10-Q
Table of Contents
                            

 
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 March 31, 2016
OR
¨
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):
 
Large accelerated filer
 
x
  
Accelerated filer
 
¨
 
 
 
 
 
 
 
Non-accelerated filer 
 
¨  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
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 529,834,884 shares of Marathon Petroleum Corporation common stock outstanding as of April 29, 2016.
 


Table of Contents
                            

MARATHON PETROLEUM CORPORATION
Form 10-Q
Quarter Ended March 31, 2016
INDEX

 
Page
 
 
 
 
 
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.

1


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

2



Part I – Financial Information
Item 1. Financial Statements
Marathon Petroleum Corporation
Consolidated Statements of Income (Unaudited)
 
 
Three Months Ended 
 March 31,
(In millions, except per share data)
2016
 
2015
Revenues and other income:
 
 
 
Sales and other operating revenues (including consumer excise taxes)
$
12,755

 
$
17,191

Income from equity method investments
22

 
15

Net gain on disposal of assets
25

 
5

Other income
28

 
29

Total revenues and other income
12,830

 
17,240

Costs and expenses:
 
 
 
Cost of revenues (excludes items below)
9,701

 
13,044

Purchases from related parties
107

 
76

Inventory market valuation charge
15

 

Consumer excise taxes
1,826

 
1,832

Impairment expense
129

 

Depreciation and amortization
490

 
363

Selling, general and administrative expenses
378

 
358

Other taxes
109

 
97

Total costs and expenses
12,755

 
15,770

Income from operations
75

 
1,470

Net interest and other financial income (costs)
(142
)
 
(81
)
Income (loss) before income taxes
(67
)
 
1,389

Provision for income taxes
11

 
486

Net income (loss)
(78
)
 
903

Less net income (loss) attributable to noncontrolling interests
(79
)
 
12

Net income attributable to MPC
$
1

 
$
891

Per Share Data (See Note 7)
 
 
 
Basic:
 
 
 
Net income attributable to MPC per share
$
0.003

 
$
1.63

Weighted average shares outstanding
529

 
545

Diluted:
 
 
 
Net income attributable to MPC per share
$
0.003

 
$
1.62

Weighted average shares outstanding
531

 
549

Dividends paid
$
0.32

 
$
0.25

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

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Marathon Petroleum Corporation
Consolidated Statements of Comprehensive Income (Unaudited)
 
 
Three Months Ended 
 March 31,
(In millions)
2016
 
2015
Net income (loss)
$
(78
)
 
$
903

Other comprehensive income (loss):
 
 
 
Defined benefit postretirement and post-employment plans:
 
 
 
Actuarial changes, net of tax of $5 and $5
8

 
8

Prior service costs, net of tax of $-5 and $-5
(8
)
 
(8
)
Other comprehensive income (loss)

 

Comprehensive income (loss)
(78
)
 
903

Less comprehensive income (loss) attributable to noncontrolling interests
(79
)
 
12

Comprehensive income attributable to MPC
$
1

 
$
891

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

4

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Marathon Petroleum Corporation
Consolidated Balance Sheets (Unaudited)
 
(In millions, except share data)
March 31,
2016
 
December 31,
2015
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents (MPLX: $4 and $43, respectively)
$
308

 
$
1,127

Receivables, less allowance for doubtful accounts of $11 and $12 (MPLX: $256 and $257, respectively)
2,602

 
2,927

Inventories (MPLX: $45 and $51, respectively)
4,983

 
5,225

Other current assets (MPLX: $28 and $50, respectively)
204

 
192

Total current assets
8,097

 
9,471

Equity method investments (MPLX: $2,598 and $2,458, respectively)
3,807

 
3,622

Property, plant and equipment, net (MPLX: $10,195 and $9,997, respectively)
25,319

 
25,164

Goodwill (MPLX: $2,200 and $2,570, respectively)
3,649

 
4,019

Other noncurrent assets (MPLX: $531 and $478, respectively)
886

 
839

Total assets
$
41,758

 
$
43,115

Liabilities
 
 
 
Current liabilities:
 
 
 
Accounts payable (MPLX: $424 and $449, respectively)
$
4,083

 
$
4,743

Payroll and benefits payable (MPLX: $1 and $18, respectively)
302

 
503

Consumer excise taxes payable (MPLX: $1 and $1, respectively)
459

 
460

Accrued taxes (MPLX: $23 and $26, respectively)
145

 
184

Debt due within one year (MPLX: $1 and $1, respectively)
215

 
29

Other current liabilities (MPLX: $69 and $65, respectively)
391

 
426

Total current liabilities
5,595

 
6,345

Long-term debt (MPLX: $4,715 and $5,255, respectively)
11,351

 
11,896

Deferred income taxes (MPLX: $382 and $378, respectively)
3,356

 
3,285

Defined benefit postretirement plan obligations
1,216

 
1,179

Deferred credits and other liabilities (MPLX: $172 and $170, respectively)
746

 
735

Total liabilities
22,264

 
23,440

Commitments and contingencies (see Note 22)

 

Equity
 
 
 
MPC stockholders’ equity:
 
 
 
Preferred stock, no shares issued and outstanding (par value 0.01 per share, 30 million shares authorized)

 

Common stock:
 
 
 
Issued – 730 million and 729 million shares (par value 0.01 per share, 1 billion shares authorized)
7

 
7

Held in treasury, at cost – 200 million and 198 million shares
(7,353
)
 
(7,275
)
Additional paid-in capital
10,982

 
11,071

Retained earnings
9,584

 
9,752

Accumulated other comprehensive loss
(318
)
 
(318
)
Total MPC stockholders’ equity
12,902

 
13,237

Noncontrolling interests
6,592

 
6,438

Total equity
19,494

 
19,675

Total liabilities and equity
$
41,758

 
$
43,115

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

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Marathon Petroleum Corporation
Consolidated Statements of Cash Flows (Unaudited)
 
 
Three Months Ended 
 March 31,
(In millions)
2016
 
2015
Increase (decrease) in cash and cash equivalents
 
 
 
Operating activities:
 
 
 
Net income (loss)
$
(78
)
 
$
903

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Impairment expense
129

 

Depreciation and amortization
490

 
363

Inventory market valuation charge
15

 

Pension and other postretirement benefits, net
30

 
26

Deferred income taxes
(2
)
 
(2
)
Net gain on disposal of assets
(25
)
 
(5
)
Equity method investments, net
28

 
2

Changes in the fair value of derivative instruments
(18
)
 
(12
)
Changes in:
 
 
 
Current receivables
325

 
691

Inventories
226

 
205

Current accounts payable and accrued liabilities
(810
)
 
(939
)
All other, net
17

 
(42
)
Net cash provided by operating activities
327

 
1,190

Investing activities:
 
 
 
Additions to property, plant and equipment
(745
)
 
(389
)
Disposal of assets
77

 
11

Investments – acquisitions, loans and contributions
(66
)
 
(42
)
 – redemptions, repayments and return of capital

 
1

All other, net
7

 
31

Net cash used in investing activities
(727
)
 
(388
)
Financing activities:
 
 
 
Commercial paper – issued
264

 

                          – repayments
(76
)
 

Long-term debt – borrowings
586

 
528

                          – repayments
(1,145
)
 
(421
)
Debt issuance costs
(1
)
 
(4
)
Issuance of common stock
1

 
21

Common stock repurchased
(75
)
 
(209
)
Dividends paid
(169
)
 
(136
)
Issuance of MPLX LP common units
315

 

Distributions to noncontrolling interests
(121
)
 
(9
)
All other, net
2

 
12

Net cash used in financing activities
(419
)
 
(218
)
Net increase (decrease) in cash and cash equivalents
(819
)
 
584

Cash and cash equivalents at beginning of period
1,127

 
1,494

Cash and cash equivalents at end of period
$
308

 
$
2,078

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

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Marathon Petroleum Corporation
Consolidated Statements of Equity (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
Balance as of December 31, 2014
$
7

 
$
(6,299
)
 
$
9,841

 
$
7,515

 
$
(313
)
 
$
639

 
$
11,390

Net income

 

 

 
891

 

 
12

 
903

Dividends declared

 

 

 
(137
)
 

 

 
(137
)
Distributions to noncontrolling interests

 

 

 

 

 
(9
)
 
(9
)
Shares repurchased

 
(209
)
 

 

 

 

 
(209
)
Shares issued (returned) – stock-based compensation

 
(4
)
 
21

 

 

 

 
17

Stock-based compensation

 

 
25

 

 

 

 
25

Balance as of March 31, 2015
$
7

 
$
(6,512
)
 
$
9,887

 
$
8,269

 
$
(313
)
 
$
642

 
$
11,980

Balance as of December 31, 2015
$
7

 
$
(7,275
)
 
$
11,071

 
$
9,752

 
$
(318
)
 
$
6,438

 
$
19,675

Net income (loss)

 

 

 
1

 

 
(79
)
 
(78
)
Dividends declared

 

 

 
(169
)
 

 

 
(169
)
Distributions to noncontrolling interests

 

 

 

 

 
(121
)
 
(121
)
Shares repurchased

 
(75
)
 

 

 

 

 
(75
)
Shares issued (returned) – stock-based compensation

 
(3
)
 
1

 

 

 

 
(2
)
Stock-based compensation

 

 
15

 

 

 
2

 
17

Issuance of MPLX LP common units, inclusive of deferred income tax of $8

 

 
(32
)
 

 

 
355

 
323

Deferred income tax effect from changes in noncontrolling interest - contribution of inland marine

 

 
42

 

 

 

 
42

Deferred income tax effect from changes in noncontrolling interest - MarkWest Merger

 

 
(115
)
 

 

 

 
(115
)
Other

 

 

 

 

 
(3
)
 
(3
)
Balance as of March 31, 2016
$
7

 
$
(7,353
)
 
$
10,982

 
$
9,584

 
$
(318
)
 
$
6,592

 
$
19,494

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Shares in millions)
Common
Stock
 
Treasury
Stock
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2014
726

 
(179
)
 
 
 
 
 
 
 
 
 
 
Shares repurchased

 
(5
)
 
 
 
 
 
 
 
 
 
 
Shares issued – stock-based compensation
2

 

 
 
 
 
 
 
 
 
 
 
Balance as of March 31, 2015
728

 
(184
)
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2015
729

 
(198
)
 
 
 
 
 
 
 
 
 
 
Shares repurchased

 
(2
)
 
 
 
 
 
 
 
 
 
 
Shares issued (returned) – stock-based compensation
1

 

 
 
 
 
 
 
 
 
 
 
Balance as of March 31, 2016
730

 
(200
)
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.

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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 months ended March 31, 2016 are not necessarily indicative of the results to be expected for the full year.
We completed a two-for-one stock split in June 2015. All historical share and per share data included in these consolidated financial statements has been retroactively restated on a post-split basis.
In the first quarter of 2016, we revised our segment reporting of the operating results for our inland marine business and our investment in an ocean vessel joint venture, Crowley Ocean Partners LLC (“Crowley Ocean Partners”) in connection with the contribution of our inland marine business to MPLX. See Note 3 for additional information. These operating results 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 for business combinations. This update requires that the cumulative impact of a measurement period adjustment be recognized in the reporting period in which the adjustment is identified. The standard was effective for interim and annual periods beginning after December 15, 2015 with early application permitted. We recognized measurement period adjustments during the three months ended March 31, 2016 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 the adjustment.
In May 2015, the FASB issued an accounting standard update that eliminates the requirement to categorize in the fair value hierarchy investments that are measured at net asset value using the practical expedient. The standard was effective for fiscal years beginning after December 15, 2015 and interim periods within the fiscal year. Retrospective application is required and early adoption is permitted. Adoption of this 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 and early adoption is permitted. We adopted this standard 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.

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In February 2015, the FASB issued an accounting standard update making targeted changes to the current consolidation guidance. The new standard 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 update was effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2015. Under the new standard, we continue to consolidate our master limited partnership, MPLX, but it is now considered to be a VIE. The standard update 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. 
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 standards update eliminates the additional financial statement requirements specific to a DSE and was adopted in the first quarter of 2015. In addition, the portion of the standard to amend the consolidation model that eliminates 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 standards 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 March 2016, the FASB issued an accounting standard update to simplify some provisions in stock compensation accounting. The areas for simplification of this update involve the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification of the statement of cash flows. This update will be effective for annual reporting periods beginning after December 15, 2016, and interim periods within those years and early adoption is permitted. We do not expect application of this standard 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 update will be effective for annual reporting periods 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 standard to have a material impact on our consolidated financial statements.
In February 2016, the FASB issued an accounting standard update on lease accounting. This update requires lessees to record most leases on their balance sheets. The new standard also requires new disclosures to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. The accounting standard update will be effective on a retrospective or modified retrospective basis for annual reporting periods 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 new standard on the 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 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 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 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. Upon adoption, entities will be required to make a cumulative-effect adjustment to the consolidated results of operations as of the beginning of the first reporting period the guidance is effective. Early adoption is permitted only for the amendment regarding presentation of a liability’s credit risk. We do not expect application of this standard to have a material impact on our consolidated financial statements.
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 date that the financial statements are issued. 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 accounting standard update will be effective for the first annual period ending after December 15, 2016, and for annual periods and interim periods thereafter with early application permitted. We do not expect application of this standard to have an impact on our financial reporting.

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In May 2014, the FASB issued an accounting standard update for revenue recognition. The guidance in the 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 accounting standard update will be effective on a retrospective or modified retrospective basis for annual reporting periods 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 new standard 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 (“Pipe Line Holdings”), 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. And effective March 31, 2016 (as described below), MPLX also owns an inland marine business, which is comprised of 18 tow boats and 205 barges and transports primarily crude oil and refined products in the Midwest and Gulf Coast regions of the United States principally for MPC.
As of March 31, 2016, we owned a 25 percent interest in MPLX, including a two percent general partner interest. 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 interest, to control the decisions that most significantly impact MPLX. We therefore consolidate MPLX and record a noncontrolling interest for the 75 percent interest owned by the public.
The creditors of MPLX do not have recourse to MPC’s general credit through guarantees or other financial arrangements.
Contribution of Inland Marine Business to MPLX
On March 31, 2016, we contributed our inland marine business to MPLX in exchange for 23 million MPLX 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 March 4, 2016, MPLX filed a prospectus supplement to its shelf registration statement filed with the SEC on March 27, 2015, authorizing the continuous issuance of up to an aggregate of $500 million 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.
During the three months ended March 31, 2016, MPLX issued an aggregate of 12 million common units under the ATM Program, generating net proceeds of approximately $315 million. As a result of common units issued under the ATM Program during the period, we contributed approximately $6 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.


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4. Acquisition 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 in July 2016 and July 2017, respectively, 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.
The following table summarizes the preliminary 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 as of March 31, 2016, 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 interests
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 the intangible asset acquired.
Adjustments to the preliminary purchase price 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 original preliminary purchase price allocation. The correction of the error resulted in a $68 million reduction to the carrying value of goodwill and an offsetting increase of $64 million in intangibles and $2 million in each of equity method investments and property, plant and equipment. Management concluded that the correction of the error is immaterial to the consolidated financial statements of all periods presented. We are still completing our analysis of the final purchase price allocation.
The increase 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.

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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 date. Therefore, any future adjustments to the purchase price allocation will be offset by adjustments to the impairment expense line item in the Consolidated Statements of Income.
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information presents consolidated results assuming the MarkWest Merger occurred on January 1, 2014. 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.
 
Three Months Ended 
 March 31,
(In millions, except per share data)
2015
Sales and other operating revenues (including consumer excise taxes)
$
17,652

Net income attributable to MPC
871

Net income attributable to MPC per share – basic
$
1.60

Net income attributable to MPC per share – diluted
1.59

The unaudited pro forma information includes adjustments to align accounting policies, an adjustment to depreciation expense to reflect the fair value of property, plant and equipment, increased amortization expense related to identifiable intangible assets, adjustments to amortize the fair value adjustment for the 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.
Investment in Ocean Vessel Joint Venture
In September 2015, we acquired a 50 percent ownership interest in a new joint venture with Crowley Maritime Corporation through our investment in Crowley Ocean Partners. The joint venture will operate and charter four new Jones Act product tankers, most of which will be leased to MPC. The new vessels are in various stages of construction with two of them completed and operational prior to the end of the first quarter. Contributions to the joint venture with respect to each vessel will occur at the vessel’s delivery. During 2015, we contributed $72 million in connection with delivery of the first two vessels. The third vessel was delivered April 15, 2016 and the remaining vessel is expected to be delivered by the third quarter of 2016. We account for our ownership interest in Crowley Ocean Partners as an equity method investment. In the first quarter of 2016, we revised our internal reporting of operating results for our investment in Crowley Ocean Partners. These operating results are now reported in our Midstream segment. Previously they were reported as part of our Refining & Marketing segment. Prior periods have been recast to reflect our revised segment presentation. See Note 22 for information on our conditional guarantee of the indebtedness of the joint venture and future contributions to Crowley Ocean Partners.
Investment in Pipeline Company
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 will become part of Enbridge Energy Partners L.P.’s (“Enbridge Energy Partners”) North Dakota System. In exchange for these commitments, we will earn an approximate 27 percent equity interest in Enbridge Energy Partners’ North Dakota System when the Sandpiper pipeline is placed into service. We also have the option to increase our ownership interest to approximately 30 percent through additional investments in future system improvements. The anticipated in-service date for the pipeline is likely to be delayed from 2017 to early 2019, which is also likely to increase cost estimates for the project. The project schedule and cost estimates remain under review. We made contributions of $5 million to North Dakota Pipeline Company LLC (“North Dakota Pipeline”) during the three months ended March 31, 2016 and have contributed $292 million since project inception. We account for our interest in North Dakota Pipeline as part of our Midstream segment using the equity method of accounting. See Note 22 for information on future contributions to North Dakota Pipeline.

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5. Variable Interest Entities
In addition to MPLX, as described in Note 3, the following entities are also VIEs.
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 March 31, 2016 was $2.29 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 March 31, 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.
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 Ocean Partners, in which we have a 50 percent noncontrolling interest. Crowley Ocean Partners operates and charters 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.

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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 consolidated statements of income, were $1 million for both the three months ended March 31, 2016 and 2015.
Other income from related parties, which is included in other income on the consolidated statements of income, were $8 million and less than $1 million for the three months ended March 31, 2016 and 2015, respectively. Other income from related parties consists primarily of fees received for operating transportation assets for our related parties.
Purchases from related parties were as follows:
 
Three Months Ended 
 March 31,
(In millions)
2016
 
2015
Centennial
$
2

 
$

Crowley Ocean Partners
6

 

Explorer
2

 
7

Illinois Extension Pipeline
27

 

LOCAP
6

 
5

LOOP
13

 
13

Ohio Condensate
3

 

TAAE
9

 
13

TACE
17

 
16

TAME
20

 
20

Other equity method investees
2

 
2

Total
$
107

 
$
76

Related party purchases from Centennial consist primarily of refinery feedstocks and refined product transportation costs. Related party purchases from Crowley Ocean Partners consist of leasing 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 processing fees for crude oil and refinery feedstocks. 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 consolidated balance sheets, were as follows:
(In millions)
March 31,
2016
 
December 31,
2015
Centennial
$
1

 
$
1

Jefferson Dry Gas

 
2

MarkWest Utica EMG
1

 
1

Ohio Condensate

 
3

Ohio Gathering
3

 
5

Other equity method investees
2

 
1

Total
$
7

 
$
13

Long-term receivable from Ohio Condensate, which is included in other noncurrent assets on the consolidated balance sheet, was zero at March 31, 2016 and $1 million at December 31, 2015.

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Payables to related parties, which are included in accounts payable on the consolidated balance sheets, were as follows: 
(In millions)
March 31,
2016
 
December 31,
2015
Centennial
$
1

 
$

Explorer
1

 
1

Illinois Extension Pipeline
10

 
4

LOCAP
2

 
2

LOOP
4

 
5

MarkWest Utica EMG
21

 
19

Ohio Condensate
3

 
4

TAAE
1

 
1

TACE
1

 
2

TAME
2

 
3

Other equity method investees
1

 
1

Total
$
47

 
$
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. The average number of shares of common stock and per share amounts have been retroactively restated to reflect the two-for-one stock split completed in June 2015. 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 
 March 31,
(In millions, except per share data)
2016
 
2015
Basic earnings per share:
 
 
 
Allocation of earnings:
 
 
 
Net income attributable to MPC
$
1

 
$
891

Income allocated to participating securities

 
1

Income available to common stockholders – basic
$
1

 
$
890

Weighted average common shares outstanding
529

 
545

Basic earnings per share
$
0.003

 
$
1.63

Diluted earnings per share:
 
 
 
Allocation of earnings:
 
 
 
Net income attributable to MPC
$
1

 
$
891

Income allocated to participating securities

 
1

Income available to common stockholders – diluted
$
1

 
$
890

Weighted average common shares outstanding
529

 
545

Effect of dilutive securities
2

 
4

Weighted average common shares, including dilutive effect
531

 
549

Diluted earnings per share
$
0.003

 
$
1.62



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The following table summarizes the shares that were anti-dilutive and, therefore, were excluded from the diluted share calculation.
 
Three Months Ended 
 March 31,
(In millions)
2016
 
2015
Shares issued under stock-based compensation plans
3

 
1

8. Equity
Since January 1, 2012, our board of directors has approved $10.0 billion in total share repurchase authorizations and we have repurchased a total of $7.31 billion of our common stock under these authorizations, leaving $2.69 billion available for repurchases as of March 31, 2016. Under these authorizations, we have acquired 200 million shares at an average cost per share of $36.71.
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 effected 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 months ended March 31, 2016 and 2015:
 
Three Months Ended 
 March 31,
(In millions, except per share data)
2016
 
2015
Number of shares repurchased
2

 
4

Cash paid for shares repurchased
$
75

 
$
209

Effective average cost per delivered share
$
43.96

 
$
47.51

9. Segment Information
In the first quarter of 2016, we revised our segment reporting of the operating results for our inland marine business and our investment in Crowley Ocean Partners in connection with the contribution of our inland marine business to MPLX. These operating results 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.



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(In millions)
Refining & Marketing
 
Speedway
 
Midstream
 
Total
Three Months Ended March 31, 2016
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Customer
$
8,406

 
$
3,950

 
$
399

 
$
12,755

Intersegment(a)
2,165

 
1

 
193

 
2,359

Segment revenues
$
10,571

 
$
3,951

 
$
592

 
$
15,114

Segment income (loss) from operations(b)
$
(62
)
 
$
167

 
$
167

 
$
272

Income (loss) from equity method investments
(1
)
 

 
23

 
22

Depreciation and amortization(c)
273

 
63

 
140

 
476

Capital expenditures and investments(d)
243

 
50

 
350

 
643

(In millions)
Refining & Marketing
 
Speedway
 
Midstream
 
Total
Three Months Ended March 31, 2015
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Customer
$
12,644

 
$
4,531

 
$
16

 
$
17,191

Intersegment(a)
2,734

 

 
187

 
2,921

Segment revenues
$
15,378

 
$
4,531

 
$
203

 
$
20,112

Segment income from operations(b)
$
1,292

 
$
168

 
$
90

 
$
1,550

Income from equity method investments
6

 

 
9

 
15

Depreciation and amortization(c)
261

 
63

 
26

 
350

Capital expenditures and investments(d)
223

 
45

 
87

 
355

(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) 
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.
(d) 
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 
 March 31,
(In millions)
2016
 
2015
Segment income from operations
$
272

 
$
1,550

Items not allocated to segments:
 
 
 
Corporate and other unallocated items(a)(b)
(67
)
 
(79
)
Pension settlement expenses(c)
(1
)
 
(1
)
Impairments(d)
(129
)
 

Net interest and other financial income (costs)
(142
)
 
(81
)
Income before income taxes
$
(67
)
 
$
1,389

(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) 
See Note 14.



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The following reconciles segment capital expenditures and investments to total capital expenditures:
 
Three Months Ended 
 March 31,
(In millions)
2016
 
2015
Segment capital expenditures and investments
$
643

 
$
355

Less: Investments in equity method investees(a)
209

 
42

Plus: Items not allocated to segments:
 
 
 
 Capital expenditures not allocated to segments
24

 
21

 Capitalized interest
17

 
8

Total capital expenditures(b)
$
475

 
$
342

(a) 
The three months ended March 31, 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 
 March 31,
(In millions)
2016
 
2015
Interest income
$
1

 
$
1

Interest expense(a)
(153
)
 
(80
)
Interest capitalized
16

 
8

Other financial costs
(6
)
 
(10
)
Net interest and other financial income (costs)
$
(142
)
 
$
(81
)
(a) 
The three months ended March 31, 2016 includes $11 million 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 (17) percent and 35 percent for the three months ended March 31, 2016 and 2015, respectively. The effective tax rate for the three months ended March 31, 2016 was significantly affected by permanent tax differences related to the net loss attributable to noncontrolling interest, including their proportional share of the goodwill impairment charge recorded by MPLX. The net loss attributable to noncontrolling interest reduced the effective rate by 51 percent from the U.S. statutory rate of 35 percent. For the three months ended March 31, 2015, the effective tax rate is equivalent to the U.S. statutory rate of 35 percent primarily due to certain permanent benefit differences, including the domestic manufacturing deduction, partially offset by state and local tax expense.
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. A decrease in MPC’s deferred tax liabilities of $42 million directly related to this change in ownership of the underlying assets of MPLX was recorded with an offsetting increase to additional paid-in capital.
During the first quarter of 2016, MPC’s deferred tax liabilities increased $115 million for an out of period adjustment to update the preliminary tax effects recorded in 2015 related to the MarkWest Merger, which was recorded with an offsetting decrease to additional paid-in capital. The impact of the 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 2003 tax years, respectively. We had $11 million of unrecognized tax benefits as of March 31, 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.

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12. Inventories
(In millions)
March 31,
2016
 
December 31,
2015
Crude oil and refinery feedstocks
$
2,044

 
$
2,180

Refined products
2,761

 
2,804

Materials and supplies
399

 
438

Merchandise
164

 
173

Lower of cost or market reserve
(385
)
 
(370
)
Total
$
4,983

 
$
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. The December 31, 2015 lower of cost or market reserve was reversed due to the sale of inventory quantities that gave rise to the 2015 reserve. A new lower of cost or market reserve of $385 million was established as of March 31, 2016 based on prices at that time. The effect of the change in lower of cost or market reserve was a $15 million charge to cost of revenues for the three months ended March 31, 2016. Based on movements of refined product prices, future inventory valuation adjustments could have a negative or positive 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. There were no material liquidations of LIFO inventories for the three months ended March 31, 2016 and 2015.
13. Property, Plant and Equipment
(In millions)
March 31,
2016
 
December 31,
2015
Refining & Marketing
$
18,631

 
$
18,396

Speedway
5,108

 
5,067

Midstream
11,707

 
11,379

Corporate and Other
769

 
762

Total
36,215

 
35,604

Less accumulated depreciation
10,896

 
10,440

Property, plant and equipment, net
$
25,319

 
$
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 the three 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.

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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 is 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 three months ended March 31, 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

 

 
(129
)
 
(129
)
Balance at March 31, 2016
$
539

 
$
853

 
$
2,257

 
$
3,649

(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 March 31, 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.
 
 
March 31, 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
$
67

 
$
1

 
$
1

 
$
(67
)
 
$
2

 
$
72

Other assets
2

 

 

 
 N/A

 
2

 

Total assets at fair value
$
69

 
$
1

 
$
1

 
$
(67
)
 
$
4

 
$
72

 
 
 
 
 
 
 
 
 
 
 
 
Commodity derivative instruments, liabilities
$
107

 
$

 
$
1

 
$
(107
)
 
$
1

 
$

Embedded derivatives in commodity contracts(c)

 

 
34

 

 
34

 

Contingent consideration, liability(d)

 

 
324

 
 N/A

 
324

 

Total liabilities at fair value
$
107

 
$

 
$
359

 
$
(107
)
 
$
359

 
$

 

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December 31, 2015
 
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
$
104

 
$
2

 
$
7

 
$
(62
)
 
$
51

 
$

Other assets
2

 

 

 
 N/A

 
2

 

Total assets at fair value
$
106

 
$
2

 
$
7

 
$
(62
)
 
$
53

 
$

 
 
 
 
 
 
 
 
 
 
 
 
Commodity derivative instruments, liabilities
$
39

 
$

 
$

 
$
(39
)
 
$

 
$

Embedded derivatives in commodity contracts(c)

 

 
32

 

 
32

 

Contingent consideration, liability(d)

 

 
317

 
 N/A

 
317

 

Total liabilities at fair value
$
39

 
$

 
$
349

 
$
(39
)
 
$
349

 
$

(a) 
Represents the impact of netting assets, liabilities and cash collateral when a legal right of offset exists. As of March 31, 2016, cash collateral of $40 million was netted with the mark-to-market derivative liabilities. As of December 31, 2015, $23 million was netted with mark-to-market derivative assets.
(b) 
We have no derivative contracts that are subject to master netting arrangements that are reflected gross on the balance sheet.
(c) 
Includes $6 million and $5 million classified as current at March 31, 2016 and December 31, 2015, respectively.
(d) 
Includes $200 million and $196 million classified as current at March 31, 2016 and December 31, 2015, respectively.
Commodity derivatives in Level 1 are exchange-traded contracts for crude oil and refined products measured at fair value with a market approach using the close-of-day settlement prices for the market. Commodity derivatives are covered under master netting agreements with an unconditional right to offset. Collateral deposits in futures commission merchant accounts covered by master netting agreements related to Level 1 commodity derivatives are classified as Level 1 in the fair value hierarchy.
Commodity derivatives in Level 2 include crude oil and natural gas swap contracts and are measured at fair value with a market approach. The valuations are based on the appropriate commodity prices and contain no significant unobservable inputs. LIBO Rates are an observable input for the measurement of these derivative contracts. The measurements for commodity contracts contain observable inputs in the form of forward prices based on WTI crude oil prices; and Columbia Appalachia, Henry Hub, PEPL and Houston Ship Channel natural gas prices.
Level 3 instruments include OTC NGL contracts and embedded derivatives in commodity contracts. The fair value calculation for these Level 3 instruments used significant unobservable inputs including: (1) NGL prices interpolated and extrapolated due to inactive markets ranging from $0.17 to $3.37 per gallon, (2) electricity prices ranging from $21.34 to $44.27 per megawatt hour and (3) the probability of renewal of 50 percent for the first five-year term and 75 percent for the second five-year term of the gas purchase agreement and the related keep-whole processing agreement. For these contracts, increases in forward NGL prices result in a decrease in the fair value of the derivative assets and an increase in the fair value of the derivative liabilities. The forward prices for the individual NGL products generally increase or decrease in a positive correlation with one another. The embedded derivative liability relates to a natural gas purchase agreement embedded in a keep‑whole processing agreement. Increases or decreases in forward NGL prices result in an increase or decrease in the fair value of the embedded derivative. An increase in the probability of renewal would result in an increase in the fair value of the related embedded derivative liability.
The contingent consideration represents the fair value as of March 31, 2016 and December 31, 2015 of the remaining amount we expect to pay to BP related to the earnout provision associated with our 2013 acquisition of BP’s refinery in Texas City, Texas and related logistics and marketing assets. We refer to these assets as the “Galveston Bay Refinery and Related Assets.” The fair value of the remaining contingent consideration was estimated using an income approach and is therefore a Level 3 liability. The amount of cash to be paid under the arrangement is based on both a market-based crack spread and refinery throughput volumes for the months during which the earnout applies, as well as established thresholds that cap the annual and total payment. The earnout payment cannot exceed $200 million per year for the first three years of the arrangement or $250 million per year for the last three years of the arrangement, with the total cumulative payment capped at $700 million over the six-year period commencing in 2014. Any excess or shortfall from the annual cap for a current year’s earnout calculation will not affect subsequent years’ calculations. The fair value calculation used significant unobservable inputs, including: (1) an estimate of monthly refinery throughput volumes; (2) a range of internal and external monthly crack spread forecasts from approximately $9 to $16 per barrel; and (3) a range of risk-adjusted discount rates from four percent to 9 percent. An increase or decrease in crack spread forecasts or refinery throughput volume expectations may result in a corresponding increase or decrease in the fair value. Increases to the fair value as a result of increasing forecasts for both of these unobservable inputs, however, are limited as the earnout payment is subject to annual caps. An increase or decrease in the discount rate may result in a decrease or increase to the fair value, respectively. The fair value of the contingent consideration is reassessed each quarter, with changes in fair value recorded in cost of revenues.

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During the second quarter of 2016, we paid BP $200 million for the third year’s contingent earnout. Including this second quarter payment, we have paid BP approximately $569 million in total leaving $131 million remaining under the total cap of $700 million.
The following is a reconciliation of the beginning and ending balances recorded for liabilities classified as Level 3 in the fair value hierarchy.
 
Three Months Ended 
 March 31,
(In millions)
2016
 
2015
Beginning balance
$
342

 
$
478

Unrealized and realized losses included in net income
12

 
12

Settlements of derivative instruments
4

 

Ending balance
$
358

 
$
490

We held Level 3 derivative instruments during the three months ended March 31, 2016 which were acquired with the MarkWest Merger, but we did not hold any Level 3 derivative instruments during the three months ended March 31, 2015. See Note 16 for the income statement impacts of our derivative instruments. There was an unrealized loss of $5 million in the three months ended March 31, 2016 related to derivatives. There was an unrealized loss of $7 million and $12 million in the three months ended March 31, 2016 and 2015, respectively, related to the contingent consideration.
Fair Values - Nonrecurring
The following table shows the values of assets, by major category, measured at fair value on a nonrecurring basis in periods subsequent to their initial recognition.
 
Three Months Ended March 31,
 
2016
 
2015
(In millions)
Fair Value
 
Impairment
 
Fair Value
 
Impairment
Goodwill
$

 
$
129

 
$

 
$

See Note 14 for additional information on the goodwill impairment.

Fair Values – Reported
The following table summarizes financial instruments on the basis of their nature, characteristics and risk at March 31, 2016 and December 31, 2015, excluding the derivative financial instruments and contingent consideration reported above.
 
March 31, 2016
 
December 31, 2015
(In millions)
Fair Value
 
Carrying Value
 
Fair Value
 
Carrying Value
Financial assets:
 
 
 
 
 
 
 
Investments
$
30

 
$
2

 
$
33

 
$
2

Other
35

 
35

 
35

 
33

Total financial assets
$
65

 
$
37

 
$
68

 
$
35

Financial liabilities:
 
 
 
 
 
 
 
Long-term debt(a)
$
11,086

 
$
11,276

 
$
11,366

 
$
11,628

Deferred credits and other liabilities
140

 
138

 
136

 
135

Total financial liabilities
$
11,226

 
$
11,414

 
$
11,502

 
$
11,763

(a) 
Excludes capital leases and debt issuance costs, however, includes amount classified as debt due within one year.

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Our current assets and liabilities include financial instruments, the most significant of which are trade accounts receivable and payables. We believe the carrying values of our current assets and liabilities approximate fair value. Our fair value assessment incorporates a variety of considerations, including (1) the short-term duration of the instruments, (2) our investment-grade credit rating and (3) our historical incurrence of and expected future insignificance of bad debt expense, which includes an evaluation of counterparty credit risk.
Fair values of our financial assets included in investments and other financial assets and of our financial liabilities included in deferred credits and other liabilities are measured primarily using an income approach and most inputs are internally generated, which results in a Level 3 classification. Estimated future cash flows are discounted using a rate deemed appropriate to obtain the fair value. Other financial assets primarily consist of environmental remediation receivables. Deferred credits and other liabilities primarily consist of a liability related to SMR, a payable for merger cash consideration due to MPLX’s Class B unitholders to be paid upon conversion, insurance liabilities and environmental remediation liabilities.
Fair value of fixed-rate long-term debt is measured using a market approach, based upon the average of quotes from major financial institutions and a third-party service for our debt. Because these quotes cannot be independently verified to the market, they are considered Level 3 inputs. Fair value of variable-rate long-term debt approximates the carrying value.
16. Derivatives
For further information regarding the fair value measurement of derivative instruments, including any effect of master netting agreements or collateral, see Note 15. 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 of refined 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) the purchase of natural gas and (7) the purchase of electricity.
The following table presents the gross fair values of derivative instruments, excluding cash collateral, and where they appear on the consolidated balance sheets as of March 31, 2016 and December 31, 2015:
(In millions)
March 31, 2016
Balance Sheet Location
Asset
 
Liability
Commodity derivatives
 
 
 
Other current assets
$
69

 
$
107

Other current liabilities

 
7

Deferred credits and other liabilities(a)

 
28

(In millions)
December 31, 2015
Balance Sheet Location
Asset
 
Liability
Commodity derivatives
 
 
 
Other current assets
$
113

 
$
39

Other current liabilities

 
5

Deferred credits and other liabilities(a)

 
27

(a)  
Includes embedded derivatives.

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The tables below summarize open commodity derivative contracts for crude oil, natural gas and refined products as of March 31, 2016.
 
Position
 
Total Barrels(In thousands)
Crude oil(a)
 
 
 
Exchange-traded
Long
 
25,142

Exchange-traded
Short
 
(30,048
)
OTC
Short
 
(83
)
(a ) 
83 percent of the exchange-traded contracts expire in the second quarter of 2016.
 
Position
 
MMbtu
Natural Gas
 
 
 
OTC
Long
 
745,826

 
Position
 
Total Gallons
(In thousands)
Refined Products(a)
 
 
 
Exchange-traded
Long
 
241,500

Exchange-traded
Short
 
(137,424
)
OTC
Short
 
(55,759
)
(a ) 
100 percent of the exchange-traded contracts expire in the second quarter of 2016.

The following table summarizes the effect of all commodity derivative instruments in our consolidated statements of income: 
 
Gain (Loss)
(In millions)
Three Months Ended March 31,
Income Statement Location
2016
 
2015
Sales and other operating revenues
$
6

 
$
14

Cost of revenues
(61
)
 
45

Total
$
(55
)
 
$
59


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17. Debt
Our outstanding borrowings at March 31, 2016 and December 31, 2015 consisted of the following:
(In millions)
March 31,
2016
 
December 31,
2015
Marathon Petroleum Corporation:
 
 
 
Commercial paper
$
188

 
$

Bank revolving credit facility due 2017

 

Term loan agreement due 2019
700

 
700

Senior notes, 2.700% due December 2018
600

 
600

Senior notes, 3.400% due December 2020
650

 
650

Senior notes, 5.125% due March 2021
1,000

 
1,000

Senior notes, 3.625%, due September 2024
750

 
750

Senior notes, 6.500%, due March 2041
1,250

 
1,250

Senior notes, 4.750%, due September 2044
800

 
800

Senior notes, 5.850% due December 2045
250

 
250

Senior notes, 5.000%, due September 2054
400

 
400

MPLX LP:
 
 
 
MPLX term loan facility due 2019
250

 
250

MPLX bank revolving credit facility due 2020
326

 
877

MPLX senior notes, 5.500%, due February 2023
710

 
710

MPLX senior notes, 4.500%, due July 2023
989

 
989

MPLX senior notes, 4.875%, due December 2024
1,149

 
1,149

MPLX senior notes, 4.000%, due February 2025
500

 
500

MPLX senior notes, 4.875%, due June 2025
1,189

 
1,189

MarkWest senior notes, 4.500% - 5.500%, due 2023 - 2025
63

 
63

Capital lease obligations due 2016-2028
340

 
348

Trade receivables securitization facility due December 2016

 

Total
12,104

 
12,475

Unamortized debt issuance costs
(50
)
 
(51
)
Unamortized discount(a)
(488
)
 
(499
)
Amounts due within one year
(215
)
 
(29
)
Total long-term debt due after one year
$
11,351

 
$
11,896

(a) 
Includes $453 million and $464 million discount as of March 31, 2016 and December 31, 2015, respectively, related to the difference between the fair value and the principal amount of the assumed MarkWest debt.
Commercial Paper - On February 26, 2016, we established a commercial paper program that allows us to have a maximum of $2.0 billion in commercial paper outstanding, with maturities up to 397 days from the date of issuance. We do not intend to have outstanding commercial paper borrowings in excess of available capacity under our bank revolving credit facility. During the three months ended March 31, 2016, we borrowed $264 million and repaid $76 million under the commercial paper program. At March 31, 2016, we had $188 million of commercial paper outstanding with a weighted average interest rate of 0.89 percent. These outstanding borrowings are included in debt due within one year.
There were no borrowings or letters of credit outstanding under the MPC bank revolving credit facility at March 31, 2016.
During the three months ended March 31, 2016, we borrowed $280 million under the trade receivables securitization facility at an average interest rate of 1.3 percent and repaid $280 million of these borrowings. At March 31, 2016, we had no amounts outstanding under our trade receivables securitization facility.

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During the three months ended March 31, 2016, MPLX borrowed $306 million under the MPLX bank revolving credit facility at an average interest rate of 1.9 percent, per annum, and repaid $857 million of the outstanding borrowings. At March 31, 2016, MPLX had $326 million borrowings and $8 million letters of credit outstanding under the MPLX bank revolving credit facility, resulting in total availability of $1.7 billion.
18. Supplemental Cash Flow Information
 
Three Months Ended 
 March 31,
(In millions)
2016
 
2015
Net cash provided by operating activities included:
 
 
 
Interest paid (net of amounts capitalized)
$
160

 
$
128

Net income taxes paid to (refunded from) taxing authorities
(128
)
 
160


The consolidated statements of cash flows exclude changes to the consolidated balance sheets that did not affect cash. The following is a reconciliation of additions to property, plant and equipment to total capital expenditures:
 
Three Months Ended 
 March 31,
(In millions)
2016
 
2015
Additions to property, plant and equipment per consolidated statements of cash flows
$
745

 
$
389

Decrease in capital accruals
(137
)
 
(47
)
Total capital expenditures before acquisitions
608

 
342

Acquisitions(a)
(133
)
 

Total capital expenditures
$
475

 
$
342

(a)
The three months ended March 31, 2016 includes adjustments to the fair values of the property, plant and equipment, intangibles and goodwill acquired in connection with the MarkWest Merger. See Note 4.
19. Accumulated Other Comprehensive Loss
The following table shows the changes in accumulated other comprehensive loss by component. Amounts in parentheses indicate debits.
(In millions)
Pension Benefits
 
Other Benefits
 
Gain on Cash Flow Hedge
 
Workers Compensation
 
Total
Balance as of December 31, 2014
$
(217
)
 
$
(104
)
 
$
4

 
$
4

 
$
(313
)
Other comprehensive income (loss) before reclassifications
(1
)
 
(1
)
 

 

 
(2
)
Amounts reclassified from accumulated other comprehensive loss:
 
 
 
 
 
 
 
 
 
Amortization – prior service credit(a)
(12
)
 
(1
)
 

 

 
(13
)
   – actuarial loss(a)
13

 
3

 

 

 
16

   – settlement loss(a)
1

 

 

 

 
1

Tax effect
(1
)
 
(1
)
 

 

 
(2
)
Other comprehensive income (loss)

 

 

 

 

Balance as of March 31, 2015
$
(217
)
 
$
(104
)
 
$
4

 
$
4

 
$
(313
)

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(In millions)
Pension Benefits
 
Other Benefits
 
Gain on Cash Flow Hedge
 
Workers Compensation
 
Total
Balance as of December 31, 2015
$
(255
)
 
$
(70
)
 
$
4

 
$
3

 
$
(318
)
Other comprehensive income (loss) before reclassifications