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Section 1: 10-Q (10-Q)

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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, 2019
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 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  x    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
 
x
  
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  x
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
There were 662,618,001 shares of Marathon Petroleum Corporation common stock outstanding as of May 3, 2019.
 


Table of Contents
                            

MARATHON PETROLEUM CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019
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
bcf/d
One billion cubic feet per day
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
IDR
Incentive Distribution Right
LCM
Lower of cost or market
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
NYMEX
New York Mercantile Exchange
OPEC
Organization of Petroleum Exporting Countries
OTC
Over-the-Counter
ppm
Parts per million
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,
(Millions of dollars, except per share data)
 
2019
 
2018
Revenues and other income:
 
 
 
 
Sales and other operating revenues
 
$
28,081

 
$
18,694

Sales to related parties
 
186

 
172

Income from equity method investments
 
99

 
86

Net gain on disposal of assets
 
214

 
2

Other income
 
35

 
30

Total revenues and other income
 
28,615

 
18,984

Costs and expenses:
 
 
 
 
Cost of revenues (excludes items below)
 
25,756

 
17,370

Purchases from related parties
 
204

 
141

Depreciation and amortization
 
919

 
528

Selling, general and administrative expenses
 
881

 
402

Other taxes
 
186

 
103

Total costs and expenses
 
27,946

 
18,544

Income from operations
 
669

 
440

Net interest and other financial costs
 
306

 
183

Income before income taxes
 
363

 
257

Provision for income taxes
 
104

 
22

Net income
 
259

 
235

Less net income attributable to:
 
 
 
 
Redeemable noncontrolling interest
 
20

 
16

Noncontrolling interests
 
246

 
182

Net income (loss) attributable to MPC
 
$
(7
)
 
$
37

Per Share Data (See Note 7)
 
 
 
 
Basic:
 
 
 
 
Net income (loss) attributable to MPC per share
 
$
(0.01
)
 
$
0.08

Weighted average shares outstanding
 
673

 
476

Diluted:
 
 
 
 
Net income (loss) attributable to MPC per share
 
$
(0.01
)
 
$
0.08

Weighted average shares outstanding
 
673

 
480

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)
 
2019
 
2018
Net income
 
$
259

 
$
235

Other comprehensive income (loss):
 
 
 
 
Defined benefit postretirement and post-employment plans:
 
 
 
 
Actuarial changes, net of tax of $6 and $3, respectively
 
(3
)
 
7

Prior service costs, net of tax of ($8) and ($2), respectively
 
(3
)
 
(7
)
Other, net of tax of $0 and ($1), respectively
 
(1
)
 
(2
)
Other comprehensive loss
 
(7
)
 
(2
)
Comprehensive income
 
252

 
233

Less comprehensive income attributable to:
 
 
 
 
Redeemable noncontrolling interest
 
20

 
16

Noncontrolling interests
 
246

 
182

Comprehensive income (loss) attributable to MPC
 
$
(14
)
 
$
35

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,
2019
 
December 31,
2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
877

 
$
1,687

Receivables, less allowance for doubtful accounts of $9 and $9, respectively
6,893

 
5,853

Inventories
9,833

 
9,837

Other current assets
548

 
646

Total current assets
18,151

 
18,023

Equity method investments
6,558

 
5,898

Property, plant and equipment, net
45,091

 
45,058

Goodwill
20,229

 
20,184

Right of use assets
2,680

 

Other noncurrent assets
3,727

 
3,777

Total assets
$
96,436

 
$
92,940

Liabilities
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
10,568

 
$
9,366

Payroll and benefits payable
958

 
1,152

Accrued taxes
1,529

 
1,446

Debt due within one year
550

 
544

Operating lease liabilities
613

 

Other current liabilities
929

 
708

Total current liabilities
15,147

 
13,216

Long-term debt
27,565

 
26,980

Deferred income taxes
5,011

 
4,864

Defined benefit postretirement plan obligations
1,567

 
1,509

Long-term operating lease liabilities
2,153

 

Deferred credits and other liabilities
1,131

 
1,318

Total liabilities
52,574

 
47,887

Commitments and contingencies (see Note 24)

 

Redeemable noncontrolling interest
1,004

 
1,004

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

 

Common stock:
 
 
 
Issued – 976 million and 975 million shares (par value $0.01 per share, 2 billion shares authorized)
10

 
10

Held in treasury, at cost – 309 million and 295 million shares
(14,063
)
 
(13,175
)
Additional paid-in capital
33,764

 
33,729

Retained earnings
14,391

 
14,755

Accumulated other comprehensive loss
(151
)
 
(144
)
Total MPC stockholders’ equity
33,951

 
35,175

Noncontrolling interests
8,907

 
8,874

Total equity
42,858

 
44,049

Total liabilities, redeemable noncontrolling interest and equity
$
96,436

 
$
92,940

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)
2019
 
2018
Operating activities:
 
 
 
Net income
$
259

 
$
235

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

 
18

Depreciation and amortization
919

 
528

Pension and other postretirement benefits, net
52

 
32

Deferred income taxes
127

 
(19
)
Net gain on disposal of assets
(214
)
 
(2
)
Income from equity method investments
(99
)
 
(86
)
Distributions from equity method investments
148

 
89

Changes in the fair value of derivative instruments
29

 
(14
)
Changes in operating assets and liabilities, net of effects of businesses acquired:
 
 
 
Current receivables
(1,037
)
 
96

Inventories
(4
)
 
440

Current accounts payable and accrued liabilities
1,483

 
(1,455
)
Right of use assets/operating leases
(1
)
 

All other, net
(39
)
 
1

Net cash provided by (used in) operating activities
1,623

 
(137
)
Investing activities:
 
 
 
Additions to property, plant and equipment
(1,241
)
 
(755
)
Acquisitions, net of cash acquired
1

 

Disposal of assets
24

 
7

Investments – acquisitions, loans and contributions
(325
)
 
(41
)
 – redemptions, repayments and return of capital
2

 

All other, net
19

 
11

Net cash used in investing activities
(1,520
)
 
(778
)
Financing activities:
 
 
 
Long-term debt – borrowings
2,604

 
9,610

                          – repayments
(2,031
)
 
(5,264
)
Debt issuance costs

 
(53
)
Issuance of common stock
2

 
12

Common stock repurchased
(885
)
 
(1,327
)
Dividends paid
(354
)
 
(219
)
Distributions to noncontrolling interests
(325
)
 
(195
)
Contributions from noncontrolling interests
95

 
1

All other, net
(26
)
 
(8
)
Net cash provided by (used in) financing activities
(920
)
 
2,557

Net increase (decrease) in cash, cash equivalents and restricted cash
(817
)
 
1,642

Cash, cash equivalents and restricted cash at beginning of period
1,725

 
3,015

Cash, cash equivalents and restricted cash at end of period
$
908

 
$
4,657

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, 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

 

Impact from 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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2017
734

 
$
7

 
(248
)
 
$
(9,869
)
 
$
11,262

 
$
12,864

 
$
(231
)
 
$
6,795

 
$
20,828

 
$
1,000

Cumulative effect of adopting new accounting standards

 

 

 

 

 
63

 

 
1

 
64

 

Net income

 

 

 

 

 
37

 

 
182

 
219

 
16

Dividends declared on common stock ($0.46 per share)

 

 

 

 

 
(219
)
 

 

 
(219
)
 

Distributions to noncontrolling interests

 

 

 

 

 

 

 
(179
)
 
(179
)
 
(16
)
Contributions from noncontrolling interests

 

 

 

 

 

 

 
1

 
1

 

Other comprehensive loss

 

 

 

 

 

 
(2
)
 

 
(2
)
 

Shares repurchased

 

 
(19
)
 
(1,327
)
 

 

 

 

 
(1,327
)
 

Stock based compensation

 

 

 
(4
)
 
27

 

 

 
1

 
24

 

Impact from equity transactions of MPLX & ANDX

 

 

 

 
2,380

 

 

 
(2,926
)
 
(546
)
 

Balance as of March 31, 2018
734

 
$
7

 
(267
)
 
$
(11,200
)
 
$
13,669

 
$
12,745

 
$
(233
)
 
$
3,875

 
$
18,863

 
$
1,000

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 3,920 retail transportation fuel and convenience stores across the United States and also sell transportation fuel to consumers through approximately 1,060 direct dealer locations under long-term supply contracts. MPC’s midstream operations are primarily conducted through MPLX LP (“MPLX”) and Andeavor Logistics LP (“ANDX”), which own and operate crude oil and light product transportation and logistics infrastructure as well as gathering, processing, and fractionation assets. We own the general partner and majority limited partner interest in these two midstream companies.
Refer to Note 4 for further information on the Andeavor acquisition, which closed on October 1, 2018, and to Notes 3 and 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 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, 2018. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the full year.
2. ACCOUNTING STANDARDS
Recently Adopted
ASU 2016-02, Leases
We adopted ASU No. 2016-02, Leases (“ASC 842”), as of January 1, 2019, electing the transition method which permits entities to adopt the provisions of the standard using the modified retrospective approach without adjusting comparative periods. We also elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to grandfather the historical accounting conclusions until a reassessment event is present. We have also elected the practical expedient to not recognize short-term leases on the balance sheet, the practical expedient related to right of way permits and land easements which allows us to carry forward our accounting treatment for those existing agreements, and the practical expedient to combine lease and non-lease components for the majority of our underlying classes of assets except for our third-party contractor service and equipment agreements and boat and barge equipment agreements in which we are the lessee. We did not elect the practical expedient to combine lease and non-lease components for arrangements in which we are the lessor. In instances where the practical expedient was not elected, lease and non-lease consideration is allocated based on relative standalone selling price.
Right of use (“ROU”) assets represent our right to use an underlying asset in which we obtain substantially all of the economic benefits and the right to direct the use of the asset during the lease term. Lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We recognize ROU assets and lease liabilities on the balance sheet for leases with a lease term of greater than one year. Payments that are not fixed at the commencement of the lease are considered variable and are excluded from the ROU asset and lease liability calculations. In the measurement of our ROU assets and lease liabilities, the fixed lease payments in the agreement are discounted using a secured incremental borrowing rate for a term similar to the duration of the lease, as our leases do not provide implicit rates. Operating lease expense is recognized on a straight-line basis over the lease term.

8

Table of Contents
                            

Adoption of the new standard resulted in the recording of ROU assets and lease liabilities of approximately $2.79 billion and $2.88 billion, respectively, as of January 1, 2019. The standard did not materially impact our consolidated statements of income, cash flows or equity as a result of adoption.
As a lessor under ASC 842, MPLX may be required to re-classify existing operating leases to sales-type leases upon modification and related reassessment of the leases. If such a modification were to occur, it may result in the de-recognition of existing assets, recognition of a receivable in the amount of the present value of fixed payments expected to be received by MPLX under the lease, and recognition of a corresponding gain or loss in the period of change. MPLX will evaluate the impact of a lease reassessment as modifications occur.
We also adopted the following ASUs during the first three months of 2019, none of which had a material impact to our financial statements or financial statement disclosures:
ASU
 
 
Effective Date
2018-02
Reporting Comprehensive Income - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
 
January 1, 2019
2017-12
Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities
 
January 1, 2019
Not Yet Adopted
ASU 2017-04, Intangibles - Goodwill and Other - Simplifying the Test for Goodwill Impairment
In January 2017, the FASB issued an ASU which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the new guidance, the recognition of an impairment charge is calculated based on the amount by which the carrying amount exceeds the reporting unit’s fair value, which could be different from the amount calculated under the current method using the implied fair value of the goodwill; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The guidance should be applied on a prospective basis, and is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.
ASU 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued an ASU related to the accounting for credit losses on certain financial instruments. The guidance requires that for most financial assets, losses be based on an expected loss approach which includes estimates of losses over the life of exposure that considers historical, current and forecasted information. Expanded disclosures related to the methods used to estimate the losses as well as a specific disaggregation of balances for financial assets are also required. The change is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We do not expect application of this ASU to have a material impact on our consolidated financial statements.
3. MASTER LIMITED PARTNERSHIPS
MPLX
MPLX is a diversified, large-cap publicly traded limited partnership formed by us to own, operate, develop and acquire midstream energy infrastructure assets. MPLX is engaged in the transportation, storage and distribution of crude oil and refined petroleum products; gathering, processing and transportation of natural gas; and the gathering, transportation, fractionation, storage and marketing of NGLs. As of March 31, 2019, we owned 64 percent of the outstanding MPLX common units and we control MPLX through our ownership of the general partner of MPLX.
Dropdowns to MPLX and GP/IDR Exchange
On February 1, 2018, we contributed refining logistics assets and fuels distribution services to MPLX in exchange for $4.1 billion in cash and approximately 112 million common units and 2 million general partner units from MPLX. MPLX financed the cash portion of the transaction with its $4.1 billion 364-day term loan facility, which was entered into on January 2, 2018. We agreed to waive approximately one-third of the first quarter 2018 distributions on the common units issued in connection with this transaction. The contributions of these assets were accounted for as transactions between entities under common control and we did not record a gain or loss.
Immediately following the February 1, 2018 dropdown to MPLX, our IDRs were cancelled and our economic general partner interest was converted into a non-economic general partner interest, all in exchange for 275 million newly issued MPLX common units (“GP/IDR Exchange”). As a result of this transaction, the general partner units and IDRs were eliminated, are no longer outstanding and no longer participate in distributions of cash from MPLX.

9

Table of Contents
                            

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. Under certain agreements, we commit to provide MPLX with minimum throughput and distribution volumes of crude oil and refined products and minimum storage volumes of crude oil, refined products and butane. Under certain other agreements, we commit to pay for substantially all of the available capacity for certain marine transportation and refining logistics assets. 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.
ANDX
Through the Andeavor acquisition, we acquired control of ANDX, which is a publicly traded limited partnership that was formed to own, operate, develop and acquire logistics assets. Its assets are integral to the success of our refining and marketing operations and are used to gather crude oil, natural gas, and water, process natural gas and distribute, transport and store crude oil and refined products. ANDX provides us with various pipeline transportation, trucking, terminal distribution, storage and petroleum-coke handling services under long-term, fee-based commercial agreements. 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 ANDX that establish fees for operational and management services provided between us and ANDX and for executive management services and certain general and administrative services provided by us to ANDX. These transactions are eliminated in consolidation, but are reflected as intersegment transactions between our Corporate and Midstream segments.
As of March 31, 2019, we owned 64 percent of the outstanding ANDX common units. We also hold 80,000 ANDX TexNew Mex Units as of March 31, 2019 and control ANDX through our ownership of the general partner of ANDX.
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)
2019
 
2018
Increase due to the issuance of MPLX common units and general partner units to MPC
$

 
$
1,114

Increase due to GP/IDR Exchange

 
1,808

Increase due to the issuance of MPLX & ANDX common units
4

 
4

Increase in MPC's additional paid-in capital
4

 
2,926

Tax impact
(1
)
 
(546
)
Increase in MPC's additional paid-in capital, net of tax
$
3

 
$
2,380

4. ACQUISITIONS
Acquisition of Andeavor
On October 1, 2018, we acquired all the outstanding shares of Andeavor. The total value of consideration transferred was $23.46 billion, consisting of $19.97 billion in equity and $3.49 billion in cash. The cash portion of the purchase price was funded using cash on hand. Our financial results reflect the results of Andeavor from the date of the acquisition.
We accounted for the Andeavor acquisition using the acquisition method of accounting, which requires Andeavor assets and liabilities to be recorded to our balance sheet at fair value as of the acquisition date. We will complete a final determination of the fair value of certain assets and liabilities within the one year measurement period from the date of the acquisition as required by FASB ASC Topic 805, “Business Combinations”. Due to the level of effort required to develop fair value measurements, the valuation studies necessary to determine the fair value of assets acquired and liabilities assumed are preliminary, including the underlying cash flows used to determine the fair value of identified intangible assets and economic obsolescence adjustments to property, plant and equipment. The size and the breadth of the Andeavor acquisition necessitates the use of the one year measurement period to fully analyze all the factors used in establishing the asset and liability fair values as of the acquisition date, including, but not limited to, property, plant and equipment, intangible assets, real property, leases,

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environmental and asset retirement obligations and the related tax impacts of any changes made. Any potential adjustments made could be material in relation to the preliminary values.
During the three months ended March 31, 2019, we recorded adjustments to the preliminary fair value estimates of assets acquired and liabilities assumed as of the acquisition date as noted in the table below.
(In millions)
As originally reported
 
Adjustments
 
As adjusted
Cash and cash equivalents
$
382

 
$

 
$
382

Receivables
2,744

 
(2
)
 
2,742

Inventories
5,204

 
(8
)
 
5,196

Other current assets
378

 

 
378

Equity method investments
865

 

 
865

Property, plant and equipment, net
16,545

 
(1
)
 
16,544

Other noncurrent assets(a)
3,086

 

 
3,086

Total assets acquired
29,204

 
(11
)
 
29,193

Accounts payable
4,003

 

 
4,003

Payroll and benefits payable
348

 

 
348

Accrued taxes
590

 

 
590

Debt due within one year
34

 

 
34

Other current liabilities
392

 
23

 
415

Long-term debt
8,875

 
1

 
8,876

Deferred income taxes
1,609

 
22

 
1,631

Defined benefit postretirement plan obligations
432

 

 
432

Deferred credit and other liabilities
714

 
6

 
720

Noncontrolling interests
5,059

 
3

 
5,062

Total liabilities and noncontrolling interest assumed
22,056

 
55

 
22,111

Net assets acquired excluding goodwill
7,148

 
(66
)
 
7,082

Goodwill
16,314

 
66

 
16,380

Net assets acquired
$
23,462

 
$

 
$
23,462

(a) 
Includes intangible assets.
The preliminary purchase consideration allocation resulted in the recognition of $16.38 billion in goodwill, of which $893 million is tax deductible due to a carryover basis from Andeavor. Our Refining & Marketing, Midstream and Retail segments recognized $4.78 billion, $7.72 billion and $3.88 billion of preliminary goodwill. The recognized goodwill represents the value expected to be created by further optimization of crude supply, a nationwide retail and marketing platform, diversification of our refining and midstream footprints and optimization of information systems and business processes.
Pro Forma Financial Information
The following unaudited pro forma financial information presents consolidated results assuming the Andeavor acquisition occurred on January 1, 2017. The unaudited pro forma 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)
2018
Sales and other operating revenues
$
29,206

Net income attributable to MPC
26

The pro forma information includes adjustments to align accounting policies, including our policy to expense refinery turnarounds when they occur, an adjustment to depreciation expense to reflect the increased fair value of property, plant and equipment, increased amortization expense related to identifiable intangible assets and the related income tax effects.

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Acquisition of Express Mart
During the fourth quarter of 2018, Speedway acquired 78 transportation fuel and convenience store locations from Petr-All Petroleum Consulting Corporation for total consideration of $266 million. These stores are located primarily in the Syracuse, Rochester and Buffalo markets in New York and had been operated under the Express Mart brand.
Based on the final fair value estimates of assets acquired and liabilities assumed at the acquisition date, $97 million of the purchase price was allocated to property, plant and equipment, $9 million to inventory, $2 million to intangibles and $158 million to goodwill. Goodwill is tax deductible and represents the value expected to be created by geographically expanding our retail platform and the assembled workforce. These operations are accounted for within the Retail segment.
Acquisition of Mt. Airy Terminal
On September 26, 2018, MPLX acquired an eastern U.S. Gulf Coast export terminal (“Mt. Airy Terminal”) from Pin Oak Holdings, LLC for total consideration of $451 million. At the time of the acquisition, the terminal included tanks with 4 million barrels of third-party leased storage capacity and a dock with 120 mbpd of capacity. The Mt. Airy Terminal is located on the Mississippi River between New Orleans and Baton Rouge, near several Gulf Coast refineries, including our Garyville Refinery, and numerous rail lines and pipelines. The Mt. Airy Terminal is accounted for within the Midstream segment. In the first quarter of 2019, an adjustment to the initial purchase price was made for approximately $5 million related to the final settlement of the acquisition. This reduced the total purchase price to $446 million and resulted in $336 million of property, plant and equipment, $121 million of goodwill and the remainder being attributable to net liabilities assumed.
Goodwill represents the significant growth potential of the terminal due to the multiple pipelines and rail lines which cross the property, the terminal’s position as an aggregation point for liquids growth in the region for both ocean-going vessels and inland barges, the proximity of the terminal to MPC’s Garyville refinery and other refineries in the region as well as the opportunity to construct an additional dock at the site. All of the goodwill recognized related to this transaction is tax deductible.
Assuming the acquisitions of Express Mart and Mt. Airy Terminal had occurred on January 1, 2017, the consolidated pro forma results would not have been materially different from the reported results.
5. VARIABLE INTEREST ENTITIES
Consolidated VIEs
We control MPLX and ANDX through our ownership of the general partner of both entities. MPLX and ANDX are VIEs because the limited partners do not have substantive kick-out or substantive participating rights over the general partner. We are the primary beneficiary of both MPLX and ANDX 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 and ANDX. We therefore consolidate MPLX and ANDX and record a noncontrolling interest for the interest owned by the public. We also record a redeemable noncontrolling interest related to MPLX’s preferred units.
The creditors of MPLX and ANDX 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 24 for more information. Western Refining Southwest, Inc., a wholly-owned subsidiary of MPC and unitholder of ANDX, has guaranteed certain outstanding borrowings under the ANDX dropdown credit facility that were made in connection with the August 2018 dropdown transaction.

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The assets of MPLX and ANDX can only be used to settle their own obligations and their creditors have no recourse to our assets, except as noted above. The following table present balance sheet information for the assets and liabilities of MPLX and ANDX, which are included in our balance sheets.
 
March 31,
2019
 
December 31,
2018
(In millions)
MPLX
 
ANDX(a)
 
MPLX
 
ANDX(a)
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
93

 
$
29

 
$
68

 
$
10

Receivables, less allowance for doubtful accounts
372

 
248

 
425

 
199

Inventories
74

 
21

 
77

 
22

Other current assets
34

 
37

 
45

 
57

Equity method investments
4,270

 
602

 
4,174

 
602

Property, plant and equipment, net
14,816

 
6,882

 
14,639

 
6,845

Goodwill
2,581

 
1,052

 
2,586

 
1,051

Right of use assets
262

 
122

 

 

Other noncurrent assets
448

 
1,235

 
458

 
1,242

Liabilities
 
 
 
 
 
 
 
Accounts payable
$
583

 
$
177

 
$
776

 
$
215

Payroll and benefits payable
4

 
1

 
2

 
10

Accrued taxes
40

 
20

 
48

 
23

Debt due within one year
1

 
503

 
1

 
504

Operating lease liabilities
46

 
12

 

 

Other current liabilities
189

 
117

 
177

 
77

Long-term debt
13,832

 
4,629

 
13,392

 
4,469

Deferred income taxes
12

 
1

 
13

 
1

Long-term operating lease liabilities
216

 
109

 

 

Deferred credits and other liabilities
289

 
66

 
276

 
68

(a) 
The balances reflected here are ANDX’s historical balances as the preliminary purchase accounting adjustments related to ANDX’s assets and liabilities in connection with the Andeavor acquisition and reflected on our consolidated balance sheets as of December 31, 2018 and March 31, 2019 have not yet been pushed down to this subsidiary.
6. RELATED PARTY TRANSACTIONS
Transactions with related parties were as follows:
 
Three Months Ended 
March 31,
(In millions)
2019
 
2018
Sales to related parties(a)
$
186

 
$
172

Purchases from related parties(b)
204

 
141

(a)  
Sales to related parties consists 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.
(b)  
We obtain utilities, transportation services and purchase ethanol from certain of our equity affiliates.

Summarized financial information, in the aggregate, for our significant equity method investments on a 100 percent basis were as follows:
 
Three Months Ended 
March 31,
(In millions)
2019
 
2018
Revenues and other income
$
1,628

 
$
1,503

Income from operations
336

 
254

Net income
314

 
274



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7. INCOME (LOSS) PER COMMON SHARE
We compute basic earnings per share by dividing net income 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 per share using the two-class method. Diluted income 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)
2019
 
2018
Basic earnings (loss) per share:
 
 
 
Allocation of earnings:
 
 
 
Net income (loss) attributable to MPC
$
(7
)
 
$
37

Income allocated to participating securities

 

Income (loss) available to common stockholders – basic
$
(7
)
 
$
37

Weighted average common shares outstanding
673

 
476

Basic earnings (loss) per share
$
(0.01
)
 
$
0.08

Diluted earnings (loss) per share:
 
 
 
Allocation of earnings:
 
 
 
Net income (loss) attributable to MPC
$
(7
)
 
$
37

Income allocated to participating securities

 

Income (loss) available to common stockholders – diluted
$
(7
)
 
$
37

Weighted average common shares outstanding
673

 
476

Effect of dilutive securities

 
4

Weighted average common shares, including dilutive effect
673

 
480

Diluted earnings (loss) per share
$
(0.01
)
 
$
0.08


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)
2019
 
2018
Shares issuable under stock-based compensation plans
7

 

8. EQUITY
As of March 31, 2019, we had $4.02 billion of share repurchase authorization remaining under authorizations from our board of directors. We may utilize various methods to effect the repurchases, which could include open market repurchases, negotiated block transactions, accelerated share repurchases or open market solicitations for shares, some of which may be 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:
 
Three Months Ended 
March 31,
(In millions, except per share data)
2019
 
2018
Number of shares repurchased
14

 
19

Cash paid for shares repurchased
$
885

 
$
1,327

Average cost per share
$
62.98

 
$
68.74

As of March 31, 2019, we had agreements to acquire 493,625 common shares for $30 million, which settled in early April 2019.

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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 West Coast, Mid-Continent and Gulf 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 primarily 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 and ANDX, our sponsored master limited partnerships.
Segment income represents income from operations attributable to the reportable segments. Corporate administrative expenses, except for those attributable to MPLX and ANDX, 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, 2019
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Third party
$
19,751

 
$
7,373

 
$
957

 
$
28,081

Intersegment
4,429

 
2

 
1,232

 
5,663

Related party
183

 
3

 

 
186

Segment revenues
$
24,363

 
$
7,378

 
$
2,189

 
$
33,930

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

 
$
908

 
$
744

Income from equity method investments
1

 
17

 
81

 
99

Depreciation and amortization(a)
427

 
126

 
307

 
860

Capital expenditures and investments(b)
394

 
73

 
823

 
1,290

(In millions)
Refining & Marketing
 
Retail
 
Midstream
 
Total
Three Months Ended March 31, 2018
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Third party
$
13,412

 
$
4,569

 
$
713

 
$
18,694

Intersegment
2,379

 
1

 
631

 
3,011

Related party
170

 
2

 

 
172

Segment revenues
$
15,961

 
$
4,572

 
$
1,344

 
$
21,877

Segment income (loss) from operations
$
(133
)
 
$
95

 
$
567

 
$
529

Income from equity method investments
3

 
14

 
69

 
86

Depreciation and amortization(a)
252

 
79

 
181

 
512

Capital expenditures and investments(b)
191

 
39

 
482

 
712

(a) 
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.
(b) 
Capital expenditures include changes in capital accruals and investments in affiliates. See reconciliation from segment totals to MPC consolidated total capital expenditures below.

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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)
2019
 
2018
Segment income from operations
$
744

 
$
529

Items not allocated to segments:
 
 
 
Corporate and other unallocated items(a)
(191
)
 
(89
)
Capline restructuring gain(b)
207

 

Transaction-related costs(c)
(91
)
 

Income from operations
669

 
440

Net interest and other financial costs
306

 
183

Income before income taxes
$
363

 
$
257

(a) 
Corporate and other unallocated items consists primarily of MPC’s corporate administrative expenses and costs related to certain non-operating assets, except for corporate overhead expenses attributable to MPLX and ANDX, which are included in the Midstream segment. Corporate overhead expenses are not allocated to the Refining & Marketing and Retail segments.
(b) 
See Note 13.
(c) 
The transaction-related costs recognized in the first quarter largely relate to the recognition of an obligation for vacation benefits provided to former Andeavor employees.

The following reconciles segment capital expenditures and investments to total capital expenditures:
 
Three Months Ended 
March 31,
(In millions)
2019
 
2018
Segment capital expenditures and investments
$
1,290

 
$
712

Less investments in equity method investees
325

 
41

Plus items not allocated to segments:
 
 
 
Corporate
10

 
18

Capitalized interest
31

 
18

Total capital expenditures(a)
$
1,006

 
$
707

(a) 
Capital expenditures include changes in capital accruals. See Note 19 for a reconciliation of total capital expenditures to additions to property, plant and equipment 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)
2019
 
2018
Interest income
$
(9
)
 
$
(20
)
Interest expense
340

 
213

Interest capitalized
(32
)
 
(18
)
Pension and other postretirement non-service costs(a)
(3
)
 

Loss on extinguishment of debt

 
4

Other financial costs
10

 
4

Net interest and other financial costs
$
306

 
$
183

(a) 
See Note 21.

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11. INCOME TAXES
The combined federal, state and foreign income tax rate was 29 percent and 9 percent for the three months ended March 31, 2019 and 2018, respectively. The effective tax rate for the three months ended March 31, 2019 was greater than the U.S. statutory rate of 21 percent primarily due to $36 million of state deferred tax expense recorded as an out of period adjustment, partially offset by permanent tax differences related to net income attributable to noncontrolling interests. The effective tax rate for the three months ended March 31, 2018 was less than the U.S. statutory rate primarily due to certain permanent tax differences related to net income attributable to noncontrolling interests, state and local deferred tax benefits primarily resulting from the February 1 dropdown and GP/IDR Exchange and equity compensation.
During the first quarter of 2019, MPC’s deferred tax liabilities increased $68 million with an offsetting increase to goodwill and the provision for income taxes of $32 million and $36 million, respectively for an out of period adjustment to correct the tax effects recorded in 2018 related to the Andeavor acquisition. The impact of the adjustment was not material to any previous period.
We are continuously undergoing examination of our income tax returns, which have been completed through the 2005 tax year for state returns and the 2008 tax year for our U.S. federal return. As of March 31, 2019, we had $231 million of unrecognized tax benefits.
Prior to its spinoff on June 30, 2011, Marathon Petroleum Corporation was included in the Marathon Oil Corporation (“Marathon Oil”) U.S. federal income tax returns for all applicable years. During the third quarter of 2017, Marathon Oil received a notice of Final Partnership Administrative Adjustment (“FPAA”) from the U.S. Internal Revenue Service for taxable year 2010, relating to certain partnership transactions. Marathon Oil filed a U.S. Tax Court petition disputing these adjustments during the fourth quarter of 2017. We received an FPAA for taxable years 2011-2014 for items resulting from this matter and filed a U.S. Tax Court petition for tax years 2011-2014 to dispute these corollary adjustments in the fourth quarter of 2017. We continue to believe that the issue in dispute is more likely than not to be fully sustained and, therefore, no liability has been accrued for this matter.
Pursuant to our tax sharing agreement with 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 24 for indemnification information.
12. INVENTORIES
(In millions)
March 31,
2019
 
December 31,
2018
Crude oil and refinery feedstocks
$
3,689

 
$
3,655

Refined products
5,186

 
5,234

Materials and supplies
744

 
720

Merchandise
214

 
228

Total
$
9,833

 
$
9,837

Inventories are carried at the lower of cost or market value. The cost of inventories of crude oil and refinery feedstocks, refined products and merchandise is determined primarily under the LIFO method. There were no LIFO inventory liquidations recognized for the three months ended March 31, 2019.
13. EQUITY METHOD INVESTMENTS
During the three months ended March 31, 2019, we executed agreements with Capline Pipeline LLC (“Capline LLC”) to contribute our 33 percent undivided interest in Capline pipeline system in exchange for a 33 percent ownership interest in Capline LLC. Concurrent with our execution of these agreements, Capline LLC initiated a binding open season for southbound service from Patoka, IL to St. James, LA or Liberty, MS, with an additional origination point at Cushing, OK. Service from Cushing, OK is part of a joint tariff with Diamond pipeline. Crude oil service is expected to begin in the third quarter of 2020.
In accordance with ASC 810 “Consolidation”, we derecognized our undivided interest amounting to $143 million of net assets and recognized the Capline LLC ownership interest we received at fair value. We used an income approach to determine the fair value of our ownership interest under a Monte Carlo simulation method. We determined the fair value of our ownership interest was estimated to be $350 million as of January 30, 2019. This is a nonrecurring fair value measurement and is categorized in level 3 of the fair value hierarchy. The Monte Carlo simulation inputs include ranges of tariff rates, operating

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volumes, operating cost and capital expenditure assumptions. The estimated cash flows were discounted using a Monte Carlo market participant weighted average cost of capital estimate. None of the inputs to the Monte Carlo simulation are individually significant. The excess of the estimated fair value of our ownership interest over the carrying value of the derecognized net assets resulted in a $207 million non cash net gain recorded as a net gain on disposal of assets in the accompanying consolidated statements of income.
As the Capline system is currently idled, Capline LLC is unable to fund its operations without financial support from its equity owners and is a VIE. MPC is not deemed to be the primary beneficiary, due to our inability to unilaterally control significant decision-making rights. Our maximum exposure to loss as a result of our involvement with Capline LLC includes our equity investment, any additional capital contribution commitments and any operating expenses incurred by Capline LLC in excess of compensation received for performance of the operating services.
14. PROPERTY, PLANT AND EQUIPMENT
(In millions)
March 31,
2019
 
December 31,
2018
Refining & Marketing
$
27,968

 
$
27,590

Retail
6,681

 
6,637

Midstream
25,929

 
25,692

Corporate and Other
1,304

 
1,294

Total
61,882

 
61,213

Less accumulated depreciation
16,791

 
16,155

Property, plant and equipment, net
$
45,091

 
$
45,058


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, 2019 and December 31, 2018 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, 2019
 
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
Assets:
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts
$
122

 
$
18

 
$

 
$
(128
)
 
$
12

 
$
42

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts
$
142

 
$
24

 
$

 
$
(161
)
 
$
5

 
$

Embedded derivatives in commodity contracts

 

 
65

 

 
65

 

 

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December 31, 2018
 
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
Assets:
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts
$
370

 
$
31

 
$

 
$
(323
)
 
$
78

 
$
2

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts
$
255

 
$
37

 
$

 
$
(284
)
 
$
8

 
$

Embedded derivatives in commodity contracts

 

 
61

 

 
61

 

(a) 
Represents the impact of netting assets, liabilities and cash collateral when a legal right of offset exists. As of March 31, 2019, cash collateral of $33 million was netted with the mark-to-market derivative liabilities. As of December 31, 2018, cash collateral of $52 million was netted with mark-to-market derivative assets and $13 million was netted with mark-to-market derivative liabilities.
(b) 
We have no derivative contracts that are subject to master netting arrangements reflected gross on the balance sheet.
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.
Level 2 instruments are valued based on quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices, such as liquidity, that are observable for the asset or liability. Commodity derivatives in Level 2 are OTC contracts, which are valued using market quotations from independent price reporting agencies, third-party brokers and commodity exchange price curves that are corroborated with market data.
Level 3 instruments are OTC NGL contracts and embedded derivatives in commodity contracts. The embedded derivative liability relates to a natural gas purchase agreement embedded in a keep‑whole processing agreement. The fair value calculation for these Level 3 instruments at March 31, 2019 used significant unobservable inputs including: (1) NGL prices interpolated and extrapolated due to inactive markets ranging from $0.60 to $1.25 per gallon and (2) the probability of renewal of 91 percent for the first five-year term and 82 percent for the second five-year term of the natural 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. Increases or decreases in the fractionation spread result in an increase or decrease in the fair value of the embedded derivative liability. An increase in the probability of renewal would result in an increase in the fair value of the related embedded derivative liability.
The following is a reconciliation of the beginning and ending balances recorded for net liabilities classified as Level 3 in the fair value hierarchy.
 
Three Months Ended 
March 31,
(In millions)
2019
 
2018
Beginning balance
$
61

 
$
66

Unrealized and realized losses included in net income
6

 
(3
)
Settlements of derivative instruments
(2
)
 
(3
)
Ending balance
$
65

 
$
60

 
 
 
 
The amount of total losses for the period included in earnings attributable to the change in unrealized losses relating to assets still held at the end of period:
$
5

 
$
(3
)

Fair Values – Reported
We believe the carrying value of our other financial instruments, including cash and cash equivalents, receivables, accounts payable and certain accrued liabilities, approximate fair value. Our fair value assessment incorporates a variety of considerations, including the short-term duration of the instruments and the expected insignificance of bad debt expense, which includes an evaluation of counterparty credit risk. The borrowings under our revolving credit facilities, which include variable interest rates, approximate fair value. The fair value of our fixed rate long-term debt is based on prices from recent trade activity and is categorized in level 3 of the fair value hierarchy. The carrying and fair values of our debt were approximately $27.6 billion and $28.5 billion at March 31, 2019, respectively, and approximately $27.0 billion and $26.5 billion at

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December 31, 2018, respectively. These carrying and fair values of our debt exclude the unamortized issuance costs which are netted against our total debt.
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 and (6) the purchase of natural gas.
The following table presents the fair value of derivative instruments as of March 31, 2019 and December 31, 2018 and the line items in the balance sheets in which the fair values are reflected. The fair value amounts below are presented on a gross basis and do not reflect the netting of asset and liability positions permitted under the terms of our master netting arrangements including cash collateral on deposit with, or received from, brokers. We offset the recognized fair value amounts for multiple derivative instruments executed with the same counterparty in our financial statements when a legal right of offset exists. As a result, the asset and liability amounts below will not agree with the amounts presented in our consolidated balance sheets.
(In millions)
March 31, 2019
Balance Sheet Location
Asset
 
Liability
Commodity derivatives
 
 
 
Other current assets
$
139

 
$
160

Other current liabilities(a)
1

 
14

Deferred credits and other liabilities(a)

 
57

(In millions)
December 31, 2018
Balance Sheet Location
Asset
 
Liability
Commodity derivatives
 
 
 
Other current assets
$
400

 
$
283

Other current liabilities(a)
1

 
16

Deferred credits and other liabilities(a)

 
54

(a)  
Includes embedded derivatives.
The table below summarizes open commodity derivative contracts for crude oil, refined products and blending products as of March 31, 2019. 
 
Percentage of contracts that expire next quarter
 
Position
(Units in thousands of barrels)
 
Long
 
Short
Exchange-traded(a)
 
 
 
 
 
Crude oil
82.6%
 
49,844

 
58,466

Refined products
89.4%
 
11,373

 
9,945

Blending products
77.3%
 
4,688

 
4,866

OTC
 
 
 
 
 
Crude oil
—%
 
640

 

Blending products
—%
 
1,676

 
1,444

(a) 
Included in exchange-traded are spread contracts in thousands of barrels: Crude oil - 11,999 long and 3,980 short; Refined products - 300 long and 300 short; Blending products - 2,603 long and 2,506 short


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The following table summarizes the effect of all commodity derivative instruments in our consolidated statements of income: 
 
Loss
(In millions)
Three Months Ended March 31,
Income Statement Location
2019
 
2018
Sales and other operating revenues
$
(20
)
 
$
(1
)
Cost of revenues
(80
)
 
(27
)
Total
$
(100
)
 
$
(28
)

17. DEBT
Our outstanding borrowings at March 31, 2019 and December 31, 2018 consisted of the following:
(In millions)
March 31,
2019
 
December 31,
2018
Marathon Petroleum Corporation
$
9,120

 
$
9,114

MPLX LP
14,283

 
13,856

ANDX LP
5,168

 
5,010

Total debt
$
28,571

 
$
27,980

Unamortized debt issuance costs
(126
)
 
(128
)
Unamortized discount
(330
)
 
(328
)
Amounts due within one year
(550
)
 
(544
)
Total long-term debt due after one year
$
27,565

 
$
26,980


Available Capacity under our Facilities
(Dollars in millions)
 
Total
Capacity
 
Outstanding
Borrowings
 
Outstanding
Letters
of Credit
 
Available
Capacity
 
Weighted
Average
Interest
Rate
 
Expiration
MPC 364-day bank revolving credit facility
 
$
1,000

 
$

 
$

 
$
1,000

 

 
September 2019
MPC bank revolving credit facility
 
5,000

 

 
32

 
4,968

 

 
October 2023
MPLX bank revolving credit facility
 
2,250

 
425

 
3

 
1,822

 
3.92
%
 
July 2022
ANDX revolving & dropdown credit facilities(a)
 
2,100

 
1,404

 

 
696

 
4.32
%
 
January 2021
Trade receivables securitization facility
 
750

 

 

 
750

 

 
July 2019
 
 
$
11,100

 
$
1,829

 
$
35

 
$
9,236

 
 
 
 
(a) 
Western Refining Southwest, Inc., a wholly-owned subsidiary of MPC and unitholder of ANDX, has guaranteed certain outstanding borrowings under the ANDX dropdown credit facility that were made in connection with the August 2018 dropdown transaction.



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18. REVENUE
The following table presents our revenues disaggregated by product line.
 
Three Months Ended 
March 31,
(In millions)
2019
 
2018
Refined products
$
24,653

 
$
16,158

Merchandise
1,464

 
1,130

Crude oil and refinery feedstocks
1,367

 
883

Midstream services, transportation and other
597

 
523

Sales and other operating revenues
$
28,081

 
$
18,694

Practical Expedients
On January 1, 2018, we adopted ASU 2014-09, Revenue - Revenue from Contracts with Customers (“ASC 606”). We elected the completed contract practical expedient and only applied ASC 606 to contracts that were not completed as of January 1, 2018.
We do not disclose information on the future performance obligations for any contract with expected duration of one year or less at inception. As of March 31, 2019, we do not have future performance obligations that are material to future periods.
Receivables
On the accompanying consolidated balance sheets, receivables, less allowance for doubtful accounts primarily consists of customer receivables. Significant, non-customer balances included in our receivables at March 31, 2019 include matching buy/sell receivables of $1.98 billion and income tax receivables of $76 million.
19. SUPPLEMENTAL CASH FLOW INFORMATION
 
Three Months Ended 
March 31,
(In millions)
2019
 
2018
Net cash provided by operating activities included:
 
 
 
Interest paid (net of amounts capitalized)
$
269

 
$
212

Net income taxes paid to taxing authorities
42

 
6

Cash paid for amounts included in the measurement of lease liabilities
 
 
 
Payments on operating leases
189

 

Interest payments under finance lease obligations
8

 

Net cash provided by financing activities included:
 
 
 
Principal payments under finance lease obligations
10

 

Non-cash investing and financing activities:
 
 
 
Right of use assets obtained in exchange for new operating lease obligations
31

 

Right of use assets obtained in exchange for new finance lease obligations
15

 

Contribution of net assets to Capline LLC(a)
143

 

Recognition of Capline LLC equity method investment(a)
350

 

(a) 
See Note 13.

(In millions)
March 31,
2019
 
December 31,
2018
Cash and cash equivalents
$
877

 
$
1,687

Restricted cash(a)
31

 
38

Cash, cash equivalents and restricted cash
$
908

 
$
1,725

(a) 
The restricted cash balance is included within other current assets on the consolidated balance sheets.


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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)
2019
 
2018
Additions to property, plant and equipment per the consolidated statements of cash flows
$
1,241

 
$
755

Asset retirement expenditures

 
1

Decrease in capital accruals
(235
)
 
(49
)
Total capital expenditures
$
1,006

 
$
707

20. 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, 2017
$
(190
)
 
$
(48
)
 
$
4

 
$
3

 
$
(231
)
Other comprehensive loss before reclassifications

 

 
(2
)
 

 
(2
)
Amounts reclassified from accumulated other comprehensive loss:
 
 
 
 
 
 
 
 
 
Amortization – prior service credit(a)
(8
)
 
(1
)
 

 

 
(9
)
   – actuarial loss(a)
9

 

 

 

 
9

   – settlement loss(a)
1

 

 

 

 
1

Other

 

 

 

 

Tax effect
(1
)