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Table of Contents
                            

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
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)
Securities registered pursuant to Section 12(b) of the Act
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $.01
MPC
New York Stock Exchange
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      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer          Accelerated Filer     Non-accelerated Filer      Smaller reporting company
Emerging growth company    

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes     No  
There were 650,260,897 shares of Marathon Petroleum Corporation common stock outstanding as of May 1, 2020.
 


Table of Contents
                            

MARATHON PETROLEUM CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020
TABLE OF CONTENTS

 
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:
ANS
Alaskan North Slope crude oil, an oil index benchmark price
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
barrel
One stock tank barrel, or 42 United States gallons liquid volume, used in reference to crude oil or other liquid hydrocarbons
CARB
California Air Resources Board
CARBOB
California Reformulated Gasoline Blendstock for Oxygenate Blending
CBOB
Conventional Blending for Oxygenate Blending
EBITDA (a non-GAAP financial measure)
Earnings Before Interest, Tax, Depreciation and Amortization
EPA
United States Environmental Protection Agency
FASB
Financial Accounting Standards Board
GAAP
Accounting principles generally accepted in the United States
LCM
Lower of cost or market
LIFO
Last in, first out, an inventory costing method
LIBOR
London Interbank Offered Rate
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
NYMEX
New York Mercantile Exchange
OTC
Over-the-Counter
RIN
Renewable Identification Number
SEC
United States Securities and Exchange Commission
ULSD
Ultra-low sulfur diesel
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)
2020
 
2019
Revenues and other income:
 
 
 
Sales and other operating revenues
$
25,215

 
$
28,253

Income (loss) from equity method investments(a)
(1,210
)
 
99

Net gain on disposal of assets
4

 
214

Other income
71

 
35

Total revenues and other income
24,080

 
28,601

Costs and expenses:
 
 
 
Cost of revenues (excludes items below)
22,821

 
25,960

Inventory market valuation adjustment
3,220

 

Impairment expense
7,822

 

Depreciation and amortization
962

 
919

Selling, general and administrative expenses
821

 
867

Other taxes
251

 
186

Total costs and expenses
35,897

 
27,932

Income (loss) from operations
(11,817
)
 
669

Net interest and other financial costs
338

 
306

Income (loss) before income taxes
(12,155
)
 
363

Provision (benefit) for income taxes
(1,937
)
 
104

Net income (loss)
(10,218
)
 
259

Less net income (loss) attributable to:
 
 
 
Redeemable noncontrolling interest
20

 
20

Noncontrolling interests
(1,004
)
 
246

Net loss attributable to MPC
$
(9,234
)
 
$
(7
)
Per Share Data (See Note 7)
 
 
 
Basic:
 
 
 
Net loss attributable to MPC per share
$
(14.25
)
 
$
(0.01
)
Weighted average shares outstanding
648

 
673

Diluted:
 
 
 
Net loss attributable to MPC per share
$
(14.25
)
 
$
(0.01
)
Weighted average shares outstanding
648

 
673

(a) 
The 2020 period includes $1,315 million of impairment expense. See Note 4 for further information.
The accompanying notes are an integral part of these consolidated financial statements.

3

Table of Contents
                            

MARATHON PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
Three Months Ended 
March 31,
(Millions of dollars)
2020
 
2019
Net income (loss)
$
(10,218
)
 
$
259

Other comprehensive income (loss):
 
 
 
Defined benefit plans:
 
 
 
Actuarial changes, net of tax of $1 and $6, respectively
4

 
(3
)
Prior service credit, net of tax of ($3) and ($8), respectively
(9
)
 
(3
)
Other, net of tax of $0 and $0, respectively
(1
)
 
(1
)
Other comprehensive loss
(6
)
 
(7
)
Comprehensive income (loss)
(10,224
)
 
252

Less comprehensive income (loss) attributable to:
 
 
 
Redeemable noncontrolling interest
20

 
20

Noncontrolling interests
(1,004
)
 
246

Comprehensive loss attributable to MPC
$
(9,240
)
 
$
(14
)
The accompanying notes are an integral part of these consolidated financial statements.

4

Table of Contents
                            

MARATHON PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)

(Millions of dollars, except share data)
March 31,
2020
 
December 31,
2019
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,690

 
$
1,527

Receivables, less allowance for doubtful accounts of $18 and $17, respectively
5,583

 
7,479

Inventories
7,445

 
10,243

Other current assets
975

 
921

Total current assets
15,693

 
20,170

Equity method investments
5,656

 
6,898

Property, plant and equipment, net
45,333

 
45,615

Goodwill
12,710

 
20,040

Right of use assets
2,562

 
2,459

Other noncurrent assets
4,363

 
3,374

Total assets
$
86,317

 
$
98,556

Liabilities
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
8,106

 
$
11,623

Payroll and benefits payable
1,107

 
1,126

Accrued taxes
1,098

 
1,186

Debt due within one year
1,710

 
711

Operating lease liabilities
630

 
604

Other current liabilities
918

 
897

Total current liabilities
13,569

 
16,147

Long-term debt
29,899

 
28,127

Deferred income taxes
5,772

 
6,392

Defined benefit postretirement plan obligations
1,703

 
1,643

Long-term operating lease liabilities
1,949

 
1,875

Deferred credits and other liabilities
1,229

 
1,265

Total liabilities
54,121

 
55,449

Commitments and contingencies (see Note 22)

 

Redeemable noncontrolling interest
968

 
968

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

 

Common stock:
 
 
 
Issued – 979 million and 978 million shares (par value $0.01 per share, 2 billion shares authorized)
10

 
10

Held in treasury, at cost – 329 million and 329 million shares
(15,145
)
 
(15,143
)
Additional paid-in capital
33,169

 
33,157

Retained earnings
6,380

 
15,990

Accumulated other comprehensive loss
(326
)
 
(320
)
Total MPC stockholders’ equity
24,088

 
33,694

Noncontrolling interests
7,140

 
8,445

Total equity
31,228

 
42,139

Total liabilities, redeemable noncontrolling interest and equity
$
86,317

 
$
98,556

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

5

Table of Contents
                            

MARATHON PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Three Months Ended 
March 31,
(Millions of dollars)
2020
 
2019
Operating activities:
 
 
 
Net income (loss)
$
(10,218
)
 
$
259

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Amortization of deferred financing costs and debt discount
14

 

Impairment expense
7,822

 

Depreciation and amortization
962

 
919

Inventory market valuation adjustment
3,220

 

Pension and other postretirement benefits, net
55

 
52

Deferred income taxes
(625
)
 
127

Net gain on disposal of assets
(4
)
 
(214
)
(Income) loss from equity method investments(a)
1,210

 
(99
)
Distributions from equity method investments
175

 
148

Changes in income tax receivable
(1,335
)
 
(19
)
Changes in the fair value of derivative instruments
(47
)
 
29

Changes in operating assets and liabilities, net of effects of businesses acquired:
 
 
 
Current receivables
1,899

 
(1,018
)
Inventories
(422
)
 
(4
)
Current accounts payable and accrued liabilities
(3,453
)
 
1,483

Right of use assets and operating lease liabilities, net
(4
)
 
(1
)
All other, net
(17
)
 
(39
)
Net cash provided by (used in) operating activities
(768
)
 
1,623

Investing activities:
 
 
 
Additions to property, plant and equipment
(1,062
)
 
(1,241
)
Disposal of assets
56

 
24

Investments – acquisitions, loans and contributions
(169
)
 
(325
)
 – redemptions, repayments and return of capital
77

 
2

All other, net
10

 
20

Net cash used in investing activities
(1,088
)
 
(1,520
)
Financing activities:
 
 
 
Long-term debt – borrowings
4,250

 
2,604

                          – repayments
(1,521
)
 
(2,031
)
Issuance of common stock
4

 
2

Common stock repurchased

 
(885
)
Dividends paid
(377
)
 
(354
)
Distributions to noncontrolling interests
(320
)
 
(325
)
Contributions from noncontrolling interests

 
95

All other, net
(15
)
 
(26
)
Net cash provided by (used in) financing activities
2,021

 
(920
)
Net increase (decrease) in cash, cash equivalents and restricted cash
165

 
(817
)
Cash, cash equivalents and restricted cash at beginning of period
1,529

 
1,725

Cash, cash equivalents and restricted cash at end of period
$
1,694

 
$
908

(a) 
The 2020 period includes $1,315 million of impairment expense. See Note 4 for further information.

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

6

Table of Contents
                            

MARATHON PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMBALE NONCONTROLLING INTEREST
(Unaudited)

 
MPC Stockholders’ Equity
 
 
 
 
 
 
 
Common Stock
 
Treasury Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Non-controlling Interests
 
Total Equity
 
Redeemable Non-controlling Interest
(Shares in millions;
amounts in millions of dollars)
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
Balance as of December 31, 2019
978

 
$
10

 
(329
)
 
$
(15,143
)
 
$
33,157

 
$
15,990

 
$
(320
)
 
$
8,445

 
$
42,139

 
$
968

Net income (loss)

 

 

 

 

 
(9,234
)
 

 
(1,004
)
 
(10,238
)
 
20

Dividends declared on common stock ($0.58 per share)

 

 

 

 

 
(377
)
 

 

 
(377
)
 

Distributions to noncontrolling interests

 

 

 

 

 

 

 
(300
)
 
(300
)
 
(20
)
Other comprehensive loss

 

 

 

 

 

 
(6
)
 

 
(6
)
 

Stock based compensation
1

 

 

 
(2
)
 
17

 

 

 
1

 
16

 

Equity transactions of MPLX

 

 

 

 
(5
)
 

 

 
(2
)
 
(7
)
 

Other

 

 

 

 

 
1

 

 

 
1

 

Balance as of March 31, 2020
979

 
$
10

 
(329
)
 
$
(15,145
)
 
$
33,169

 
$
6,380

 
$
(326
)
 
$
7,140

 
$
31,228

 
$
968


 
MPC Stockholders’ Equity
 
 
 
 
 
 
 
Common Stock
 
Treasury Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Non-controlling Interests
 
Total Equity
 
Redeemable Non-controlling Interest
(Shares in millions;
amounts in millions of dollars)
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
Balance as of December 31, 2018
975

 
$
10

 
(295
)
 
$
(13,175
)
 
$
33,729

 
$
14,755

 
$
(144
)
 
$
8,874

 
$
44,049

 
$
1,004

Net income (loss)

 

 

 

 

 
(7
)
 

 
246

 
239

 
20

Dividends declared on common stock ($0.53 per share)

 

 

 

 

 
(357
)
 

 

 
(357
)
 

Distributions to noncontrolling interests

 

 

 

 

 

 

 
(305
)
 
(305
)
 
(20
)
Contributions from noncontrolling interests

 

 

 

 

 

 

 
95

 
95

 

Other comprehensive loss

 

 

 

 

 

 
(7
)
 

 
(7
)
 

Shares repurchased

 

 
(14
)
 
(885
)
 

 

 

 

 
(885
)
 

Stock based compensation
1

 

 

 
(3
)
 
32

 

 

 
(1
)
 
28

 

Equity transactions of MPLX & ANDX

 

 

 

 
3

 

 

 
(1
)
 
2

 

Other

 

 

 

 

 

 

 
(1
)
 
(1
)
 

Balance as of March 31, 2019
976

 
$
10

 
(309
)
 
$
(14,063
)
 
$
33,764

 
$
14,391

 
$
(151
)
 
$
8,907

 
$
42,858

 
$
1,004


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

7

Table of Contents
                            

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Description of the Business
We are a leading, integrated, downstream energy company headquartered in Findlay, Ohio. We operate the nation's largest refining system with more than 3 million barrels per day of crude oil capacity across 16 refineries. We sell refined products to wholesale marketing customers domestically and internationally, to buyers on the spot market, to consumers through our Retail business segment and to independent entrepreneurs who operate approximately 6,900 branded outlets. Our retail operations own and operate approximately 3,880 retail transportation fuel and convenience stores across the United States and also sell transportation fuel to consumers through approximately 1,070 direct dealer locations under long-term supply contracts. MPC’s midstream operations are primarily conducted through MPLX LP (“MPLX”), which owns and operates crude oil and light product transportation and logistics infrastructure as well as gathering, processing, and fractionation assets. We own the general partner and a majority limited partner interest in MPLX.
On October 31, 2019, we announced our intention to separate our retail transportation fuel and convenience store business, which is operated primarily under the Speedway brand, into an independent, publicly traded company through a tax-free distribution to MPC shareholders of publicly traded stock in the new independent retail transportation fuel and convenience store company. This transaction is targeted to be completed in the fourth quarter of 2020, however timing could change given the COVID-19 related impacts to the business environment and access to capital markets. This transaction is subject to market, regulatory and certain other conditions, including final approval by the MPC Board of Directors, receipt of customary assurances regarding the intended tax-free nature of the transaction, and the effectiveness of a registration statement to be filed with the SEC. The Speedway business is currently a reporting unit within our Retail segment. MPC will retain its direct dealer business, which is also included in the Retail segment as currently reported. Subsequent to the completion of the separation, the historical results of the Speedway business will be presented as discontinued operations in our consolidated financial statements.
Basis of Presentation
All significant intercompany transactions and accounts have been eliminated.
Certain prior period financial statement amounts have been reclassified to conform to current period presentation.
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 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, 2019. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the full year.
2. ACCOUNTING STANDARDS
Recently Adopted
Effective January 1, 2020, we adopted ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” using the modified retrospective transition method. The amendment requires entities to consider a broader range of information to estimate expected credit losses, which may result in earlier recognition of losses. The ASU requires the company to utilize an expected loss methodology in place of the incurred loss methodology for financial instruments, including trade receivables, and off-balance sheet credit exposures. Adoption of the standard did not have a material impact on our financial statements.
We are exposed to credit losses primarily through our sales of refined petroleum products, crude oil and midstream services. We assess each customer’s ability to pay through our credit review process. The credit review process considers various factors such as external credit ratings, a review of financial statements to determine liquidity, leverage, trends and business specific risks, market information, pay history and our business strategy. Customers that do not qualify for payment terms are required to prepay or provide a letter of credit. We monitor our ongoing credit exposure through timely review of customer payment activity. At March 31, 2020, we reported $5,583 million of accounts and notes receivable, net of allowances of $18 million.

8

Table of Contents
                            

We are also exposed to credit losses from off-balance sheet exposures, such as guarantees of joint venture debt. See Note 22 for more information on these off-balance sheet exposures.
We also adopted the following ASU during the first three months of 2020, which also did not have a material impact to our financial statements or financial statement disclosures:
ASU
 
 
Effective Date
2018-13
Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
 
January 1, 2020

Not Yet Adopted
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued new guidance to simplify the accounting for income taxes. Amendments include removal of certain exceptions to the general principles of ASC 740 and simplification in several other areas such as accounting for a franchise tax or similar tax that is partially based on income. The change is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. We do not expect the application of this ASU to have a material impact on our consolidated financial statements.
3. MASTER LIMITED PARTNERSHIP
We own the general partner and a majority limited partner interest in MPLX, which owns and operates crude oil and light product transportation and logistics infrastructure as well as gathering, processing, and fractionation assets. We control MPLX through our ownership of the general partner interest and as of March 31, 2020 we owned approximately 63 percent of the outstanding MPLX common units.
MPLX’s Acquisition of ANDX
On July 30, 2019, MPLX completed its acquisition of Andeavor Logistics LP (“ANDX”), and ANDX survived as a wholly owned subsidiary of MPLX. At the effective time of the ANDX acquisition, each common unit held by ANDX’s public unitholders was converted into the right to receive 1.135 MPLX common units. ANDX common units held by MPC were converted into the right to receive 1.0328 MPLX common units. Additionally, as a result of MPLX’s acquisition of ANDX, 600,000 ANDX preferred units were converted into 600,000 preferred units of MPLX (“Series B preferred units”). Series B preferred unitholders are entitled to receive, when and if declared by the board, a fixed distribution of $68.75 per unit, per annum, payable semi-annually in arrears on February 15 and August 15, or the first business day thereafter, up to and including February 15, 2023. After February 15, 2023, the holders of Series B preferred units are entitled to receive cumulative, quarterly distributions payable in arrears on the 15th day of February, May, August and November of each year, or the first business day thereafter, based on a floating annual rate equal to the three month LIBOR plus 4.652 percent.
MPC accounted for this transaction as a common control transaction, as defined by ASC 805, which resulted in an increase to noncontrolling interest and a decrease to additional paid-in capital of approximately $55 million, net of tax. During the third quarter of 2019, we pushed down to MPLX the portion of the goodwill attributable to ANDX as of October 1, 2018, the date of our acquisition of Andeavor. Due to this push down of goodwill, we also recorded an incremental $642 million deferred tax liability associated with the portion of the non-deductible goodwill attributable to the noncontrolling interest in MPLX with an offsetting reduction of our additional paid-in capital balance. We have consolidated ANDX since we acquired Andeavor on October 1, 2018 in accordance with ASC 810.
Agreements
We have various long-term, fee-based commercial agreements with MPLX. Under these agreements, MPLX provides transportation, storage, distribution and marketing services to us. With certain exceptions, these agreements generally contain minimum volume commitments. These transactions are eliminated in consolidation but are reflected as intersegment transactions between our Refining & Marketing and Midstream segments. 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 but are reflected as intersegment transactions between our Corporate and Midstream segments.

9

Table of Contents
                            

Noncontrolling Interest
As a result of equity transactions of MPLX and ANDX, we are required to adjust non-controlling interest and additional paid-in capital. Changes in MPC’s additional paid-in capital resulting from changes in its ownership interests in MPLX and ANDX were as follows:
 
Three Months Ended 
March 31,
(In millions)
2020
 
2019
Increase due to the issuance of MPLX & ANDX common units
$
2

 
$
4

Tax impact
(7
)
 
(1
)
Increase (decrease) in MPC's additional paid-in capital, net of tax
$
(5
)
 
$
3


4. IMPAIRMENTS
The recent outbreak of COVID-19 and its development into a pandemic in March 2020 have resulted in significant economic disruption globally. Actions taken by various governmental authorities, individuals and companies around the world to prevent the spread of COVID-19 through social distancing have restricted travel, many business operations, public gatherings and the overall level of individual movement and in-person interaction across the globe. This has significantly reduced global economic activity and resulted in airlines dramatically cutting back on flights and a decrease in motor vehicle use at a time when seasonal driving patterns typically result in an increase of consumer demand for gasoline. In addition, recent global geopolitical events and macroeconomic conditions have exacerbated the decline in crude oil prices and have contributed to an increase in crude oil price volatility. The decrease in the demand for refined petroleum products coupled with the decline in the price of crude oil has resulted in a significant decrease in the price of the refined petroleum products we produce and sell.
The overall deterioration in the economy and the environment in which we operate, the related changes to our expected future cash flows, as well as a sustained decrease in share price were considered triggering events requiring various assessments to identify any potential impairments of the carrying values of our assets. During the first quarter of 2020, we recognized impairment charges related to goodwill, equity method investments and long-lived assets (including intangibles).
The table below provides information related to the impairments recognized during the first quarter of 2020 and the location of these impairments within the consolidated statements of income.
(In millions)
Income Statement Line
Impairment
Goodwill
Impairment expense
$
7,330

Equity method investments
Income (loss) from equity method investments
1,315

Long-lived assets
Impairment expense
492

Total impairments
 
$
9,137


Goodwill
During the first quarter of 2020, we recorded an impairment of goodwill. See the table below for detail by segment. The goodwill impairment within the Refining & Marketing segment was primarily driven by the effects of COVID-19 and the decline in commodity prices. The impairment within the Midstream segment was primarily driven by additional guidance related to the slowing of drilling activity, which has reduced production growth forecasts from MPLX’s producer customers.
The fair value of the reporting units for the goodwill impairment analysis was determined based on applying both a discounted cash flow or income approach as well as a market approach. The discounted cash flow fair value estimate is based on known or knowable information at the measurement date. The significant assumptions that were used to develop the estimates of the fair values under the discounted cash flow method included management’s best estimates of the expected future results and discount rates, which range from 9.0 percent to 13.5 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 fair value measurements for the individual reporting units’ overall fair values represent Level 3 measurements.

10

Table of Contents
                            

The changes in carrying amount of goodwill were as follows:
(In millions)
Refining & Marketing
 
Retail
 
Midstream
 
Total
Balance at January 1, 2020
$
5,572

 
$
4,951

 
$
9,517

 
$
20,040

Impairments
(5,516
)
 

 
(1,814
)
 
(7,330
)
Transfers
(56
)
 

 
56

 

Balance at March 31, 2020
$

 
$
4,951

 
$
7,759

 
$
12,710


Equity Method Investments
During the first quarter of 2020, we recorded equity method investment impairment charges, of which $1.25 billion related to MarkWest Utica EMG, L.L.C. and its investment in Ohio Gathering Company, L.L.C. The impairments were largely due to a reduction in forecasted volumes gathered and processed by the systems operated by the joint ventures. The fair value of the investments was determined based upon applying the discounted cash flow method, which is an income 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 estimate of the fair value under the discounted cash flow method include management’s best estimates of the expected future cash flows, including prices and volumes, the weighted average cost of capital and the long-term growth rate. 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 impairment test will prove to be an accurate prediction of the future. The fair value of these equity method investments represents a Level 3 measurement.
Long-lived Assets
Long-lived assets used in operations are assessed for impairment whenever changes in facts and circumstances indicate that the carrying value of the assets may not be recoverable based on the expected undiscounted future cash flow of an asset group. For purposes of impairment evaluation, long-lived assets must be grouped at the lowest level for which independent cash flows can be identified, which generally is the refinery and associated distribution system level for Refining & Marketing segment assets, company-owned convenience store locations for Retail segment assets and the plant level or pipeline system level for Midstream segment assets. If the sum of the undiscounted estimated pretax cash flows is less than the carrying value of an asset group, fair value is calculated, and the carrying value is written down to the calculated fair value.
During the first quarter of 2020, we identified long-lived asset impairment triggers relating to all 16 of our refinery asset groups as a result of significant impacts to the Refining & Marketing segment forecasted cash flows. The cash flows associated with these assets were significantly impacted by the effects of COVID-19 and commodity price declines. We assessed each refinery asset group for impairment by comparing the undiscounted estimated pretax cash flows to the carrying value of each asset group. Of the 16 refinery asset groups, only the Gallup refinery’s carrying value exceeded its undiscounted estimated pretax cash flows. All other refinery asset groups undiscounted estimated pretax cash flows exceeded the carrying value by at least 21 percent. The determination of undiscounted estimated pretax cash flows utilized significant assumptions including management’s best estimates of the expected future cash flows, allocation of certain Refining & Marketing segment cash flows to the individual refineries, the estimated useful lives of the asset groups, and the salvage values of the refineries. The determinations of expected future cash flows and the salvage values of refineries 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 our impairment analysis will prove to be an accurate prediction of the future. Should our assumptions significantly change in future periods, it is possible we may determine the carrying values of additional refinery asset groups exceed the undiscounted estimated pretax cash flows of their refinery asset groups, which would result in future impairment charges.
It was determined that the fair value of the Gallup refinery’s property, plant and equipment was less than the carrying value. As a result, we recorded a charge of $142 million to impairment expense on the consolidated statements of income. The fair value measurements for the Gallup refinery assets represent Level 3 measurements.
During the first quarter of 2020, we identified an impairment trigger relating to asset groups within MPLX’s Western G&P reporting unit as a result of significant impacts to forecasted cash flows for these asset groups resulting from the effects of COVID-19. The cash flows associated with these assets were significantly impacted by volume declines reflecting decreased forecasted producer customer production as a result of lower commodity prices. We assessed each asset group within the Western G&P reporting unit for impairment. It was determined that the fair value of the East Texas G&P asset group’s underlying assets were less than the carrying value. As a result, MPLX recorded impairment charges totaling $350 million related to its property, plant and equipment and intangibles, which are included in impairment expense on our consolidated statements of income. Fair value of property, plant and equipment was determined using a combination of an income and cost

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approach. The income approach utilized significant assumptions including management’s best estimates of the expected future cash flows and the estimated useful life of the asset group. The cost approach utilized assumptions for the current replacement costs of similar assets adjusted for estimated depreciation and deterioration of the existing equipment and economic obsolescence. The fair value of the intangibles was determined based on applying the multi-period excess earnings method, which is an income approach. Key assumptions included management’s best estimates of the expected future cash flows from existing customers, customer attrition rates and the discount rate. 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 impairment analysis will prove to be an accurate prediction of the future. The fair value measurements for the asset group fair values represent Level 3 measurements.
5. VARIABLE INTEREST ENTITIES
Consolidated VIE
We control MPLX through our ownership of its general partner. MPLX is a VIE because the limited partners 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 our significant economic interest, we also have the ability, through our 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 interest owned by the public. We also record a redeemable noncontrolling interest related to MPLX’s Series A preferred units.
The creditors of MPLX do not have recourse to MPC’s general credit through guarantees or other financial arrangements, except as noted. MPC has effectively guaranteed certain indebtedness of LOOP LLC (“LOOP”) and LOCAP LLC (“LOCAP”), in which MPLX holds an interest. See Note 22 for more information. The assets of MPLX can only be used to settle their own obligations and their creditors have no recourse to our assets, except as noted earlier.
The following table presents balance sheet information for the assets and liabilities of MPLX, which are included in our balance sheets.
(In millions)
March 31,
2020
 
December 31,
2019
Assets
 
 
 
Cash and cash equivalents
$
57

 
$
15

Receivables, less allowance for doubtful accounts
544

 
615

Inventories
105

 
110

Other current assets
45

 
110

Equity method investments
3,992

 
5,275

Property, plant and equipment, net
22,030

 
22,174

Goodwill
7,722

 
9,536

Right of use assets
352

 
365

Other noncurrent assets
1,105

 
1,323

Liabilities
 
 
 
Accounts payable
$
521

 
$
744

Payroll and benefits payable
1

 
5

Accrued taxes
72

 
80

Debt due within one year
4

 
9

Operating lease liabilities
67

 
66

Other current liabilities
268

 
259

Long-term debt
20,467

 
19,704

Deferred income taxes
11

 
12

Long-term operating lease liabilities
284

 
302

Deferred credits and other liabilities
422

 
409



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6. RELATED PARTY TRANSACTIONS
Transactions with related parties were as follows:
 
Three Months Ended 
March 31,
(In millions)
2020
 
2019
Sales to related parties
$
165

 
$
186

Purchases from related parties
195

 
204


Sales to related parties, which are included in sales and other operating revenues, consist primarily of sales of refined products to PFJ Southeast, an equity affiliate which owns and operates travel plazas primarily in the Southeast region of the United States.
Purchases from related parties are included in cost of revenues. We obtain utilities, transportation services and purchase ethanol from certain of our equity affiliates.
7. LOSS PER SHARE
We compute basic earnings (loss) per share by dividing net income (loss) attributable to MPC less income allocated to participating securities by the weighted average number of shares of common stock outstanding. Since MPC grants certain incentive compensation awards to employees and non-employee directors that are considered to be participating securities, we have calculated our earnings (loss) per share using the two-class method. Diluted income (loss) per share assumes exercise of certain stock-based compensation awards, provided the effect is not anti-dilutive.
 
Three Months Ended 
March 31,
(In millions, except per share data)
2020
 
2019
Basic loss per share:
 
 
 
Allocation of loss:
 
 
 
Net loss attributable to MPC
$
(9,234
)
 
$
(7
)
Income allocated to participating securities

 

Loss available to common stockholders – basic
$
(9,234
)
 
$
(7
)
Weighted average common shares outstanding
648

 
673

Basic loss per share
$
(14.25
)
 
$
(0.01
)
Diluted loss per share:
 
 
 
Allocation of loss:
 
 
 
Net loss attributable to MPC
$
(9,234
)
 
$
(7
)
Income allocated to participating securities

 

Loss available to common stockholders – diluted
$
(9,234
)
 
$
(7
)
Weighted average common shares outstanding
648

 
673

Effect of dilutive securities

 

Weighted average common shares, including dilutive effect
648

 
673

Diluted loss per share
$
(14.25
)
 
$
(0.01
)

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)
2020
 
2019
Shares issuable under stock-based compensation plans
10

 
7



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8. EQUITY
As of March 31, 2020, we had $2.96 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, tender offers, accelerated share repurchases or open market solicitations for shares, some of which may be effected through Rule 10b5-1 plans. The timing and amount 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 respective periods:
 
Three Months Ended 
March 31,
(In millions, except per share data)
2020
 
2019
Number of shares repurchased

 
14

Cash paid for shares repurchased
$

 
$
885

Average cost per share
$

 
$
62.98


9. SEGMENT INFORMATION
We have three reportable segments: Refining & Marketing, Retail 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 16 refineries in the Gulf Coast, Mid-Continent and West Coast regions of the United States, purchases refined products and ethanol for resale and distributes refined products through transportation, storage, distribution and marketing services provided largely by our Midstream segment. We sell refined products to wholesale marketing customers domestically and internationally, to buyers on the spot market, to our Retail business segment and to independent entrepreneurs who operate primarily Marathon® branded outlets.
Retail – sells transportation fuels and convenience products in the retail market across the United States through company-owned and operated convenience stores, primarily under the Speedway® brand, and long-term fuel supply contracts with direct dealers who operate locations mainly under the ARCO® brand.
Midstream – transports, stores, distributes and markets crude oil and refined products principally for the Refining & Marketing segment via refining logistics assets, pipelines, terminals, towboats and barges; gathers, processes and transports natural gas; and gathers, transports, fractionates, stores and markets NGLs. The Midstream segment primarily reflects the results of MPLX.
Segment income represents income (loss) from operations attributable to the reportable segments. Corporate administrative expenses, except for those attributable to MPLX, and costs related to certain non-operating assets are not allocated to the Refining & Marketing and Retail segments. In addition, certain items that affect comparability (as determined by the chief operating decision maker) are not allocated to the reportable segments.
(In millions)
Refining & Marketing
 
Retail
 
Midstream
 
Total
Three Months Ended March 31, 2020
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Third party(a)
$
17,528

 
$
6,769

 
$
918

 
$
25,215

Intersegment
3,617

 
2

 
1,242

 
4,861

Segment revenues
$
21,145

 
$
6,771

 
$
2,160

 
$
30,076

Segment income (loss) from operations
$
(622
)
 
$
519

 
$
905

 
$
802

 
 
 
 
 
 
 
 
Supplemental Data
 
 
 
 
 
 
 
Depreciation and amortization(b)
$
447

 
$
125

 
$
345

 
$
917

Capital expenditures and investments(c)
459

 
76

 
474

 
1,009


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(In millions)
Refining & Marketing
 
Retail
 
Midstream
 
Total
Three Months Ended March 31, 2019
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Third party(a)
$
19,920

 
$
7,376

 
$
957

 
$
28,253

Intersegment
4,416

 
2

 
1,232

 
5,650

Segment revenues
$
24,336

 
$
7,378

 
$
2,189

 
$
33,903

Segment income (loss) from operations
$
(334
)
 
$
170

 
$
908

 
$
744

 
 
 
 
 
 
 
 
Supplemental Data
 
 
 
 
 
 
 
Depreciation and amortization(b)
$
427

 
$
126

 
$
307

 
$
860

Capital expenditures and investments(c)
394

 
73

 
823

 
1,290


(a) 
Includes related party sales. See Note 6 for additional information.
(b) 
Differences between segment totals and MPC consolidated totals represent amounts related to corporate and other unallocated items and are included in items not allocated to segments in the reconciliation below.
(c) 
Includes changes in capital expenditure accruals and investments in affiliates. See reconciliation from segment totals to MPC consolidated total capital expenditures below.
The following reconciles segment income from operations to income (loss) before income taxes as reported in the consolidated statements of income:
 
Three Months Ended 
March 31,
(In millions)
2020
 
2019
Segment income from operations
$
802

 
$
744

Items not allocated to segments:
 
 
 
Corporate and other unallocated items(a)
(227
)
 
(191
)
Equity method investment restructuring gain(b)

 
207

Transaction-related costs(c)
(35
)
 
(91
)
Impairments(d)
(9,137
)
 

Inventory market valuation adjustment(e)
(3,220
)
 

Income (loss) from operations
(11,817
)
 
669

Net interest and other financial costs
338

 
306

Income (loss) before income taxes
$
(12,155
)
 
$
363

(a) 
Corporate and other unallocated items consist primarily of MPC’s corporate administrative expenses and costs related to certain non-operating assets, except for corporate overhead expenses attributable to MPLX, which are included in the Midstream segment. Corporate overhead expenses are not allocated to the Refining & Marketing and Retail segments.
(b) 
Includes gain related to Capline Pipeline Company LLC (“Capline LLC”). See Note 13.
(c) 
2020 includes costs incurred in connection with the Speedway separation and Midstream strategic review. 2019 includes employee severance, retention and other costs related to the acquisition of Andeavor.
(d) 
Includes goodwill impairment, impairment of equity method investments and impairment of long lived assets. See Note 4 for additional information.
(e) 
See Note 12.

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The following reconciles segment capital expenditures and investments to total capital expenditures:
 
Three Months Ended 
March 31,
(In millions)
2020
 
2019
Segment capital expenditures and investments
$
1,009

 
$
1,290

Less investments in equity method investees
169

 
325

Plus items not allocated to segments:
 
 
 
Corporate
27

 
10

Capitalized interest
29

 
31

Total capital expenditures(a)
$
896

 
$
1,006

(a) 
Includes changes in capital expenditure accruals. See Note 19 for a reconciliation of total capital expenditures to additions to property, plant and equipment for the three months ended March 31, 2020 and 2019 as reported in the consolidated statements of cash flows.
10. NET INTEREST AND OTHER FINANCIAL COSTS
Net interest and other financial costs were as follows:
 
Three Months Ended 
March 31,
(In millions)
2020
 
2019
Interest income
$
(6
)
 
$
(9
)
Interest expense
357

 
340

Interest capitalized
(36
)
 
(32
)
Pension and other postretirement non-service credits(a)
(3
)
 
(3
)
Other financial costs
26

 
10

Net interest and other financial costs
$
338

 
$
306


(a) 
See Note 21.
11. INCOME TAXES
We have historically provided for income taxes during interim reporting periods based on an estimate of the annual effective tax rate applied to the income for the interim period. For 2020, we continue to utilize this approach.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act contains numerous income tax provisions, some of which materially impact MPC's calculation of income taxes including:
Reducing the limitations on the deductibility of interest from 30 percent of adjusted taxable income to 50 percent.
Ability to carry back tax net operating losses ("NOL") five years for NOLs arising in taxable years 2018 through 2020. This provision allows the taxpayer to recover taxes previously paid at a 35 percent federal income tax rate during years prior to 2018. The limitation on the percentage of taxable income that may be offset by the NOL, formerly 80 percent of income, was eliminated for years beginning before 2021.
We recorded an overall income tax benefit of $1.9 billion for the three months ended March 31, 2020, of which $411 million was attributable to the expected NOL carryback provided for under the CARES Act. The combined federal, state and foreign income tax rate was 16 percent for the three months ended March 31, 2020. Our effective tax benefit rate was lower than the statutory rate primarily due to a significant amount of our pre-tax loss consisting of non-tax deductible goodwill impairment charges, partially offset by a favorable rate effect of the CARES Act legislation. Additionally, our effective tax rate is generally benefited by our noncontrolling interest in MPLX, but this benefit was lower for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 due to impairment charges recorded by MPLX. We recorded an income tax receivable of $1.3 billion in other noncurrent assets to reflect our estimate of the tax benefit we will realize at the time of our 2020 tax return filing which is expected during the second half of 2021. A reconciliation of the federal statutory income tax rate applied to income (loss) before income taxes to the (benefit) provision for income taxes follows:

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Three Months Ended 
March 31,
 
2020
 
2019
Statutory rate applied to income before income taxes
21
 %
 
21
 %
State and local income taxes, net of federal income tax effects
2

 
12

Goodwill impairment
(10
)
 

Noncontrolling interests
(1
)
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