Edgar Filing: Marathon Petroleum Corp

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2016



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-35054

Marathon 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

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files.) Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x

There were 527,815,189 shares of Marathon Petroleum Corporation common stock outstanding as of October 27, 2016.

Table of Contents

MARATHON PETROLEUM CORPORATION

Form 10-Q

Quarter Ended September 30, 2016

INDEX



	Page
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Income (Unaudited)	3
Consolidated Statements of Comprehensive Income (Unaudited)	4
Consolidated Balance Sheets (Unaudited)	5
Consolidated Statements of Cash Flows (Unaudited)	6
Consolidated Statements of Equity and Redeemable Noncontrolling Interest (Unaudited)	7
Notes to Consolidated Financial Statements (Unaudited)	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3. Quantitative and Qualitative Disclosures about Market Risk	62
Item 4. Controls and Procedures	63
Supplementary Statistics (Unaudited)	64

PART II – OTHER INFORMATION
Item 1. Legal Proceedings	67
Item 1A. Risk Factors	68
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	68
Item 6. Exhibits	69
Signatures	70

Unless otherwise stated or the context otherwise indicates, all references in this Form 10-Q to “MPC,” “us,” “our,” “we” or “the Company” mean Marathon Petroleum Corporation and its consolidated subsidiaries.

GLOSSARY OF TERMS

Throughout this report, the following company or industry specific terms and abbreviations are used:



ATB	Articulated tug barges
barrel	One stock tank barrel, or 42 United States gallons liquid volume, used in reference to crude oil or other liquid hydrocarbons.
EBITDA	Earnings Before Interest, Tax, Depreciation and Amortization, a non-GAAP financial measure
EPA	United States Environmental Protection Agency
FASB	Financial Accounting Standards Board
IDR	Incentive Distribution Rights
LCM	Lower of cost or market
LIBO Rate	London Interbank Offered Rate
LIFO	Last in, first out, an inventory costing method
LLS	Louisiana Light Sweet crude oil, an oil index benchmark price
mbpd	Thousand barrels per day
MMbtu	One million British thermal units, an energy measurement
MMcf/d	One million cubic feet of natural gas per day
NGL	Natural gas liquids, such as ethane, propane, butanes and natural gasoline
OTC	Over-the-Counter
ppm	Parts per million
RINs	Renewable Identification Numbers
SEC	Securities and Exchange Commission
SMR	Steam methane reformer, operated by a third party and located at the Javelina gas processing and fractionation complex in Corpus Christi, Texas
ULSD	Ultra-low sulfur diesel
U.S. GAAP	Accounting principles generally accepted in the United States
USGC	U.S. Gulf Coast
VIE	Variable interest entity
WTI	West Texas Intermediate crude oil, an oil index benchmark price

Part I – Financial Information

Item 1. Financial Statements

Marathon Petroleum Corporation

Consolidated Statements of Income (Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions, except per share data)	2016			2015			2016			2015
Revenues and other income:
Sales and other operating revenues (including consumer excise taxes)	$	16,618		$	18,716		$	46,184		$	56,444
Income (loss) from equity method investments	(208		)	23			(236		)	58
Net gain on disposal of assets	1			2			26			6
Other income	49			17			106			71
Total revenues and other income	16,460			18,758			46,080			56,579
Costs and expenses:
Cost of revenues (excludes items below)	12,944			14,165			35,475			43,575
Purchases from related parties	128			61			359			219
Inventory market valuation adjustment	—			—			(370		)	—
Consumer excise taxes	1,914			1,988			5,633			5,759
Impairment expense	—			144			130			144
Depreciation and amortization	507			364			1,497			1,089
Selling, general and administrative expenses	420			392			1,199			1,143
Other taxes	112			95			332			296
Total costs and expenses	16,025			17,209			44,255			52,225
Income from operations	435			1,549			1,825			4,354
Net interest and other financial income (costs)	(141		)	(70		)	(420		)	(215		)
Income before income taxes	294			1,479			1,405			4,139
Provision for income taxes	75			521			481			1,439
Net income	219			958			924			2,700
Less net income (loss) attributable to:
Redeemable noncontrolling interest	16			—			25			—
Noncontrolling interests	58			10			(48		)	35
Net income attributable to MPC	$	145		$	948		$	947		$	2,665
Per Share Data (See Note 7)
Basic:
Net income attributable to MPC per share	$	0.28		$	1.77		$	1.79		$	4.93
Weighted average shares outstanding	527			535			528			540
Diluted:
Net income attributable to MPC per share	$	0.27		$	1.76		$	1.78		$	4.90
Weighted average shares outstanding	530			538			531			544
Dividends paid	$	0.36		$	0.32		$	1.00		$	0.82

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

Marathon Petroleum Corporation

Consolidated Statements of Comprehensive Income (Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2016			2015			2016			2015
Net income	$	219		$	958		$	924		$	2,700
Other comprehensive income (loss):
Defined benefit postretirement and post-employment plans:
Actuarial changes, net of tax of $0, $3, $8 and $15	2			5			14			25
Prior service costs, net of tax of ($5), ($5), ($14) and ($14)	(8		)	(8		)	(23		)	(24		)
Other comprehensive income (loss)	(6		)	(3		)	(9		)	1
Comprehensive income	213			955			915			2,701
Less comprehensive income (loss) attributable to:
Redeemable noncontrolling interest	16			—			25			—
Noncontrolling interests	58			10			(48		)	35
Comprehensive income attributable to MPC	$	139		$	945		$	938		$	2,666

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

Marathon Petroleum Corporation

Consolidated Balance Sheets (Unaudited)



(In millions, except share data)	September 30, 2016			December 31, 2015
Assets
Current assets:
Cash and cash equivalents (MPLX: $208 and $43, respectively)	$	709		$	1,127
Receivables, less allowance for doubtful accounts of $12 and $12 (MPLX: $295 and $257, respectively)	3,136			2,927
Inventories (MPLX: $50 and $51, respectively)	5,524			5,225
Other current assets (MPLX: $33 and $50, respectively)	176			192
Total current assets	9,545			9,471
Equity method investments (MPLX: $2,475 and $2,458, respectively)	3,554			3,622
Property, plant and equipment, net (MPLX: $10,537 and $9,997, respectively)	25,697			25,164
Goodwill (MPLX: $2,199 and $2,570, respectively)	3,648			4,019
Other noncurrent assets (MPLX: $515 and $478, respectively)	849			839
Total assets	$	43,293		$	43,115
Liabilities
Current liabilities:
Accounts payable (MPLX: $472 and $449, respectively)	$	5,055		$	4,743
Payroll and benefits payable (MPLX: $1 and $18, respectively)	439			503
Consumer excise taxes payable (MPLX: $2 and $1, respectively)	329			460
Accrued taxes (MPLX: $35 and $26, respectively)	163			184
Debt due within one year (MPLX: $1 and $1, respectively)	28			29
Other current liabilities (MPLX: $72 and $65, respectively)	326			426
Total current liabilities	6,340			6,345
Long-term debt (MPLX: $4,411 and $5,255, respectively)	10,538			11,896
Deferred income taxes (MPLX: $5 and $378, respectively)	3,682			3,285
Defined benefit postretirement plan obligations	1,174			1,179
Deferred credits and other liabilities (MPLX: $163 and $170, respectively)	602			735
Total liabilities	22,336			23,440
Commitments and contingencies (see Note 22)
Redeemable noncontrolling interest	1,000			—
Equity
MPC stockholders’ equity:
Preferred stock, no shares issued and outstanding (par value 0.01 per share, 30 million shares authorized)	—			—
Common stock:
Issued – 731 million and 729 million shares (par value 0.01 per share, 1 billion shares authorized)	7			7
Held in treasury, at cost – 203 million and 198 million shares	(7,459		)	(7,275		)
Additional paid-in capital	11,005			11,071
Retained earnings	10,169			9,752
Accumulated other comprehensive loss	(327		)	(318		)
Total MPC stockholders’ equity	13,395			13,237
Noncontrolling interests	6,562			6,438
Total equity	19,957			19,675
Total liabilities, redeemable noncontrolling interest and equity	$	43,293		$	43,115

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

Marathon Petroleum Corporation

Consolidated Statements of Cash Flows (Unaudited)



	Nine Months Ended September 30,
(In millions)	2016			2015
Increase (decrease) in cash and cash equivalents
Operating activities:
Net income	$	924		$	2,700
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred financing costs and debt discount	47			9
Impairment expense	130			144
Depreciation and amortization	1,497			1,089
Inventory market valuation adjustment	(370		)	—
Pension and other postretirement benefits, net	(21		)	51
Deferred income taxes	335			(6		)
Net gain on disposal of assets	(26		)	(6		)
Equity method investments, net	435			8
Changes in the fair value of derivative instruments	6			9
Changes in:
Current receivables	(209		)	931
Inventories	71			86
Current accounts payable and accrued liabilities	237			(1,707		)
All other, net	(61		)	(55		)
Net cash provided by operating activities	2,995			3,253
Investing activities:
Additions to property, plant and equipment	(2,147		)	(1,277		)
Disposal of assets	88			14
Investments – acquisitions, loans and contributions	(240		)	(221		)
– redemptions, repayments and return of capital	20			4
All other, net	62			52
Net cash used in investing activities	(2,217		)	(1,428		)
Financing activities:
Commercial paper – issued	1,063			—
– repayments	(1,063		)	—
Long-term debt – borrowings	714			528
– repayments	(2,112		)	(433		)
Debt issuance costs	(11		)	(4		)
Issuance of common stock	8			29
Common stock repurchased	(177		)	(773		)
Dividends paid	(529		)	(443		)
Issuance of MPLX LP common units	499			—
Issuance of MPLX LP redeemable preferred units	984			—
Distributions to noncontrolling interests	(389		)	(29		)
Contingent consideration payment	(164		)	(175		)
All other, net	(19		)	25
Net cash used in financing activities	(1,196		)	(1,275		)
Net increase (decrease) in cash and cash equivalents	(418		)	550
Cash and cash equivalents at beginning of period	1,127			1,494
Cash and cash equivalents at end of period	$	709		$	2,044

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

Marathon Petroleum Corporation

Consolidated Statements of Equity and Redeemable Noncontrolling Interest (Unaudited)



	MPC Stockholders’ Equity
(In millions)	Common Stock		Treasury Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests			Total Equity			Redeemable Noncontrolling Interest
Balance as of December 31, 2014	$	7	$	(6,299	)	$	9,841		$	7,515		$	(313	)	$	639		$	11,390
Net income	—		—			—			2,665			—			35			2,700
Dividends declared	—		—			—			(444		)	—			—			(444		)
Distributions to noncontrolling interests	—		—			—			—			—			(29		)	(29		)
Other comprehensive income	—		—			—			—			1			—			1
Shares repurchased	—		(773		)	—			—			—			—			(773		)
Shares issued (returned) – stock-based compensation	—		(11		)	29			—			—			—			18
Stock-based compensation	—		—			59			—			—			1			60
Issuance of MPLX LP common units	—		—			—			—			—			2			2
Balance as of September 30, 2015	$	7	$	(7,083	)	$	9,929		$	9,736		$	(312	)	$	648		$	12,925		$	—
Balance as of December 31, 2015	$	7	$	(7,275	)	$	11,071		$	9,752		$	(318	)	$	6,438		$	19,675		$	—
Net income (loss)	—		—			—			947			—			(48		)	899			25
Dividends declared	—		—			—			(530		)	—			—			(530		)	—
Distributions to noncontrolling interests	—		—			—			—			—			(380		)	(380		)	(9		)
Other comprehensive loss	—		—			—			—			(9		)	—			(9		)	—
Shares repurchased	—		(177		)	—			—			—			—			(177		)	—
Shares issued (returned) – stock-based compensation	—		(7		)	8			—			—			—			1			—
Stock-based compensation	—		—			39			—			—			6			45			—
Issuance of MPLX LP common units	—		—			(43		)	—			—			542			499			—
Deferred income tax effect from changes in noncontrolling interest - MarkWest Merger	—		—			(115		)	—			—			—			(115		)	—
Deferred income tax effect from changes in noncontrolling interest - contribution of inland marine	—		—			42			—			—			—			42			—
Issuance of MPLX LP redeemable preferred units	—		—			—			—			—			—			—			984
Tax effect of MPLX reorganization	—		—			3			—			—			—			3			—
Other	—		—			—			—			—			4			4			—
Balance as of September 30, 2016	$	7	$	(7,459	)	$	11,005		$	10,169		$	(327	)	$	6,562		$	19,957		$	1,000

(Shares in millions)	Common Stock		Treasury Stock
Balance as of December 31, 2014	726		(179		)
Shares repurchased	—		(15		)
Shares issued (returned) – stock-based compensation	3		(1		)
Balance as of September 30, 2015	729		(195		)
Balance as of December 31, 2015	729		(198		)
Shares repurchased	—		(4		)
Shares issued – stock-based compensation	2		(1		)
Balance as of September 30, 2016	731		(203		)

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

1. Description of the Business and Basis of Presentation

Description of the Business—Our business consists of refining and marketing, retail and midstream services conducted primarily in the Midwest, Gulf Coast, East Coast, Northeast and Southeast regions of the United States, through subsidiaries, including Marathon Petroleum Company LP, Speedway LLC and its subsidiaries (“Speedway”) and MPLX LP and its subsidiaries (“MPLX”).

See Note 9 for additional information about our operations.

Basis of Presentation—All 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 necessary for a fair statement of the results for the periods reported. All such adjustments are of a normal, recurring nature unless otherwise disclosed. These interim consolidated financial statements, including the notes, have been prepared in accordance with the rules of the SEC applicable to interim period financial statements and do not include all of the information and disclosures required by U.S. GAAP for complete financial statements.

These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015. The results of operations for the three and nine months ended September 30, 2016 are not necessarily indicative of the results to be expected for the full year.

Certain prior period financial statement amounts have been reclassified to conform to current period presentation. In the first quarter of 2016, we revised our segment reporting in connection with the contribution of our inland marine business to MPLX. See Note 3 for additional information. The operating results for our inland marine business and our investment in an ocean vessel joint venture, Crowley Ocean Partners LLC (“Crowley Ocean Partners”), are now reported in our Midstream segment. Previously they were reported as part of our Refining & Marketing segment. Comparable prior period information has been recast to reflect our revised segment presentation. See Note 9 for additional information.

2. Accounting Standards

Recently Adopted

In September 2015, the FASB issued an accounting standard update that eliminates the requirement to restate prior period financial statements for measurement period adjustments related to business combinations. This accounting standard update requires that the cumulative impact of a measurement period adjustment be recognized in the reporting period in which the adjustment is identified. The change was effective for interim and annual periods beginning after December 15, 2015. We recognized measurement period adjustments during the first and second quarters of 2016 on a cumulative prospective basis as additional analysis was completed on the preliminary purchase price allocation for the acquisition of MarkWest Energy Partners, L.P. (“MarkWest”). See Note 4 for further discussion and detail related to these measurement period adjustments.

In May 2015, the FASB issued an accounting standard update that eliminates the requirement to categorize investments that are measured at net asset value using the practical expedient in the fair value hierarchy. The change was effective for fiscal years beginning after December 15, 2015 and interim periods within the fiscal year. Retrospective application is required. Adoption of this accounting standard update in the first quarter of 2016 did not have a material impact on our disclosures.

In April 2015, the FASB issued an accounting standard update clarifying whether a customer should account for a cloud computing arrangement as an acquisition of a software license or as a service arrangement by providing characteristics that a cloud computing arrangement must have in order to be accounted for as a software license acquisition. The change was effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2015. Retrospective or prospective application is allowed. We adopted this accounting standard update prospectively in the first quarter of 2016 and it did not have a material impact on our consolidated results of operations, financial position or cash flows.

In February 2015, the FASB issued an accounting standard update making targeted changes to the current consolidation guidance. The accounting standard update changes the considerations related to substantive rights, related parties, and decision making fees when applying the VIE consolidation model and eliminates certain guidance for limited partnerships and similar entities under the voting interest consolidation model. The change was effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2015. Under the accounting standard update, we continue to consolidate our master limited partnership, MPLX, but it is now considered to be a VIE. The adoption of this accounting standard update in the first quarter of 2016 did impact our disclosures for this consolidated VIE, but did not have a material impact on our results of operations, financial position or cash flows.

Table of Contents

In June 2014, the FASB issued an accounting standard update for the elimination of the concept of development stage entity (“DSE”) from U.S. GAAP and removes the related incremental reporting. The accounting standard update eliminated the additional financial statement requirements specific to a DSE and was adopted in the first quarter of 2015. In addition, the portion of the accounting standard update that amended the consolidation model to eliminate the special provisions in the VIE rules for assessing the sufficiency of the equity of a DSE was adopted in the first quarter of 2016. Adoption of this accounting standard update in the first quarter of 2015 and 2016 did not have an impact on our consolidated results of operations, financial position or cash flows.

Not Yet Adopted

In August 2016, the FASB issued an accounting standard update related to the classification of certain cash flows. This accounting standard update provides classification solutions for eight different cash flow items including: debt prepayment/extinguishment costs, settlement of zero-coupon bonds, contingent consideration payments made after a business combination, proceeds from settlement of insurance claims, proceeds from settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. The change is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. We do not expect application of this accounting standard update to have a material impact on our statement of cash flows.

In June 2016, the FASB issued an accounting standard update related to the accounting for credit losses on certain financial instruments. The guidance requires that for most financial assets, losses be based on an expected loss approach which includes estimates of losses over the life of exposure that considers historical, current and forecasted information. Expanded disclosures related to the methods used to estimate the losses as well as a specific disaggregation of balances for financial assets are also required. The change is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We do not expect application of this accounting standard update to have a material impact on our consolidated financial statements.

In March 2016, the FASB issued an accounting standard update to simplify some provisions in stock compensation accounting. The areas for simplification involve the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities and classification within the statement of cash flows. This change will be effective for fiscal years beginning after December 15, 2016, and interim periods within those years. Early adoption is permitted. We do not expect application of this accounting standard update to have a material impact on our consolidated financial statements.

In March 2016, the FASB issued an accounting standard update eliminating the requirement that an investor retrospectively apply equity method accounting when an investment that it had accounted for by another method initially qualifies for the equity method. This change will be effective for fiscal years beginning after December 15, 2016, and interim periods within those years. The guidance will be applied prospectively and early adoption is permitted. We do not expect application of this accounting standard update to have a material impact on our consolidated financial statements.

In February 2016, the FASB issued an accounting standard update on lease accounting. This accounting standard update requires lessees to record virtually all leases on their balance sheets. The accounting standard update also requires expanded disclosures to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. The change will be effective on a modified retrospective basis for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. We are in the process of determining the impact of the accounting standard update on our consolidated financial statements.

In January 2016, the FASB issued an accounting standard update requiring unconsolidated equity investments, not accounted for under the equity method, to be measured at fair value with changes in fair value recognized in net income. The accounting standard update also requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes and the separate presentation of financial assets and liabilities by measurement category and form on the balance sheet and accompanying notes. The accounting standard update eliminates the requirement to disclose the methods and assumptions used in estimating the fair value of financial instruments measured at amortized cost. Lastly, the accounting standard update requires separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when electing to measure the liability at fair value in accordance with the fair value option for financial instruments. The changes are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017. Early adoption is permitted only for the guidance regarding presentation of a liability’s credit risk. We do not expect application of this accounting standard update to have a material impact on our consolidated financial statements.

Table of Contents

In August 2014, the FASB issued an accounting standard update requiring management to assess an entity’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. Management will be required to assess if there is substantial doubt about an entity’s ability to continue as a going concern within one year after the issuance of the financial statements. Disclosures will be required if conditions give rise to substantial doubt and the type of disclosure will be determined based on whether management’s plans will be able to alleviate the substantial doubt. The change will be effective for the first fiscal period ending after December 15, 2016, and for fiscal periods and interim periods thereafter with early application permitted. We do not expect application of this accounting standard update to have an impact on our disclosures.

In May 2014, the FASB issued an accounting standard update for revenue recognition for contracts with customers. The guidance in the accounting standard update states that revenue is recognized when a customer obtains control of a good or service. Recognition of the revenue will involve a multiple step approach including identifying the contract, identifying the separate performance obligations, determining the transaction price, allocating the price to the performance obligations and then recognizing the revenue as the obligations are satisfied. Additional disclosures will be required to provide adequate information to understand the nature, amount, timing and uncertainty of reported revenues and revenues expected to be recognized. The change will be effective on a retrospective or modified retrospective basis for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption permitted, no earlier than January 1, 2017. We are in the process of determining the impact of the accounting standard update on our consolidated financial statements.

3. MPLX LP

MPLX is a publicly traded master limited partnership formed by us to own, operate, develop and acquire pipelines and other midstream assets related to the transportation and storage of hydrocarbon-based products, including crude oil, refined products, natural gas and NGLs. On December 4, 2015, MPLX and MarkWest completed a merger, whereby MarkWest became a wholly-owned subsidiary of MPLX (the “MarkWest Merger”). MarkWest’s operations include: natural gas gathering, processing and transportation; and NGL gathering, transportation, fractionation, storage and marketing. MPLX’s other assets include a 100 percent interest in MPLX Pipe Line Holdings LLC, which owns a network of common carrier crude oil and product pipeline systems and associated storage assets in the Midwest and Gulf Coast regions of the United States and a 100 percent interest in a butane cavern in Neal, West Virginia. MPLX also owns an inland marine business, which is comprised of 18 tow boats and approximately 200 barges that transports primarily crude oil and refined products principally for MPC in the Midwest and Gulf Coast regions of the United States.

See Note 4 for information on MPLX’s anticipated investment in the Bakken Pipeline system.

As of September 30, 2016, we owned a 24 percent interest in MPLX, including a two percent general partner interest. This ownership percentage reflects the conversion of the MPLX Class B Units in July of 2017 at 1.09 to 1.00 and assumes exchange of the MPLX preferred units on a one for one basis. MPLX is a VIE because the limited partners of MPLX do not have substantive kick-out or substantive participating rights over the general partner. We are the primary beneficiary of MPLX because in addition to significant economic interest, we also have the power, through our 100 percent ownership of the general partner, to control the decisions that most significantly impact MPLX. We therefore consolidate MPLX and record a noncontrolling interest for the 76 percent interest owned by the public. The components of our noncontrolling interest consist of equity-based noncontrolling interest and redeemable noncontrolling interest. The redeemable noncontrolling interest relates to MPLX’s preferred units, discussed below.

The creditors of MPLX do not have recourse to MPC’s general credit through guarantees or other financial arrangements. The assets of MPLX are the property of MPLX and cannot be used to satisfy the obligations of MPC.

Reorganization Transactions

On September 1, 2016, MPC, MPLX and various affiliates initiated a series of reorganization transactions in order to simplify MPLX’s ownership structure and its financial and tax reporting. In connection with these transactions, MPC contributed $225 million to MPLX and the issued and outstanding MPLX Class A Units, all of which were held by MarkWest Hydrocarbon L.L.C. (“MarkWest Hydrocarbon”), a subsidiary of MPLX, were exchanged for newly issued common units representing limited partner interests in MPLX. The simple average of the closing prices of MPLX common units for the last 10 trading days prior to September 1, 2016 was used for purposes of these transactions. As a result of these transactions, MPC increased its ownership interest in MPLX by 7 million MPLX common units, or approximately 1 percent.

Private Placement of Preferred Units

On May 13, 2016, MPLX completed the private placement of approximately 30.8 million 6.5 percent Series A Convertible Preferred Units (the “MPLX Preferred Units”) for a cash price of $32.50 per unit. The aggregate net proceeds of approximately $984 million from the sale of the MPLX Preferred Units was used for capital expenditures, repayment of debt and general partnership purposes.

Table of Contents

The MPLX Preferred Units rank senior to all MPLX common units with respect to distributions and rights upon liquidation. The holders of the MPLX Preferred Units are entitled to receive quarterly distributions equal to $0.528125 per unit commencing for the quarter ended June 30, 2016, with a prorated amount from the date of issuance. Following the second anniversary of the issuance of the MPLX Preferred Units, the holders of the MPLX Preferred Units will receive as a distribution the greater of $0.528125 per unit or the amount of per unit distributions paid to common units. The MPLX Preferred Units are convertible into MPLX common units on a one for one basis after three years, at the purchasers’ option, and after four years at MPLX’s option, subject to certain conditions.

The MPLX Preferred Units are considered redeemable securities due to the existence of redemption provisions upon a deemed liquidation event which is considered outside our control. Therefore, they are presented as temporary equity in the mezzanine section of the consolidated balance sheets. We have recorded the MPLX Preferred Units at their issuance date fair value, net of issuance costs. Since the MPLX Preferred Units are not currently redeemable and not probable of becoming redeemable in the future, adjustment to the initial carrying amount is not necessary and would only be required if it becomes probable that the security would become redeemable.

Contribution of Inland Marine Business to MPLX

On March 31, 2016, we contributed our inland marine business to MPLX in exchange for 23 million common units and 460 thousand general partner units. The number of units we received from MPLX was determined by dividing $600 million by the volume weighted average NYSE price of MPLX common units for the 10 trading days preceding March 14, 2016, pursuant to the Membership Interests Contribution Agreement. We also agreed to waive first-quarter 2016 common unit distributions, IDRs and general partner distributions with respect to the common units issued in this transaction. The contribution of our inland marine business was accounted for as a transaction between entities under common control and we did not record a gain or loss.

ATM Program

On August 4, 2016, MPLX entered into a second amended and restated distribution agreement providing for the continuous issuance of up to an aggregate of $1.18 billion of common units, in amounts, at prices and on terms to be determined by market conditions and other factors at the time of any offerings (such continuous offering program, or at-the-market program, referred to as the “ATM Program”). MPLX expects to use the net proceeds from sales under the ATM Program for general partnership purposes including repayment of debt and funding for acquisitions, working capital requirements and capital expenditures.

During the nine months ended September 30, 2016, MPLX issued an aggregate of 18 million common units under the ATM Program, generating net proceeds of approximately $499 million. As a result of common units issued under the ATM Program during the period, we contributed approximately $10 million to MPLX in exchange for general partner units to maintain our two percent general partner interest.

Agreements

We have various long-term, fee-based transportation and storage services agreements with MPLX. Under these agreements, MPLX provides transportation and storage services to us, and we commit to provide MPLX with minimum quarterly throughput volumes on crude oil and refined products systems and minimum storage volumes of crude oil, refined products and butane. We also have agreements with MPLX that establish fees for operational and management services provided between us and MPLX and for executive management services and certain general and administrative services provided by us to MPLX. These transactions are eliminated in consolidation.

4. Acquisitions and Investments

Merger with MarkWest Energy Partners, L.P.

On December 4, 2015, MPLX completed the MarkWest Merger. The total value of consideration transferred was $8.61 billion, consisting of $7.33 billion in equity and $1.28 billion in cash. At closing, we made a payment of $1.23 billion to MarkWest common unitholders and the remaining $50 million will be paid in equal amounts, the first of which was paid in July 2016 and the second of which will be paid in July 2017, in connection with the conversion of the MPLX Class B Units to MPLX common units. Our financial results and operating statistics reflect the results of MarkWest from the date of the MarkWest Merger.

Table of Contents

The following table summarizes the final purchase price allocation. Subsequent to December 31, 2015, additional analysis was completed and adjustments were made to the preliminary purchase price allocation as noted in the table below. The estimated fair value of assets acquired and liabilities and noncontrolling interests assumed at the acquisition date, are as follows:



(In millions)	As originally reported		Adjustments			As adjusted
Cash and cash equivalents	$	12	$	—		$	12
Receivables	164		—			164
Inventories	33		(1		)	32
Other current assets	44		—			44
Equity method investments	2,457		143			2,600
Property, plant and equipment, net	8,474		43			8,517
Other noncurrent assets^(a)	473		65			538
Total assets acquired	11,657		250			11,907
Accounts payable	322		6			328
Payroll and benefits payable	13		—			13
Accrued taxes	21		—			21
Other current liabilities	44		—			44
Long-term debt	4,567		—			4,567
Deferred income taxes	374		3			377
Deferred credit and other liabilities	151		—			151
Noncontrolling interest	13		—			13
Total liabilities and noncontrolling interest assumed	5,505		9			5,514
Net assets acquired excluding goodwill	6,152		241			6,393
Goodwill	2,454		(241		)	2,213
Net assets acquired	$	8,606	$	—		$	8,606


^(a)	The adjustment relates to acquired intangible assets.

Adjustments to the preliminary purchase price allocations as of December 31, 2015 stem mainly from additional information obtained by management in the first quarter about facts and circumstances that existed at the acquisition date including updates to forecasted employee benefit costs and capital expenditures, and completion of certain valuations to determine the underlying fair value of certain acquired assets. The adjustment to intangibles mainly relates to a misstatement in the preliminary purchase price allocation as of December 31, 2015. The correction of the error in the first quarter resulted in a $68 million reduction to the carrying value of goodwill and offsetting increases of $64 million in intangibles and $2 million in both equity method investments and property, plant and equipment. Management concluded that the correction of the error is immaterial to the consolidated financial statements for all periods presented.

The increases to fair value of equity method investments, property plant and equipment, and other noncurrent assets noted above would not have resulted in a material effect to depreciation and amortization or income from equity method investments in the consolidated statements of income for the year ended December 31, 2015, had the fair value adjustments been recorded as of December 4, 2015.

The net fair value of the assets acquired and liabilities assumed in connection with the MarkWest Merger was less than the fair value of the total consideration resulting in the recognition of $2.21 billion of goodwill in three reporting units within our Midstream segment, substantially all of which is not deductible for tax purposes. Goodwill represents the complementary aspects of the highly diverse asset base of MarkWest and MPLX that will provide significant additional opportunities across the hydrocarbon value chain.

As further discussed in Note 14, we recorded a goodwill impairment charge based on the implied fair value of goodwill as of the interim impairment analysis in the first quarter of 2016. During the second quarter of 2016, we finalized the analysis of the purchase price allocation. The completion of the purchase price allocation resulted in a refinement of the impairment expense recorded, as more fully discussed in Note 14.

Table of Contents

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information presents consolidated results assuming the MarkWest Merger occurred on January 1, 2014.



	Three Months Ended September 30,		Nine Months Ended September 30,
(In millions, except per share data)	2015		2015
Sales and other operating revenues (including consumer excise taxes)	$	19,186	$	57,830
Net income attributable to MPC	943		2,600
Net income attributable to MPC per share – basic	$	1.76	$	4.81
Net income attributable to MPC per share – diluted	1.75		4.78

The unaudited pro forma financial information includes adjustments to align accounting policies, increased depreciation expense to reflect the fair value of property, plant and equipment, increased amortization expense related to identifiable intangible assets, adjustments to amortize the difference between the fair value and the principal amount of the MarkWest debt assumed by MPLX, adjustments to reflect the change in our limited partner interest in MPLX resulting from the MarkWest Merger, as well as the related income tax effects. The unaudited pro forma financial information does not give effect to potential synergies that could result from the transaction and is not necessarily indicative of the results of future operations.

Investments in Ocean Vessel Joint Ventures

We currently have indirect ownership interests in two ocean vessel joint ventures with Crowley Maritime Corporation (“Crowley”), which were established to own and operate Jones Act vessels in petroleum product service.

In September 2015, we acquired a 50 percent ownership interest in a joint venture, Crowley Ocean Partners, with Crowley. The joint venture owns and operates four new Jones Act product tankers, three of which are leased to MPC. Two of the vessels were delivered in 2015, the third was delivered in April 2016 and the fourth was delivered in August 2016. During the nine months ended September 30, 2016, we contributed $69 million in connection with the delivery of the third and fourth vessels. We have contributed a total of $141 million for the four vessels.

In May 2016, MPC and Crowley formed a new ocean vessel joint venture, Crowley Coastal Partners LLC (“Crowley Coastal Partners”), in which MPC has a 50 percent ownership interest. MPC and Crowley each contributed their 50 percent ownership in Crowley Ocean Partners, discussed above, into Crowley Coastal Partners. In addition, we contributed $48 million in cash and Crowley contributed its 100 percent ownership interest in Crowley Blue Water Partners LLC (“Crowley Blue Water Partners”) to Crowley Coastal Partners. Crowley Blue Water Partners is an entity that owns and operates three 750 Series ATB vessels that are leased to MPC. We account for our 50 percent interest in Crowley Coastal Partners as part of our Midstream segment using the equity method of accounting.

See Note 5 for information on Crowley Coastal Partners as a VIE and Note 22 for information on our conditional guarantee of the indebtedness of Crowley Ocean Partners and Crowley Blue Water Partners.

Investments in Pipeline Companies

In November 2013, we agreed to serve as an anchor shipper for the Sandpiper pipeline project and fund 37.5 percent of the construction costs of the project, which was to become part of Enbridge Energy Partners L.P.’s (“Enbridge Energy Partners”) North Dakota System. In exchange for these commitments, we were to earn an approximate 27 percent equity interest in Enbridge Energy Partners’ North Dakota System when the Sandpiper pipeline is placed into service. We made contributions of $14 million to North Dakota Pipeline Company LLC (“North Dakota Pipeline”) during the nine months ended September 30, 2016 and have contributed $301 million since project inception to fund our share of the construction costs for the project.

On September 1, 2016, Enbridge Energy Partners announced that its affiliate, North Dakota Pipeline, would withdraw certain pending regulatory applications for the Sandpiper pipeline project and that the project would be deferred indefinitely. These decisions were considered to indicate an impairment of the costs capitalized to date on the project. See Note 15 for information regarding the charge recognized in the third quarter of 2016.

Table of Contents

MPLX currently expects to participate in a joint venture with Enbridge Energy Partners to acquire a 9.1875 percent equity interest in the Dakota Access Pipeline (“DAPL”) and Energy Transfer Crude Oil Company Pipeline (“ETCOP”) projects, collectively referred to as the Bakken Pipeline system, from Energy Transfer Partners, L.P. (“ETP”) and Sunoco Logistics Partners, L.P. (“SXL”) for $500 million. Furthermore, MPC expects to become a committed shipper on the Bakken Pipeline system under terms of an on-going open season. The acquisition remains subject to certain closing conditions and is expected to close in the fourth quarter of 2016.

The Bakken Pipeline system is currently expected to deliver in excess of 470,000 barrels per day of crude oil from the Bakken/Three Forks production area in North Dakota to the Midwest through Patoka, Illinois and ultimately to the Gulf Coast. ETP and SXL collectively own a 75 percent interest in each of the two joint ventures that are developing the Bakken Pipeline system. MPLX and Enbridge Energy Partners will participate in a new joint venture to acquire 49 percent of ETP and SXL’s 75 percent indirect interest in the Bakken Pipeline system. MPLX will own 25 percent of this new joint venture with Enbridge, which results in a 9.1875 percent indirect ownership interest in the Bakken Pipeline system. MPLX expects to account for its investment using the equity method of accounting.

Subject to the closing of the transaction with ETP and SXL, Enbridge Energy Partners has agreed to cancel MPC’s transportation services agreement with respect to the Sandpiper pipeline project and release MPC from paying any termination fee per that agreement.

5. Variable Interest Entities

In addition to MPLX, as described in Note 3, the following entities are also VIEs.

Crowley Coastal Partners

In May 2016, Crowley Coastal Partners was formed to own the interest in both Crowley Ocean Partners and Crowley Blue Water Partners. We have determined that Crowley Coastal Partners is a VIE based on the terms of the existing financing arrangements for Crowley Blue Water Partners and Crowley Ocean Partners and the associated debt guarantees by MPC and Crowley. Our maximum exposure to loss at September 30, 2016 was $491 million, which includes our equity method investment in Crowley Coastal Partners and the debt guarantees provided to each of the lenders to Crowley Blue Water Partners and Crowley Ocean Partners. We are not the primary beneficiary of this VIE because we do not have the power to control the activities that significantly influence the economic outcomes of the entity and therefore, do not consolidate the entity.

MarkWest Utica EMG

On January 1, 2012, MarkWest Utica Operating Company, LLC (“Utica Operating”), a wholly-owned and consolidated subsidiary of MarkWest, and EMG Utica, LLC ("EMG Utica") (together the "Members"), executed agreements to form a joint venture, MarkWest Utica EMG LLC (“MarkWest Utica EMG”), to develop significant natural gas gathering, processing and NGL fractionation, transportation and marketing infrastructure in eastern Ohio.

MarkWest has a 60 percent legal ownership interest in MarkWest Utica EMG. MarkWest Utica EMG's inability to fund its planned activities without subordinated financial support qualify it as a VIE. Utica Operating is not deemed to be the primary beneficiary due to EMG Utica’s voting rights on significant matters. We account for our ownership interest in MarkWest Utica EMG as an equity method investment. MPLX receives engineering and construction and administrative management fee revenue and reimbursement for other direct personnel costs for operating MarkWest Utica EMG. Our maximum exposure to loss as a result of our involvement with MarkWest Utica EMG includes our equity investment, any additional capital contribution commitments and any operating expenses incurred by the subsidiary operator in excess of compensation received for the performance of the operating services. Our equity investment in MarkWest Utica EMG at September 30, 2016 was $2.25 billion.

Ohio Gathering

Ohio Gathering Company, L.L.C. (“Ohio Gathering”) is a subsidiary of MarkWest Utica EMG and is engaged in providing natural gas gathering services in the Utica Shale in eastern Ohio. Ohio Gathering is a joint venture between MarkWest Utica EMG and Summit Midstream Partners, LLC. As of September 30, 2016, we had a 36 percent indirect ownership interest in Ohio Gathering. As this entity is a subsidiary of MarkWest Utica EMG, which is accounted for as an equity method investment, MPLX reports its portion of Ohio Gathering’s net assets as a component of its investment in MarkWest Utica EMG. MPLX receives engineering and construction and administrative management fee revenue and reimbursement for other direct personnel costs for operating Ohio Gathering.

Table of Contents

6. Related Party Transactions

Our related parties include:


•	Centennial Pipeline LLC (“Centennial”), in which we have a 50 percent noncontrolling interest. Centennial owns a refined products pipeline and storage facility.


•	Crowley Blue Water Partners, in which we have a 50 percent indirect noncontrolling interest. Crowley Blue Water Partners owns and operates three Jones Act ATB vessels.


•	Crowley Ocean Partners, in which we have a 50 percent indirect noncontrolling interest. Crowley Ocean Partners owns and operates Jones Act product tankers.


•	Explorer Pipeline Company (“Explorer”), in which we have a 25 percent interest. Explorer owns and operates a refined products pipeline.


•	Illinois Extension Pipeline Company, LLC (“Illinois Extension Pipeline”), in which we have a 35 percent noncontrolling interest. Illinois Extension Pipeline owns and operates a crude oil pipeline.


•	LOCAP LLC (“LOCAP”), in which we have a 59 percent noncontrolling interest. LOCAP owns and operates a crude oil pipeline.


•	LOOP LLC (“LOOP”), in which we have a 51 percent noncontrolling interest. LOOP owns and operates the only U.S. deepwater oil port.


•	MarkWest EMG Jefferson Dry Gas Gathering Company, L.L.C. (“Jefferson Dry Gas”), in which we have a 67 percent noncontrolling interest. Jefferson Dry Gas is engaged in dry natural gas gathering in the county of Jefferson, Ohio.


•	MarkWest Utica EMG, in which we have a 60 percent noncontrolling interest. MarkWest Utica EMG owns and operates a NGL pipeline and natural gas gathering system.


•	Ohio Condensate Company, L.L.C. (“Ohio Condensate”), in which we have a 60 percent noncontrolling interest. Ohio Condensate owns and operates wellhead condensate stabilization and gathering services for certain locations within Ohio.


•	Ohio Gathering, in which we have a 36 percent indirect noncontrolling interest. Ohio Gathering owns, operates and develops midstream gathering infrastructure in southeastern Ohio.

•

The Andersons Albion Ethanol LLC (“TAAE”), in which we have a 45 percent noncontrolling interest, The Andersons Clymers Ethanol LLC (“TACE”), in which we have a 60 percent noncontrolling interest and The Andersons Marathon Ethanol LLC (“TAME”), in which we have a 67 percent direct and indirect noncontrolling interest. These companies each own and operate an ethanol production facility.


•	Other equity method investees.

We believe that transactions with related parties were conducted on terms comparable to those with unaffiliated parties.

Sales to related parties, which are included in “Sales and other operating revenues (including consumer excise taxes)” on the accompanying consolidated statements of income, were $2 million and $1 million for the three months ended September 30, 2016 and 2015, respectively, and $5 million and $4 million for the nine months ended September 30, 2016 and 2015, respectively.

Other income from related parties, which is included in “Other income” on the accompanying consolidated statements of income, were $12 million and less than $1 million for the three months ended September 30, 2016 and 2015, respectively, and $31 million and $1 million for the nine months ended September 30, 2016 and 2015, respectively. Other income from related parties consists primarily of fees received for operating transportation assets for our related parties.

Table of Contents

Purchases from related parties were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2016		2015		2016		2015
Crowley Blue Water Partners	$	16	$	—	$	22	$	—
Crowley Ocean Partners	15		—		32		—
Explorer	4		2		12		16
Illinois Extension Pipeline	27		—		82		—
LOCAP	6		6		18		17
LOOP	14		12		42		38
Ohio Condensate	2		—		8		—
TAAE	9		11		29		39
TACE	10		7		39		38
TAME	23		21		67		64
Other equity method investees	2		2		8		7
Total	$	128	$	61	$	359	$	219

Related party purchases from Crowley Blue Water Partners and Crowley Ocean Partners consist of leasing marine equipment primarily used to transport refined products. Related party purchases from Explorer consist primarily of refined product transportation costs. Related party purchases from Illinois Extension Pipeline, LOCAP, LOOP and other equity method investees consist primarily of crude oil transportation costs. Related party purchases from Ohio Condensate consist of condensate processing fees. Related party purchases from TAAE, TACE and TAME consist of ethanol purchases.

Receivables from related parties, which are included in “Receivables, less allowance for doubtful accounts” on the accompanying consolidated balance sheets, were as follows:



(In millions)	September 30, 2016		December 31, 2015
Centennial	$	1	$	1
Jefferson Dry Gas	—		2
MarkWest Utica EMG	2		1
Ohio Condensate	—		3
Ohio Gathering	2		5
Other equity method investees	2		1
Total	$	7	$	13

The long-term receivable, which is included in “Other noncurrent assets” on the accompanying consolidated balance sheet, was $1 million at September 30, 2016 and $1 million at December 31, 2015.

Table of Contents

Payables to related parties, which are included in “Accounts payable” on the accompanying consolidated balance sheets, were as follows:



(In millions)	September 30, 2016		December 31, 2015
Explorer	$	1	$	1
Illinois Extension Pipeline	9		4
LOCAP	2		2
LOOP	4		5
MarkWest Utica EMG	15		19
Ohio Condensate	1		4
TAAE	1		1
TACE	2		2
TAME	3		3
Other equity method investees	2		1
Total	$	40	$	42

7. Income per Common Share

We compute basic earnings per share by dividing net income attributable to MPC by the weighted average number of shares of common stock outstanding. Diluted income per share assumes exercise of certain stock-based compensation awards, provided the effect is not anti-dilutive.

MPC grants certain incentive compensation awards to employees and non-employee directors that are considered to be participating securities. Due to the presence of participating securities, we have calculated our earnings per share using the two-class method.



	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions, except per share data)	2016		2015		2016		2015
Basic earnings per share:
Allocation of earnings:
Net income attributable to MPC	$	145	$	948	$	947	$	2,665
Income allocated to participating securities	—		1		1		3
Income available to common stockholders – basic	$	145	$	947	$	946	$	2,662
Weighted average common shares outstanding	527		535		528		540
Basic earnings per share	$	0.28	$	1.77	$	1.79	$	4.93
Diluted earnings per share:
Allocation of earnings:
Net income attributable to MPC	$	145	$	948	$	947	$	2,665
Income allocated to participating securities	—		1		1		3
Income available to common stockholders – diluted	$	145	$	947	$	946	$	2,662
Weighted average common shares outstanding	527		535		528		540
Effect of dilutive securities	3		3		3		4
Weighted average common shares, including dilutive effect	530		538		531		544
Diluted earnings per share	$	0.27	$	1.76	$	1.78	$	4.90

Table of Contents

The following table summarizes the shares that were anti-dilutive and, therefore, were excluded from the diluted share calculation.



	Three Months Ended September 30,		Nine Months Ended September 30,
(In millions)	2016	2015	2016	2015
Shares issued under stock-based compensation plans	3	1	3	1

8. Equity

As of September 30, 2016, we have $2.58 billion of remaining share repurchase authorizations from our board of directors. We may utilize various methods to effect the repurchases, which could include open market repurchases, negotiated block transactions, accelerated share repurchases or open market solicitations for shares, some of which may be affected through Rule 10b5-1 plans. The timing and amount of future repurchases, if any, will depend upon several factors, including market and business conditions, and such repurchases may be discontinued at any time.

Total share repurchases were as follows for the three and nine months ended September 30, 2016 and 2015:



	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions, except per share data)	2016		2015		2016		2015
Number of shares repurchased	1		3		4		15
Cash paid for shares repurchased	$	51	$	156	$	177	$	773
Effective average cost per delivered share	$	42.76	$	50.86	$	41.14	$	49.97

9. Segment Information

In the first quarter of 2016, we revised our segment reporting in connection with the contribution of our inland marine business to MPLX. The operating results for our inland marine business and our investment in Crowley Ocean Partners are now reported in our Midstream segment. Previously they were reported as part of our Refining & Marketing segment. Comparable prior period information has been recast to reflect our revised segment presentation.

We have three reportable segments: Refining & Marketing; Speedway; and Midstream. Each of these segments is organized and managed based upon the nature of the products and services it offers.

•

Refining & Marketing – refines crude oil and other feedstocks at our refineries in the Gulf Coast and Midwest regions of the United States, purchases ethanol and refined products for resale and distributes refined products through various means, including terminals and trucks that we own or operate. We sell refined products to wholesale marketing customers domestically and internationally, to buyers on the spot market, to our Speedway segment and to independent entrepreneurs who operate Marathon^® retail outlets.


•	Speedway – sells transportation fuels and convenience merchandise in retail markets in the Midwest, East Coast and Southeast regions of the United States.


•	Midstream – includes the operations of MPLX and certain other related operations. The Midstream segment gathers, processes and transports natural gas; gathers, transports, fractionates, stores and markets NGLs and transports and stores crude oil and refined products.

On December 4, 2015, MPLX completed a merger with MarkWest and its results are included in the Midstream segment. Segment information for periods prior to the MarkWest Merger does not include amounts for these operations. See Note 4.

Segment income represents income from operations attributable to the reportable segments. Corporate administrative expenses and costs related to certain non-operating assets are not allocated to the reportable segments. In addition, certain items that affect comparability (as determined by the chief operating decision maker) are not allocated to the reportable segments.

Table of Contents



(In millions)	Refining & Marketing		Speedway		Midstream		Total
Three Months Ended September 30, 2016
Revenues:
Customer	$	11,286	$	4,848	$	484	$	16,618
Intersegment^(a)	2,798		1		206		3,005
Segment revenues	$	14,084	$	4,849	$	690	$	19,623
Segment income from operations^(b)	$	306	$	209	$	258	$	773
Income from equity method investments^(d)	8		—		51		59
Depreciation and amortization^(d)	277		71		145		493
Capital expenditures and investments^(e)	267		71		394		732



(In millions)	Refining & Marketing		Speedway		Midstream		Total
Three Months Ended September 30, 2015
Revenues:
Customer	$	13,441	$	5,256	$	19	$	18,716
Intersegment^(a)	3,192		1		198		3,391
Segment revenues	$	16,633	$	5,257	$	217	$	22,107
Segment income from operations^(b)	$	1,434	$	243	$	93	$	1,770
Income from equity method investments	6		—		17		23
Depreciation and amortization^(d)	262		63		27		352
Capital expenditures and investments^(e)	256		130		156		542



(In millions)	Refining & Marketing		Speedway		Midstream		Total
Nine Months Ended September 30, 2016
Revenues:
Customer	$	31,197	$	13,663	$	1,324	$	46,184
Intersegment^(a)	7,872		2		595		8,469
Segment revenues	$	39,069	$	13,665	$	1,919	$	54,653
Segment income from operations^(b)(c)	$	1,324	$	569	$	626	$	2,519
Income from equity method investments^(d)	10		—		110		120
Depreciation and amortization^(d)	820		203		429		1,452
Capital expenditures and investments^(e)	788		191		1,147		2,126

Table of Contents



(In millions)	Refining & Marketing		Speedway		Midstream		Total
Nine Months Ended September 30, 2015
Revenues:
Customer	$	41,277	$	15,116	$	51	$	56,444
Intersegment^(a)	9,353		3		587		9,943
Segment revenues	$	50,630	$	15,119	$	638	$	66,387
Segment income from operations^(b)	$	3,907	$	538	$	286	$	4,731
Income from equity method investments	20		—		38		58
Depreciation and amortization^(d)	784		188		79		1,051
Capital expenditures and investments^(e)	686		275		400		1,361


^(a)	Management believes intersegment transactions were conducted under terms comparable to those with unaffiliated parties.


^(b)	Corporate overhead expenses attributable to MPLX are included in the Midstream segment. Corporate overhead expenses are not allocated to the Refining & Marketing and Speedway segments.


^(c)	The Refining & Marketing and Speedway segments include inventory LCM benefit of $345 million and $25 million, respectively, for the nine months ended September 30, 2016.


^(d)	Differences between segment totals and MPC totals represent amounts related to unallocated items and are included in “Items not allocated to segments” in the reconciliation below.


^(e)	Capital expenditures include changes in capital accruals, acquisitions (including any goodwill) and investments in affiliates.

The following reconciles segment income from operations to income before income taxes as reported in the consolidated statements of income:



	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2016			2015			2016			2015
Segment income from operations	$	773		$	1,770		$	2,519		$	4,731
Items not allocated to segments:
Corporate and other unallocated items^(a)(b)	(67		)	(75		)	(201		)	(229		)
Pension settlement expenses^(c)	(4		)	(2		)	(7		)	(4		)
Impairments^(d)	(267		)	(144		)	(486		)	(144		)
Net interest and other financial income (costs)	(141		)	(70		)	(420		)	(215		)
Income before income taxes	$	294		$	1,479		$	1,405		$	4,139


^(a)	Corporate and other unallocated items consists primarily of MPC’s corporate administrative expenses and costs related to certain non-operating assets.


^(b)	Corporate overhead expenses attributable to MPLX are included in the Midstream segment. Corporate overhead expenses are not allocated to the Refining & Marketing and Speedway segments.


^(c)	See Note 20.


^(d)	2016 relates to impairments of goodwill and equity method investments. 2015 relates to the cancellation of the Residual Oil Upgrader Expansion project. See Notes 14 and 15, respectively.

Table of Contents

The following reconciles segment capital expenditures and investments to total capital expenditures:



	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2016		2015		2016		2015
Segment capital expenditures and investments	$	732	$	542	$	2,126	$	1,361
Less investments in equity method investees^(a)	69		72		383		221
Plus items not allocated to segments:
Capital expenditures	14		33		59		95
Capitalized interest	15		10		47		26
Total capital expenditures^(b)	$	692	$	513	$	1,849	$	1,261


^(a)	The nine months ended September 30, 2016 includes an adjustment of $143 million to the fair value of equity investments acquired in connection with the MarkWest Merger. See Note 4.


^(b)	Capital expenditures include changes in capital accruals. See Note 18 for a reconciliation of total capital expenditures to additions to property, plant and equipment as reported in the consolidated statements of cash flows.

10. Other Items

Net interest and other financial income (costs) was:



	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2016			2015			2016			2015
Interest income	$	3		$	2		$	5		$	5
Interest expense^(a)	(153		)	(77		)	(455		)	(226		)
Interest capitalized	15			11			47			27
Other financial costs	(6		)	(6		)	(17		)	(21		)
Net interest and other financial income (costs)	$	(141	)	$	(70	)	$	(420	)	$	(215	)


^(a)	The three and nine months ended September 30, 2016 includes $11 million and $33 million, respectively, for the amortization of the discount related to the difference between the fair value and the principal amount of the assumed MarkWest debt.

11. Income Taxes

The combined federal, state and foreign income tax rate was 26 percent and 35 percent for the three months ended September 30, 2016 and 2015, respectively and 34 percent and 35 percent for the nine months ended September 30, 2016 and 2015, respectively. The effective tax rate for the three months ended September 30, 2016 varies from the U.S. statutory rate of 35 percent primarily due to the effects of a lower forecasted annual effective tax rate as compared to the forecasted rate used for the first six months of 2016. The effective tax rate for the nine months ended September 30, 2016 is slightly less than the U.S. statutory rate of 35 percent primarily due to certain permanent tax differences related to the net income attributable to noncontrolling interests (including their proportional share of the goodwill impairment charge recorded by MPLX), the domestic manufacturing deduction and state and local tax expense. The effective tax rate for the three and nine months ended September 30, 2015 is equivalent to the U.S. statutory rate of 35 percent.

On March 31, 2016, we contributed our inland marine business to MPLX in exchange for MPLX common units representing limited partner interests and general partner units resulting in an increase in MPC’s controlling interest in MPLX. As a result of the change in our ownership of the underlying assets of MPLX, we recorded a decrease in MPC’s deferred tax liabilities of $42 million with an offsetting increase to additional paid-in capital.

During the first quarter of 2016, MPC’s deferred tax liabilities increased $115 million and additional paid-in capital decreased by the same amount for an out of period adjustment to update the preliminary tax effects recorded in 2015 related to the MarkWest Merger. The impact of the out of period adjustment was not material to the consolidated balance sheet as of December 31, 2015.

We are continuously undergoing examination of our income tax returns, which have been completed for our U.S. federal and state income tax returns through the 2009 and 2007 tax years, respectively. We had $6 million of unrecognized tax benefits as of September 30, 2016. Pursuant to our tax sharing agreement with Marathon Oil Corporation (“Marathon Oil”), the unrecognized tax benefits related to pre-spinoff operations for which Marathon Oil was the taxpayer remain the responsibility of Marathon Oil and we have indemnified Marathon Oil accordingly. See Note 22 for indemnification information.

Table of Contents

12. Inventories



(In millions)	September 30, 2016		December 31, 2015
Crude oil and refinery feedstocks	$	2,230	$	2,180
Refined products	2,689		2,804
Materials and supplies	442		438
Merchandise	163		173
LCM reserve	—		(370		)
Total	$	5,524	$	5,225

Inventories are carried at the lower of cost or market value. Costs of crude oil, refinery feedstocks and refined products are aggregated on a consolidated basis for purposes of assessing if the LIFO cost basis of these inventories may have to be written down to market values. As of December 31, 2015, costs of inventories exceeded market value by $370 million. As of September 30, 2016, market value exceeded cost. The effect of the change in LCM reserve was a $370 million benefit to cost of revenues for the nine months ended September 30, 2016. Based on movements of refined product prices, future inventory valuation adjustments could have a negative effect to earnings. Such losses are subject to reversal in subsequent periods if prices recover.

The cost of inventories of crude oil and refinery feedstocks, refined products and merchandise is determined primarily under the LIFO method. During the nine months ended September 30, 2016 and 2015, we recorded LIFO liquidations caused by permanently decreased levels in refined products inventory volumes. Cost of revenues increased and income from operations decreased by approximately $54 million and $30 million for the nine months ended September 30, 2016 and 2015, respectively, as a result of the LIFO liquidations.

13. Property, Plant and Equipment



(In millions)	September 30, 2016		December 31, 2015
Refining & Marketing	$	19,179	$	18,396
Speedway	5,224		5,067
Midstream	12,328		11,379
Corporate and Other	795		762
Total	37,526		35,604
Less accumulated depreciation	11,829		10,440
Property, plant and equipment, net	$	25,697	$	25,164

14. Goodwill

Goodwill is tested for impairment on an annual basis and when events or changes in circumstances indicate the fair value of a reporting unit with goodwill has been reduced below the carrying value of the net assets of the reporting unit.

During the first quarter of 2016, MPLX, our consolidated subsidiary, determined that an interim impairment analysis of the goodwill recorded in connection with the MarkWest Merger was necessary based on consideration of a number of first quarter events and circumstances, including i) continued deterioration of near term commodity prices as well as longer term pricing trends, ii) recent guidance on reductions to forecasted capital spending, the slowing of drilling activity and the resulting reduced production growth forecasts released or communicated by MPLX’s producer customers and iii) increases in the cost of capital. The combination of these factors was considered to be a triggering event requiring an interim impairment test. Based on the first step of the interim goodwill impairment analysis, the fair value for three of the reporting units to which goodwill was assigned in connection with the MarkWest Merger was less than their respective carrying value. In step two of the impairment analysis, the implied fair values of the goodwill were compared to the carrying values within those reporting units. Based on this assessment, it was determined that goodwill was impaired in two of the reporting units. Accordingly, MPLX recorded an impairment charge of approximately $129 million in the first quarter of 2016. In the second quarter of 2016, we completed our purchase price allocation, which resulted in an additional $1 million of impairment expense that would have been recorded in the first quarter of 2016 had the purchase price allocation been completed as of that date. This adjustment to the impairment

Table of Contents

expense was the result of completing an evaluation of the deferred tax liabilities associated with the MarkWest Merger and their impact on the resulting goodwill that was recognized.

The fair value of the reporting units for the interim goodwill impairment analysis was determined based on applying the discounted cash flow method, which is an income approach, and the guideline public company method, which is a market approach. The discounted cash flow fair value estimate was based on known or knowable information at the interim measurement date. The significant assumptions that were used to develop the estimates of the fair values under the discounted cash flow method include management’s best estimates of the expected future results and discount rates, which ranged from 10.5 percent to 11.5 percent. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the interim goodwill impairment test will prove to be an accurate prediction of the future.

The changes in the carrying amount of goodwill for the nine months ended September 30, 2016 were as follows:



(In millions)	Refining & Marketing		Speedway		Midstream			Total
Balance at December 31, 2015	$	539	$	853	$	2,627		$	4,019
Purchase price allocation adjustments^(a)	—		—		(241		)	(241		)
Impairment	—		—		(130		)	(130		)
Balance at September 30, 2016	$	539	$	853	$	2,256		$	3,648


^(a)	See Note 4 for further discussion on purchase price allocation adjustments.

15. Fair Value Measurements

Fair Values—Recurring

The following tables present assets and liabilities accounted for at fair value on a recurring basis as of September 30, 2016 and December 31, 2015 by fair value hierarchy level. We have elected to offset the fair value amounts recognized for multiple derivative contracts executed with the same counterparty, including any related cash collateral as shown below; however, fair value amounts by hierarchy level are presented on a gross basis in the following tables.



	September 30, 2016
	Fair Value Hierarchy
(In millions)	Level 1		Level 2		Level 3		Netting and Collateral^(a)			Net Carrying Value on Balance Sheet^(b)		Collateral Pledged Not Offset
Commodity derivative instruments, assets	$	277	$	1	$	—	$	(278	)	$	—	$	64
Other assets	2		—		—		N/A			2		—
Total assets at fair value	$	279	$	1	$	—	$	(278	)	$	2	$	64