of consolidated financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as endorsed and adopted by the United Kingdom;the interim report includes a fair review of the information required by DTR 4.2.7R(being an indication of important events that have occurred during the first six months of the financial year,and their impact on the interim report and a description of the principal risks and uncertainties for the remaining six months of the financial year);and the interim report includes a fair review of the information required by DTR 4.2.8R(being disclosure of related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or the performance of the Group during that period and any changes in the related party transactions described in the last annual report that could have a material effect on the financial position or performance of the Group in the first six months of the current financial year).By order of the Board,Gary Nagle Chief Executive Officer 7 August 2023Glencore Half-Year Report 2023 We have been engaged by Glencore plc(“the Company”)to review the condensed consolidated interim financial statements in the half-yearly financial report for the six months ended 30 June 2023(the“2023 Half-Year Report”)which comprises the condensed consolidated statement of income,the condensed consolidated statement of comprehensive income,the condensed consolidated statement of financial position,the condensed consolidated statement of cash flows,the condensed consolidated statement of changes in equity and related notes 1 to 30.Based on our review,nothing has come to our attention that causes us to believe that the condensed set of financial statements in the 2023 Half-Year Report for the six months ended 30 June 2023 is not prepared,in all material respects,in accordance with United Kingdom adopted International Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of the United Kingdoms Financial Conduct Authority.We conducted our review in accordance with International Standard on Review Engagements(UK)2410“Review of Interim Financial Information Performed by the Independent Auditor of the Entity”issued by the Financial Reporting Council for use in the United Kingdom(ISRE(UK)2410).A review of interim financial information consists of making inquiries,primarily of persons responsible for financial and accounting matters,and applying analytical and other review procedures.A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing(UK)and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.Accordingly,we do not express an audit opinion.The annual financial statements of the Company are prepared in accordance with United Kingdom adopted international accounting standards.The condensed consolidated interim financial statements included in this 2023 Half-Year Report have been prepared in accordance with United Kingdom adopted International Accounting Standard 34,“Interim Financial Reporting”.Based on our review procedures,which are less extensive than those performed in an audit as described in the Basis for Conclusion section of this report,nothing has come to our attention to suggest that the directors have inappropriately adopted the going concern basis of accounting or that the directors have identified material uncertainties relating to going concern that are not appropriately disclosed.This conclusion is based on the review procedures performed in accordance with ISRE(UK)2410,however future events or conditions may cause the entity to cease to continue as a going concern.The directors are responsible for preparing the 2023 Half-Year Report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdoms Financial Conduct Authority.In preparing the 2023 Half-Year Report,the directors are responsible for assessing the Companys ability to continue as a going concern,disclosing as applicable,matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations,or have no realistic alternative but to do so.In reviewing the 2023 Half-Year Report,we are responsible for expressing to the Company a conclusion on the condensed set of financial statements in the 2023 Half-Year Report.Our Conclusion,including our Conclusion Relating to Going Concern,are based on procedures that are less extensive than audit procedures,as described in the Basis for Conclusion paragraph of this report.This report is made solely to the Company in accordance with ISRE(UK)2410.Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose.To the fullest extent permitted by law,we do not accept or assume responsibility to anyone other than the company,for our review work,for this report,or for the conclusions we have formed.Deloitte LLP Recognised Auditor London,United Kingdom 7 August 2023FOR THE SIX MONTHS ENDED 30 JUNE(UNAUDITED)Glencore Half-Year Report 2023 US$million Notes 2023 2022 Revenue 4 107,415 134,435 Cost of goods sold1 (100,906)(118,712)Net expected credit losses1 13/15 (12)(53)Selling and administrative expenses (1,030)(1,360)Share of income from associates and joint ventures 12 755 1,254 Gain on acquisitions and disposals of non-current assets 5 679 1,463 Other income 6 256 71 Other expense 6 (274)(573)(Impairments)/reversal of impairments of non-current assets 8 (56)37 Reversal of impairments of financial assets 8 9 3 Dividend income 12 2 43 Interest income 7 321 140 Interest expense 7 (1,160)(736)Income before income taxes 5,999 16,012 Income tax expense 9 (1,731)(3,917)Income for the period 4,268 12,095 Attributable to:Non-controlling interests (300)10 Equity holders of the Parent 4,568 12,085 Earnings per share:Basic(US$)18 0.36 0.92 Diluted(US$)18 0.36 0.92 1 In the current period,net expected credit losses on financial assets at amortised cost have been disaggregated from cost of goods sold.The prior period balances have been restated to conform with current period presentation.The full year 2022 disaggregation amounted to$256 million.All amounts presented are derived from continuing operations.The accompanying notes are an integral part of the condensed consolidated interim financial statements.FOR THE SIX MONTHS ENDED 30 JUNE(UNAUDITED)Glencore Half-Year Report 2023 US$million Notes 2023 2022 Income for the period 4,268 12,095 Other comprehensive income/(loss)Items not to be reclassified to the statement of income in subsequent periods:Defined benefit plan remeasurements 54 166 Tax charge on defined benefit plan remeasurements (23)(51)Loss on equity investments accounted for at fair value through other comprehensive income 12 (13)(1,139)Tax(charge)/credit on equity investments accounted for at fair value through other comprehensive income (1)3 Loss due to changes in credit risk on financial liabilities accounted for at fair value through profit and loss (14)(14)Net items not to be reclassified to the statement of income in subsequent periods 3 (1,035)Items that have been or may be reclassified to the statement of income in subsequent periods:Exchange loss on translation of foreign operations (315)(188)Items recycled to the statement of income1 6/24 509 Gain/(loss)on cash flow hedges 65 (89)Tax credit on loss on cash flow hedges 4 2 Cash flow hedges reclassified to the statement of income (63)138 Tax charge on cash flow hedges reclassified to the statement of income (2)(2)Share of other comprehensive income from associates and joint ventures 12 23 24 Net items that have been or may be reclassified to the statement of income in subsequent periods (288)394 Other comprehensive loss (285)(641)Total comprehensive income 3,983 11,454 Attributable to:Non-controlling interests (328)Equity holders of the Parent 4,311 11,454 1 2022 comprised foreign exchange translation losses recycled upon disposal of subsidiaries of$78 million(see note 24)and restructuring of intragroup debt of$431 million(see note 6).All amounts presented are derived from continuing operations.The accompanying notes are an integral part of the condensed consolidated interim financial statements.AS AT 30 JUNE 2023 AND 31 DECEMBER 2022 Glencore Half-Year Report 2023 2023 2022 US$million Notes(unaudited)(audited)Assets Non-current assets Property,plant and equipment 10 38,905 39,564 Intangible assets 11 6,043 6,160 Investments in associates and joint ventures 12 8,105 11,878 Other investments 12 471 456 Advances and loans 13 2,888 2,654 Other financial assets 25 146 206 Inventories 14 589 605 Deferred tax assets 1,774 1,837 58,921 63,360 Current assets Inventories 14 31,806 33,460 Accounts receivable 15 17,308 24,565 Other financial assets 25 4,783 6,109 Income tax receivable 9 908 401 Prepaid expenses 402 325 Cash and cash equivalents 1,863 1,923 57,070 66,783 Assets held for sale 16 5,763 2,440 62,833 69,223 Total assets 121,754 132,583 Equity and liabilities Capital and reserves attributable to equity holders Share capital 17 137 141 Reserves and retained earnings 45,517 49,269 45,654 49,410 Non-controlling interests (4,481)(4,191)Total equity 41,173 45,219 Non-current liabilities Borrowings 20 19,481 18,851 Deferred income 21 1,440 1,547 Deferred tax liabilities 3,275 3,651 Other financial liabilities 25 1,878 2,055 Provisions 22 7,174 7,163 Post-retirement and other employee benefits 690 677 33,938 33,944 Current liabilities Borrowings 20 9,181 9,926 Accounts payable 23 29,941 29,726 Deferred income 21 622 1,060 Provisions 22 905 1,425 Other financial liabilities 25 2,447 4,882 Income tax payable 9 1,980 4,660 45,076 51,679 Liabilities held for sale 16 1,567 1,741 46,643 53,420 Total equity and liabilities 121,754 132,583 The accompanying notes are an integral part of the condensed consolidated interim financial statements.FOR THE SIX MONTHS ENDED 30 JUNE(UNAUDITED)Glencore Half-Year Report 2023 US$million Notes 2023 2022 Operating activities Income before income taxes 5,999 16,012 Adjustments for:Depreciation and amortisation 2,773 3,306 Share of income from associates and joint ventures 12 (755)(1,254)Streaming revenue and other non-current provisions (33)48 Gain on acquisitions and disposals of non-current assets 5 (679)(1,463)Unrealised mark-to-market movements on other investments 6 87 (41)Impairments/(reversal of impairments)8 47 (40)Other non-cash items net1 130 1,126 Interest expense net 7 839 596 Cash generated by operating activities before working capital changes,interest and tax 8,408 18,290 Working capital changes Decrease/(increase)in accounts receivable2 8,529 (10,242)Decrease/(increase)in inventories 1,770 (1,684)(Decrease)/increase in accounts payable3 (6,931)2,884 Total working capital changes 3,368 (9,042)Income taxes paid (5,116)(3,023)Interest received 281 67 Interest paid (928)(556)Net cash generated by operating activities 6,013 5,736 Investing activities Increase in long-term advances and loans 13 (200)Net cash(used)/received in acquisition of subsidiaries 24 (199)321 Net cash received on disposal of subsidiaries 24 770 610 Purchase of investments (88)(183)Proceeds from sale of investments 55 19 Purchase of property,plant and equipment (2,080)(1,876)Proceeds from sale of property,plant and equipment 133 29 Dividends received from associates and joint ventures 12 879 1,058 Net cash used by investing activities (530)(222)1 See reconciliation below.2 Includes movements in other financial assets,prepaid expenses and certain long-term advances and loans.3 Includes movements in other financial liabilities,provisions and deferred income.Other non-cash items comprise the following:US$million Notes 2023 2022 Net foreign exchange(gains)/losses 6 (190)290 Closed site rehabilitation provisioning 6 83 Share based and deferred remuneration costs 237 749 Other 83 4 Total 130 1,126 All amounts presented are derived from continuing operations.The accompanying notes are an integral part of the condensed consolidated interim financial statements.FOR THE SIX MONTHS ENDED 30 JUNE(UNAUDITED)Glencore Half-Year Report 2023 US$million Notes 2023 2022 Financing activities1 Proceeds from issuance of capital market notes2 995 Repayment of capital market notes (1,500)(1,392)Repurchase of capital market notes (103)Proceeds from/(repayment of)revolving credit facility 1,539 (1,863)Proceeds from other non-current borrowings 14 414 Repayment of other non-current borrowings (95)(78)Repayment of lease liabilities (281)(301)Margin receipts/(payments)in respect of financing related hedging activities 258 (1,389)(Repayments of)/proceeds from current borrowings (1,613)1,910 Proceeds from/(repayment of)U.S.commercial papers 307 (1,150)Acquisition of non-controlling interests in subsidiaries 9 Return of capital/distributions to non-controlling interests (4)(218)Purchase of own shares 17 (2,428)(486)Disposal of own shares3 247 Distributions paid to equity holders of the Parent 19 (2,749)(1,707)Net cash used by financing activities (5,548)(6,116)Decrease in cash and cash equivalents (65)(602)Effect of foreign exchange rate changes (20)(25)Cash and cash equivalents,beginning of period 1,998 3,308 Cash and cash equivalents,end of period 1,913 2,681 Cash and cash equivalents reported in the statement of financial position 1,863 2,636 Cash and cash equivalents attributable to assets held for sale 50 45 1 Refer to note 20 for reconciliation of movement in borrowings.2 Amount net of issuance costs relating to capital market notes of$5 million(2022:$Nil).3 Comprises primarily cash received from the exercise of share-based option awards assumed in previous business combinations.There are no outstanding options as at 30 June 2023.All amounts presented are derived from continuing operations.The accompanying notes are an integral part of the condensed consolidated interim financial statements.FOR THE SIX MONTHS ENDED 30 JUNE(UNAUDITED)Glencore Half-Year Report 2023 Retained earnings Share premium Other reserves Own shares(Note 17)Total reserves and retained earnings Share capital Total equity attributable to equity holders Non-controlling interests Total equity 1 January 2022 7,914 43,679 (5,931)(5,877)39,785 146 39,931 (3,014)36,917 Income for the period 12,085 12,085 12,085 10 12,095 Other comprehensive income/(loss)139 (770)(631)(631)(10)(641)Total comprehensive income 12,224 (770)11,454 11,454 11,454 Own share disposals(see note 17)(125)430 305 305 305 Own share purchases(see note 17)(486)(486)(486)(486)Equity-settled share-based expenses (121)(121)(121)(121)Change in ownership interest in subsidiaries 5 5 Acquisition/disposal of business(see note 23)(5)(5)Distributions(see note 19)(3,400)(3,400)(3,400)(218)(3,618)30 June 2022 19,892 40,279 (6,701)(5,933)47,537 146 47,683 (3,232)44,451 Retained earnings Share premium Other reserves Own shares(Note 17)Total reserves and retained earnings Share capital Total equity attributable to equity holders Non-controlling interests Total equity 1 January 2023 25,246 36,717 (6,833)(5,861)49,269 141 49,410 (4,191)45,219 Income for the period 4,568 4,568 4,568 (300)4,268 Other comprehensive income/(loss)54 (311)(257)(257)(28)(285)Total comprehensive income 4,622 (311)4,311 4,311 (328)3,983 Own share disposals(see note 17)(96)186 90 90 90 Own share purchases(see note 17)(2,428)(2,428)(2,428)(2,428)Equity-settled share-based expenses (119)(119)(119)(119)Change in ownership interest in subsidiaries (10)(10)(10)42 32 Cancellation of shares(see note 17)(1,449)1,453 4 (4)Distributions(see note 19)(5,600)(5,600)(5,600)(4)(5,604)30 June 2023 29,653 29,668 (7,154)(6,650)45,517 137 45,654 (4,481)41,173 The accompanying notes are an integral part of the condensed consolidated interim financial statements.NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS Glencore Half-Year Report 2023 Glencore plc(the“Company”,“Parent”,the“Group”or“Glencore”)is a leading integrated producer and marketer of natural resources,with worldwide activities in the production,refinement,processing,storage,transport and marketing of metals and minerals and energy products.Glencore ope
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