# Marathon Petroleum Corp: Form 10-Q for the period ended Sep 30, 2013

- Company: [Marathon Petroleum Corp](/companies/mpc.md) (CIK 1510295)
- Form: 10-Q
- Filed: 2013-11-07
- Accepted by EDGAR: Nov 7, 2013, 09:04 ET
- Period: 2013-09-30
- Accession: 0001510295-13-000003
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1510295/000151029513000003/mpc-2013930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1510295/000151029513000003/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2013-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Selling, general and administrative | 3 months, 2013-07-01 to 2013-09-30 | $305.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2013-01-01 to 2013-09-30 | $912.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2013-07-01 to 2013-09-30 | $301.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2013-01-01 to 2013-09-30 | $2.42bn | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2013-07-01 to 2013-09-30 | $81.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2013-01-01 to 2013-09-30 | $775.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2013-07-01 to 2013-09-30 | $168.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2013-01-01 to 2013-09-30 | $1.49bn | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2013-07-01 to 2013-09-30 | $0.54 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2013-01-01 to 2013-09-30 | $4.60 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2013-07-01 to 2013-09-30 | $0.54 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2013-01-01 to 2013-09-30 | $4.63 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2013-07-01 to 2013-09-30 | 311,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2013-01-01 to 2013-09-30 | 323,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2013-01-01 to 2013-09-30 | $2.05bn | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2013-01-01 to 2013-09-30 | $733.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2013-01-01 to 2013-09-30 | $358.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2013-01-01 to 2013-09-30 | $2.34bn | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2013-09-30 | $2.02bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2013-09-30 | $13.53bn | us-gaap:AssetsCurrent |
| Total assets | at 2013-09-30 | $29.00bn | us-gaap:Assets |
| Current liabilities | at 2013-09-30 | $10.40bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2013-09-30 | $17.74bn | us-gaap:Liabilities |
| Current portion of debt | at 2013-09-30 | $23.0m | us-gaap:DebtCurrent |
| Shareholders' equity | at 2013-09-30 | $10.85bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 65,852 characters.

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited financial statements and accompanying footnotes included under Item 1. Financial Statements and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2012.

Management’s Discussion and Analysis of Financial Condition and Results of Operations includes various forward-looking statements concerning trends or events potentially affecting our business. You can identify our forward-looking statements by words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “plan,” “predict,” “project,” “seek,” “target,” “could,” “may,” “should,” “would” or “will” or other similar expressions that convey the uncertainty of future events or outcomes. In accordance with “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, these statements are accompanied by cautionary language identifying important factors, though not necessarily all such factors, which could cause future outcomes to differ materially from those set forth in forward-looking statements. For additional risk factors affecting our business, see Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2012.

### Corporate Overview

We are an independent petroleum refining, marketing and transportation company. We currently own and operate seven refineries, all located in the United States, with an aggregate crude oil refining capacity of approximately 1.7 million barrels per calendar day. Our refineries supply refined products to resellers and consumers within our market areas, including the Midwest, Gulf Coast and Southeast regions of the United States. We distribute refined products to our customers through one of the largest private domestic fleets of inland petroleum product barges, one of the largest terminal operations in the United States, and a combination of MPC-owned and third-party-owned trucking and rail assets. We currently own, lease or have ownership interests in approximately 8,300 miles of crude oil and refined product pipelines to deliver crude oil to our refineries and other locations and refined products to wholesale and retail market areas. We are one of the largest petroleum pipeline companies in the United States on the basis of total volumes delivered.

Our operations consist of three reportable segments: Refining & Marketing; Speedway; and Pipeline Transportation. Each of these segments is organized and managed based upon the nature of the products and services they offer.

- Refining & Marketing—refines crude oil and other feedstocks at our seven refineries in the Gulf Coast and Midwest regions of the United States, purchases ethanol and refined products for resale and distributes refined products through various means, including barges, terminals and trucks that we own or operate. We sell refined products to wholesale marketing customers domestically and internationally, to buyers on the spot market, to our Speedway business segment and to dealers and jobbers who operate Marathon® retail outlets;
- Speedway—sells transportation fuels and convenience products in the retail market in the Midwest, primarily through Speedway® convenience stores; and
- Pipeline Transportation—transports crude oil and other feedstocks to our refineries and other locations, delivers refined products to wholesale and retail market areas and includes the aggregated operations of MPLX and MPC’s retained pipeline assets and investments.

### Executive Summary

Net income attributable to MPC was $168 million and $1.49 billion, or $0.54 and $4.60 per diluted share, for the third quarter and first nine months of 2013 compared to $1.22 billion and $2.63 billion, or $3.59 and $7.65 per diluted share, for the third quarter and first nine months of 2012. The decreases were primarily due to our Refining & Marketing segment, which generated income from operations of $227 million and $2.24 billion in the third quarter and first nine months of 2013 compared to $1.69 billion and $3.96 billion in the third quarter and first nine months of 2012.

The decreases in Refining & Marketing segment income from operations were primarily due to decreases in refining and marketing gross margins, which were $2.55 per barrel and $5.42 per barrel in the third quarter and first nine months of 2013 compared to $13.12 per barrel and $10.92 per barrel in the third quarter and first nine months of 2012. These impacts were partially offset by increases in refinery throughputs and refined product sales volumes related to the Galveston Bay refinery acquired in February 2013.

Speedway segment income from operations increased $26 million in the third quarter and $59 million in the first nine months of 2013 compared to the third quarter and first nine months of 2012, primarily due to increases in our gasoline and distillate gross margin and our merchandise gross margin, partially offset by less income due to the absence of asset sales and higher operating expenses.

Pipeline Transportation segment income from operations increased $2 million in the third quarter and $19 million in the first nine months of 2013 compared to the third quarter and first nine months of 2012. The increases primarily reflect higher transportation tariffs, partially offset by higher operating and depreciation expenses.

On February 1, 2013, we paid $1.49 billion to acquire from BP the 451,000 barrel per calendar day refinery in Texas City, Texas, three intrastate natural gas liquid pipelines originating at the refinery, an allocation of BP’s Colonial Pipeline Company shipper history, four light product terminals, branded-jobber marketing contract assignments for the supply of approximately 1,200 branded sites and a 1,040 megawatt electric cogeneration facility, as well as the inventory associated with these assets. We refer to these assets as the “Galveston Bay Refinery and Related Assets”. Pursuant to the purchase and sale agreement, we may also be required to pay BP a contingent earnout of up to an additional $700 million over six years, subject to certain conditions. These assets are part of our Refining & Marketing and Pipeline Transportation segments. Information for periods prior to the acquisition does not include amounts for these operations. See Note 4 to the unaudited consolidated financial statements for additional information on this acquisition.

On August 1, 2013, we acquired from Mitsui & Co. (U.S.A.), Inc. its interests in three ethanol companies for $75 million. Under the purchase agreement, we acquired an additional 24 percent interest in TACE, bringing our ownership interest to 60 percent; a 34 percent interest in The Andersons Ethanol Investment LLC, which holds a 50 percent ownership in TAME, bringing our direct and indirect ownership interest in TAME to 67 percent; and a 40 percent interest in TAAE, which owns an ethanol production facility in Albion, Michigan. We hold a noncontrolling interest in each of these entities and account for them using the equity method of accounting since the minority owners have substantive participating rights.

On January 30, 2013, we announced that our board of directors approved an additional $2.0 billion share repurchase authorization. The board also extended the remaining $650 million share repurchase authorization for a total outstanding authorization of $2.65 billion through December 2014. On September 26, 2013, we announced that our board of directors approved an additional $2.0 billion share repurchase authorization through September 2015. During the first nine months of 2013, the final shares from the $500 million ASR program were delivered to us and we paid $2.34 billion to acquire 30 million common shares through open market share repurchases. The effective average cost was $76.01 per delivered share. At September 30, 2013, we also had agreements to repurchase additional common shares for $42 million, which were settled in early October 2013. As of September 30, 2013, we had total outstanding repurchase authorizations pursuant to the authorizations announced on January 30, 2013 and September 26, 2013 of approximately $2.31 billion.

### Overview of Segments

### Refining & Marketing

Refining & Marketing segment income from operations depends largely on our refining and marketing gross margin and refinery throughputs.

Our refining and marketing gross margin is the difference between the prices of refined products sold and the costs of crude oil and other charge and blendstocks refined, including the costs to transport these inputs to our refineries, the costs of purchased products and refinery direct operating costs, including turnaround and major maintenance, depreciation and amortization and other manufacturing expenses. The crack spread is a measure of the difference between market prices for refined products and crude oil, commonly used by the industry as a proxy for the refining margin. Crack spreads can fluctuate significantly, particularly when prices of refined products do not move in the same relationship as the cost of crude oil. As a performance benchmark and a comparison with other industry participants, we calculate Midwest (Chicago) and U.S. Gulf Coast (“USGC”) crack spreads that we believe most closely track our operations and slate of products. Light Louisiana Sweet crude oil (“LLS”) prices and a 6-3-2-1 ratio of products (6 barrels of LLS crude oil producing 3 barrels of unleaded regular gasoline, 2 barrels of ultra-low sulfur diesel and 1 barrel of 3 percent sulfur residual fuel) are used for these crack-spread calculations.

Our refineries can process significant amounts of sour crude oil, which typically can be purchased at a discount to sweet crude oil. The amount of this discount, the sweet/sour differential, can vary significantly, causing our refining and marketing gross margin to differ from crack spreads based on sweet crude oil. In general, a larger sweet/sour differential will enhance our refining and marketing gross margin.

Historically, West Texas Intermediate crude oil (“WTI”) has traded at prices similar to LLS. During the first nine months of 2012 and in early 2013, WTI traded at prices significantly less than LLS, which favorably impacted our refining and marketing gross margin. Logistical constraints in the U.S. mid-continent markets and other market factors acted to keep the price of WTI from rising with the prices of crude oil produced in other regions. However, the differential between WTI and LLS significantly narrowed in the second and third quarters of 2013 due to a variety of domestic and international market conditions along with changes in logistical infrastructure. Future crude oil differentials will be dependent on a variety of market and economic factors.

The following table provides sensitivities showing the estimated change in annual net income due to potential changes in market conditions.

*(In millions, after-tax)*

|  |  |
| --- | ---: |
| LLS 6-3-2-1 crack spread sensitivity (a) (per $1.00/barrel change) | $425 |
| Sweet/sour differential sensitivity (b) (per $1.00/barrel change) | 225 |
| LLS-WTI differential sensitivity (c) (per $1.00/barrel change) | 75 |
| Natural gas price sensitivity (per $1.00/million British thermal unit change) | 140 |

(a) Weighted 38% Chicago and 62% USGC LLS 6-3-2-1 crack spreads and assumes all other differentials and pricing relationships remain unchanged.

(b) LLS (prompt)-\[delivered cost of sour crude oil: Arab Light, Kuwait, Maya, Western Canadian Select and Mars\].

(c) Assumes 20% of crude oil throughput volumes are WTI-based domestic crude oil.

In addition to the market changes indicated by the crack spreads, the sweet/sour differential and the discount of WTI to LLS, our refining and marketing gross margin is impacted by factors such as:

- the types of crude oil and other charge and blendstocks processed;
- the selling prices realized for refined products;
- the impact of commodity derivative instruments used to hedge price risk;
- the cost of products purchased for resale; and
- changes in refinery direct operating costs, which include turnaround and major maintenance, depreciation and amortization and other manufacturing expenses.

Changes in manufacturing costs are primarily driven by the cost of energy used by our refineries, including purchased natural gas, and the level of maintenance costs. Planned major maintenance activities, or turnarounds, requiring temporary shutdown of certain refinery operating units, are periodically performed at each refinery. We had significant planned turnaround and major maintenance activities at our Catlettsburg, Kentucky; Garyville, Louisiana; and Galveston Bay refineries during the first nine months of 2013 compared to activities at our Detroit, Michigan; Garyville; and Robinson, Illinois refineries during the first nine months of 2012.

### Speedway

Our retail marketing gross margin for gasoline and distillate, which is the price paid by consumers less the cost of refined products, including transportation, consumer excise taxes and bankcard processing fees, impacts the Speedway segment profitability. Numerous factors impact gasoline and distillate demand throughout the year, including local competition, seasonal demand fluctuations, the available wholesale supply, the level of economic activity in our marketing areas and weather conditions. Market demand increases for gasoline and distillate generally increase the product margin we can realize. The gross margin on merchandise sold at convenience stores historically has been less volatile. Approximately two-thirds of Speedway’s gross margin was derived from merchandise sales in the third quarter and first nine months of 2013.

### Pipeline Transportation

The profitability of our pipeline transportation operations primarily depends on tariff rates and the volumes shipped through the pipelines. A majority of the crude oil and refined product shipments on our common carrier pipelines serve our Refining & Marketing segment. In the fourth quarter of 2012, new transportation services agreements were entered into between MPC and MPLX, which resulted in higher tariff rates. The volume of crude oil that we transport is directly affected by the supply of, and refiner demand for, crude oil in the markets served directly by our crude oil pipelines. Key factors in this supply and demand balance are the production levels of crude oil by producers in various regions or fields, the availability and cost of alternative modes of transportation, the volumes of crude oil processed at refineries and refinery and transportation system maintenance levels. The volume of refined products that we transport is directly affected by the production levels of, and user demand for, refined products in the markets served by our refined product pipelines. In most of our markets, demand for gasoline and distillates peaks during the summer driving season, which extends from May through September of each year, and declines during the fall and winter months. As with crude oil, other transportation alternatives and system maintenance levels influence refined product movements.

### Results of Operations

### Consolidated Results of Operations

*(In millions)*

| Revenues and other income: | Three Months Ended September 30, 2013 | 2012 | Variance | Nine Months Ended September 30, 2013 | 2012 | Variance |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Sales and other operating revenues (including consumer excise taxes) | $26,253 | $21,047 | $5,206 | $75,256 | $61,551 | $13,705 |
| Sales to related parties | 3 | 2 | 1 | 7 | 6 | 1 |
| Income from equity method investments | 9 | 7 | 2 | 16 | 18 | (2) |
| Net gain on disposal of assets | 1 | 175 | (174) | 3 | 178 | (175) |
| Other income | 8 | 18 | (10) | 40 | 28 | 12 |
| Total revenues and other income | 26,274 | 21,249 | 5,025 | 75,322 | 61,781 | 13,541 |
| **Costs and expenses:** |  |  |  |  |  |  |
| Cost of revenues (excludes items below) | 23,553 | 17,202 | 6,351 | 65,907 | 51,323 | 14,584 |
| Purchases from related parties | 103 | 84 | 19 | 254 | 204 | 50 |
| Consumer excise taxes | 1,631 | 1,463 | 168 | 4,685 | 4,271 | 414 |
| Depreciation and amortization | 299 | 246 | 53 | 888 | 712 | 176 |
| Selling, general and administrative expenses | 305 | 293 | 12 | 912 | 909 | 3 |
| Other taxes | 82 | 66 | 16 | 259 | 204 | 55 |
| Total costs and expenses | 25,973 | 19,354 | 6,619 | 72,905 | 57,623 | 15,282 |
| **Income from operations** | 301 | 1,895 | (1,594) | 2,417 | 4,158 | (1,741) |
| Net interest and other financial income (costs) | (47) | (25) | (22) | (140) | (64) | (76) |
| **Income before income taxes** | 254 | 1,870 | (1,616) | 2,277 | 4,094 | (1,817) |
| Provision for income taxes | 81 | 646 | (565) | 775 | 1,460 | (685) |
| **Net income** | 173 | 1,224 | (1,051) | 1,502 | 2,634 | (1,132) |
| Less net income attributable to noncontrolling interests | 5 | — | 5 | 16 | — | 16 |
| **Net income attributable to MPC** | $168 | $1,224 | $(1,056) | $1,486 | $2,634 | $(1,148) |

Net income attributable to MPC decreased $1.06 billion in the third quarter and $1.15 billion in the first nine months of 2013 compared to the third quarter and first nine months of 2012, primarily due to decreases in refining and marketing gross margins, which were $2.55 per barrel and $5.42 per barrel in the third quarter and first nine months of 2013 compared to $13.12 per barrel and $10.92 per barrel in the third quarter and first nine months of 2012. These impacts were partially offset by increases in refinery throughputs and refined product sales volumes related to the Galveston Bay refinery acquired in February 2013.

Sales and other operating revenues (including consumer excise taxes) increased $5.21 billion in the third quarter and $13.71 billion in the first nine months of 2013 compared to the third quarter and first nine months of 2012, primarily due to higher refined product sales volumes, which increased to 2,155 thousand barrels per day (“mbpd”) and 2,063 mbpd in the third quarter and first nine months of 2013 from 1,622 mbpd and 1,590 mbpd in the third quarter and first nine months of 2012, primarily due to the Galveston Bay refinery acquired in February 2013. This impact was partially offset by decreases in refined product selling prices.

Net gain on disposal of assets decreased $174 million in the third quarter and $175 million in the first nine months of 2013 compared to the third quarter and first nine months of 2012, primarily due to the absence of a $171 million gain recognized in the third quarter of 2012 associated with the settlement agreement with the buyer of our Minnesota Assets.

Other income decreased $10 million in the third quarter and increased $12 million in the first nine months of 2013 compared to the third quarter and first nine months of 2012. The decrease in the third quarter was primarily due to the absence of $12 million of dividends received from our preferred equity interest in the buyer of our Minnesota Assets in connection with the settlement agreement with the buyer in the third quarter of 2012, partially offset by an increase in dividends received from a pipeline affiliate in third quarter of 2013. The increase in the first nine months was primarily due to increases in sales of Renewable Identification Numbers (“RINs”) and dividends received from a pipeline affiliate, partially offset by the absence of $12 million of dividends received from our preferred equity interest in the buyer of our Minnesota Assets during the third quarter of 2012. See Note 6 to the unaudited consolidated financial statements for additional information on the Minnesota Assets sale and subsequent settlement agreement with the buyer.

Cost of revenues increased $6.35 billion in the third quarter and $14.58 billion in the first nine months of 2013 compared to the third quarter and first nine months of 2012. The increases were primarily due to increases in purchased crude oil volumes in the Refining & Marketing segment. Crude oil volumes increased 42 percent in the third quarter and 35 percent in the first nine months of 2013 compared to the third quarter and first nine months of 2012, primarily associated with the Galveston Bay refinery acquired in February 2013. The third quarter of 2013 was also impacted by higher acquisition costs per barrel of crude oil compared to the third quarter of 2012.

Purchases from related parties increased $19 million in the third quarter and $50 million in the first nine months of 2013 compared to the third quarter and first nine months of 2012, primarily due to increases in ethanol volumes purchased from our ethanol investments, including purchases from TAAE, which became an equity method affiliate on August 1, 2013. Our acquisition costs of ethanol from our ethanol investments was also impacted by lower ethanol prices in the third quarter of 2013 and higher ethanol prices in the first nine months of 2013. In addition, purchases from Centennial increased during the third quarter but decreased for the first nine months of 2013 compared to 2012.

Centennial experienced a significant reduction in shipment volumes in the second half of 2011 that continued through the first nine months of 2013. At September 30, 2013, Centennial was not shipping product. As a result, we continued to evaluate the carrying value of our equity investment in Centennial and concluded that no impairment was required given our assessment of its fair value based on various potential uses of Centennial’s assets. If current business conditions remain unchanged and the owners of Centennial are unable to find an alternative use for the assets, there could be a future impairment of our Centennial interest. As of September 30, 2013, our equity investment in Centennial was $30 million and we had a $43 million guarantee associated with 50 percent of Centennial's outstanding debt. See Note 22 to our unaudited consolidated financial statements for additional information on the debt guarantee.

Consumer excise taxes increased $168 million in the third quarter and $414 million in the first nine months of 2013 compared to the same periods of 2012, primarily due to increases in refined product sales volumes related to the Galveston Bay refinery acquired in February 2013.

Depreciation and amortization increased $53 million in the third quarter and $176 million in the first nine months of 2013 compared to the third quarter and first nine months of 2012, primarily due to the completion of the heavy oil upgrading and expansion project at our Detroit, Michigan refinery and our acquisition of the Galveston Bay Refinery and Related Assets.

Other taxes increased $16 million in the third quarter and $55 million in the first nine months of 2013 compared to the third quarter and first nine months of 2012, primarily due to increases in personal property and payroll taxes. These increases were attributable to a number of factors including the completion of the heavy oil upgrading and expansion project at our Detroit refinery, the acquisition of the Galveston Bay Refinery and Related Assets and Speedway’s acquisition of 97 convenience stores in 2012. The increase in the third quarter was also partially due to an increase in sales and use tax expense primarily attributable to the acquisition of the Galveston Bay Refinery and Related Assets.

Net interest and other financial costs increased $22 million in the third quarter and $76 million in the first nine months of 2013 compared to the third quarter and first nine months of 2012, primarily reflecting decreases in capitalized interest due to the completion of the Detroit refinery heavy oil upgrading and expansion project in late 2012. We capitalized interest of $7 million in the third quarter and $15 million in the first nine months of 2013 compared to $29 million in the third quarter and $95 million in the first nine months of 2012.

Provision for income taxes decreased $565 million in the third quarter and $685 million in the first nine months of 2013 compared to the third quarter and first nine months of 2012, primarily due to the $1.62 billion and $1.82 billion decreases in income before income taxes. The effective tax rates were 32 percent and 34 percent in the third quarter and first nine months of 2013 compared to 35 percent and 36 percent in the same periods of 2012. The effective tax rate in the third quarter and first nine months of 2013 is less than the U.S. statutory rate of 35 percent primarily due to certain permanent benefit differences, including the domestic manufacturing deduction, partially offset by state and local tax expense. See Note 11 to the unaudited consolidated financial statements for further details.

### Segment Results

Revenues are summarized by segment in the following table.

*(In millions)*

|  | Three Months Ended September 30, 2013 | 2012 | Nine Months Ended September 30, 2013 | 2012 |
| --- | ---: | ---: | ---: | ---: |
| Refining & Marketing | $24,920 | $19,631 | $71,317 | $57,359 |
| Speedway | 3,756 | 3,788 | 10,967 | 10,706 |
| Pipeline Transportation | 137 | 116 | 400 | 324 |
| Segment revenues | 28,813 | 23,535 | 82,684 | 68,389 |
| Elimination of intersegment revenues | (2,557) | (2,485) | (7,415) | (6,829) |
| Total revenues | $26,256 | $21,050 | $75,269 | $61,560 |
| Items included in both revenues and costs: |  |  |  |  |
| Consumer excise taxes | $1,631 | $1,463 | $4,685 | $4,271 |

Refining & Marketing segment revenues increased $5.29 billion in the third quarter and $13.96 billion in the first nine months of 2013 compared to the third quarter and first nine months of 2012, primarily due to increases in refined product sales volumes related to the Galveston Bay refinery acquired in February 2013, partially offset by lower refined product selling prices. The table below shows our Refining & Marketing segment refined product sales volumes and prices.

| Refining & Marketing segment: | Three Months Ended September 30, 2013 | 2012 | Nine Months Ended September 30, 2013 | 2012 |
| --- | ---: | ---: | ---: | ---: |
| Refined product sales volumes (thousands of barrels per day)(a) | 2,148 | 1,605 | 2,052 | 1,569 |
| Average refined product sales prices (dollars per gallon) | $2.89 | $3.05 | $2.92 | $3.04 |

(a) Includes intersegment sales.

The table below shows the average refined product benchmark prices for our marketing areas.

| (Dollars per gallon) | Three Months Ended September 30, 2013 | 2012 | Nine Months Ended September 30, 2013 | 2012 |
| --- | ---: | ---: | ---: | ---: |
| Chicago spot unleaded regular gasoline | $2.84 | $3.00 | $2.86 | $2.92 |
| Chicago spot ultra-low sulfur diesel | 3.02 | 3.09 | 3.04 | 2.98 |
| USGC spot unleaded regular gasoline | 2.78 | 2.88 | 2.76 | 2.88 |
| USGC spot ultra-low sulfur diesel | 3.01 | 3.07 | 2.98 | 3.06 |

Refining & Marketing intersegment sales to our Speedway segment were $2.44 billion in the third quarter and $7.07 billion in the first nine months of 2013 compared to $2.39 billion in the third quarter and $6.56 billion in the first nine months of 2012. Intersegment refined product sales volumes were 774 million gallons in the third quarter and 2.21 billion gallons in the first nine months of 2013 compared to 714 million gallons in the third quarter and 2.00 billion gallons in the first nine months of 2012, with the increased volumes in the first nine months of 2013 partially due to Speedway’s acquisitions of convenience stores in 2013 and 2012.

Speedway segment revenues decreased $32 million in the third quarter and increased $261 million in the first nine months of 2013 compared to the third quarter and first nine months of 2012. The $32 million decrease in the third quarter of 2013 was primarily due to a decrease in gasoline and distillate selling prices, partially offset by an increase in gasoline and distillate sales volumes of 24 million gallons. The $261 million increase in the first nine months of 2013 was primarily due to an increase in gasoline and distillate sales volumes of 88 million gallons, partially offset by a decrease in gasoline and distillate selling prices. Gasoline and distillate selling prices averaged $3.47 per gallon and $3.54 per gallon in the third quarter and first nine months of 2013 compared to $3.63 per gallon and $3.59 per gallon in the third quarter and first nine months of 2012. The Speedway segment also had higher merchandise sales in the third quarter and first nine months of 2013. The increases in gasoline and distillate sales volumes and merchandise sales in the first nine months of 2013 were primarily due to the acquisitions of convenience stores in 2013 and 2012.

Pipeline Transportation segment revenue increased $21 million in the third quarter and $76 million in the first nine months of 2013 compared to the third quarter and first nine months of 2012, primarily due to higher transportation tariffs from our crude oil pipelines, resulting from higher crude oil volumes transported and increased tariff rates in the last half of 2012. Crude oil pipeline throughput volumes increased 181 mbpd in the third quarter and 158 mbpd for the nine months of 2013 compared to the corresponding 2012 periods. Higher average prices received on our refined products pipelines were offset by decreased volumes transported during the third quarter and first nine months of 2013. Refined products pipeline throughput volumes decreased 131 mbpd in the third quarter and 42 mbpd for the nine months of 2013 compared to the corresponding 2012 periods.

Income before income taxes and income from operations by segment are presented in the following table.

*(In millions)*

| Income from Operations by segment | Three Months Ended September 30, 2013 | 2012 | Nine Months Ended September 30, 2013 | 2012 |
| --- | ---: | ---: | ---: | ---: |
| Refining & Marketing | $227 | $1,691 | $2,235 | $3,959 |
| Speedway | 102 | 76 | 292 | 233 |
| Pipeline Transportation(a) | 54 | 52 | 163 | 144 |
| Items not allocated to segments: |  |  |  |  |
| Corporate and other unallocated items(a)(b) | (59) | (74) | (190) | (245) |
| Minnesota Assets sale settlement gain | — | 183 | — | 183 |
| Pension settlement expenses | (23) | (33) | (83) | (116) |
| Income from operations | 301 | 1,895 | 2,417 | 4,158 |
| Net interest and other financial income (costs) | (47) | (25) | (140) | (64) |
| Income before income taxes | $254 | $1,870 | $2,277 | $4,094 |

(a) Corporate overhead costs attributable to MPLX are included in the Pipeline Transportation segment subsequent to MPLX’s October 31, 2012 initial public offering.

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

The following table presents certain market indicators that we believe are helpful in understanding the results of our Refining & Marketing segment’s business.

| (Dollars per barrel) | Three Months Ended September 30, 2013 | 2012 | Nine Months Ended September 30, 2013 | 2012 |
| --- | ---: | ---: | ---: | ---: |
| Chicago LLS 6-3-2-1(a)(b) | $7.34 | $13.17 | $8.75 | $7.58 |
| USGC LLS 6-3-2-1(a) | 6.02 | 10.33 | 5.96 | 7.79 |
| Blended 6-3-2-1(a)(c) | 6.52 | 11.81 | 7.02 | 7.68 |
| LLS | 109.97 | 109.41 | 109.46 | 112.39 |
| WTI | 105.81 | 92.20 | 98.20 | 96.16 |
| LLS—WTI differential(a) | 4.16 | 17.21 | 11.26 | 16.23 |
| Sweet/Sour differential(a)(d) | 6.55 | 12.22 | 8.23 | 12.13 |

(a) All spreads and differentials are measured against prompt LLS.

(b) Calculation utilizes USGC 3% Bunker value as a proxy for Chicago residual fuel price.

(c) Blended Chicago/USGC crack spread is 38%/62% in 2013 and 52%/48% in 2012 based on MPC’s refining capacity by region in each period.

(d) LLS (prompt)-\[delivered cost of sour crude oil: Arab Light, Kuwait, Maya, Western Canadian Select and Mars\].

Refining & Marketing segment income from operations decreased $1.46 billion in the third quarter and $1.72 billion in the first nine months of 2013 compared to the third quarter and first nine months of 2012, primarily due to decreases in refining and marketing gross margins, which averaged $2.55 per barrel and $5.42 per barrel in the third quarter and first nine months of 2013 compared to $13.12 per barrel and $10.92 per barrel in the third quarter and first nine months of 2012. The main factors contributing to the decreases were narrower crude oil differentials, lower crack spreads and lower product price realizations compared to the spot market product prices used in the LLS crack spread calculation.

The sweet and sour crude oil differentials narrowed by $5.67 per barrel in the third quarter and $3.90 per barrel in the first nine months of 2013. In addition, the LLS-WTI crude oil differentials narrowed by $13.05 per barrel in the third quarter and $4.97 per barrel in the first nine months of 2013. The Chicago and USGC LLS 6-3-2-1 blended crack spread decreased $5.29 per barrel and $0.66 per barrel in the third quarter and first nine months of 2013. These impacts were partially offset by increases in refinery throughputs and refined product sales volumes related to the Galveston Bay refinery acquired in February 2013.

The following table summarizes our refinery throughputs.

| Refinery Throughputs (thousands of barrels per day): | Three Months Ended September 30, 2013 | 2012 | Nine Months Ended September 30, 2013 | 2012 |
| --- | ---: | ---: | ---: | ---: |
| Crude oil refined | 1,682 | 1,186 | 1,603 | 1,180 |
| Other charge and blendstocks | 195 | 159 | 202 | 155 |
| Total | 1,877 | 1,345 | 1,805 | 1,335 |
| Sour crude oil processed (percent of crude oil refined) | 53 | 56 | 53 | 52 |

The increases in crude oil throughput and other charge and blendstocks throughput in the third quarter and first nine months of 2013 compared to the same periods of 2012 were primarily due to the Galveston Bay refinery acquired in February 2013.

The following table includes certain key operating statistics for the Refining & Marketing segment.

|  | Three Months Ended September 30, 2013 | 2012 | Nine Months Ended September 30, 2013 | 2012 |
| --- | ---: | ---: | ---: | ---: |
| Refining & Marketing gross margin (dollars per barrel)(a) | $2.55 | $13.12 | $5.42 | $10.92 |
| Refinery direct operating costs in Refining & Marketing gross margin (dollars per barrel):(b) |  |  |  |  |
| Turnaround and major maintenance | $0.96 | $1.18 | $0.94 | $1.04 |
| Depreciation and amortization | 1.27 | 1.44 | 1.32 | 1.40 |
| Other manufacturing(c) | 4.10 | 3.16 | 4.00 | 3.13 |
| Total | $6.33 | $5.78 | $6.26 | $5.57 |
| Refined product sales volumes (thousands of barrels per day)(d) | 2,148 | 1,605 | 2,052 | 1,569 |

(a) Sales revenue less cost of refinery inputs, purchased products and refinery direct operating costs (including turnaround and major maintenance, depreciation and amortization and other manufacturing expenses), divided by Refining & Marketing segment refined product sales volumes.

(b) Per barrel of total refinery throughputs.

(c) Includes utilities, labor, routine maintenance and other operating costs.

(d) Includes intersegment sales.

Refinery direct operating costs in the Refining & Marketing gross margin increased $0.55 per barrel and $0.69 per barrel of total refinery throughputs in the third quarter and first nine months of 2013 compared to the third quarter and first nine months of 2012, which includes increases in other manufacturing costs of $0.94 per barrel and $0.87 per barrel, respectively. The increases were primarily attributable to the addition of the Galveston Bay refinery, which had higher operating costs per barrel of throughput than the average of our other six refineries due to its greater level of complexity.

We purchase RINs to satisfy a portion of our Renewable Fuel Standard (“RFS2”) compliance. Our cost of purchasing RINs increased to $78 million and $185 million in the third quarter and first nine months of 2013 from $4 million and $70 million in the same periods of 2012, primarily due to higher ethanol RIN prices. The increase in the third quarter was also partially due to higher biomass-based diesel RIN prices and the increase in the first nine months was also partially due to an increase in the biomass-based diesel volumetric obligation.

Speedway segment income from operations increased $26 million in the third quarter and $59 million in the first nine months of 2013 compared to the third quarter and first nine months of 2012, primarily due to increases in our gasoline and distillate gross margin and our merchandise gross margin, partially offset by less income due to the absence of operating asset sales and higher operating expenses. The increases in our gasoline and distillate gross margin were primarily due to $0.0304 and $0.0202 increases in our gross margin per gallon along with higher sales volumes. The increases in the merchandise gross margin were primarily due to higher merchandise sales. The increases in gasoline and distillate sales volumes, merchandise sales and expenses in the first nine months of 2013 primarily related to an increase in the number of convenience stores.

The following table includes certain key operating statistics for the Speedway segment.

|  | Three Months Ended September 30, 2013 | 2012 | Nine Months Ended September 30, 2013 | 2012 |
| --- | ---: | ---: | ---: | ---: |
| Convenience stores at period-end | 1,471 | 1,463 |  |  |
| Gasoline & distillate sales (millions of gallons) | 803 | 779 | 2,329 | 2,241 |
| Gasoline & distillate gross margin (dollars per gallon)(a) | $0.1404 | $0.1100 | $0.1483 | $0.1281 |
| Merchandise sales (in millions) | $843 | $826 | $2,360 | $2,297 |
| Merchandise gross margin (in millions) | $224 | $217 | $620 | $599 |
| Same store gasoline sales volume (period over period) | 1.0% | (3.9)% | 0.6% | (1.1)% |
| Same store merchandise sales excluding cigarettes (period over period) | 5.6% | 4.1% | 3.8% | 8.0% |

(a) The price paid by consumers less the cost of refined products, including transportation, consumer excise taxes and bankcard processing fees, divided by gasoline and distillate sales volume.

Pipeline Transportation segment income from operations increased $2 million in the third quarter and $19 million in the first nine months of 2013 compared to the third quarter and first nine months of 2012. The increases primarily reflect higher transportation tariffs, partially offset by higher operating and depreciation expenses.

Corporate and other unallocated expenses decreased $15 million in the third quarter and $55 million in the first nine months of 2013 compared to the third quarter and first nine months of 2012. The decreases were primarily due to lower unallocated employee benefit and information technology expenses.

We recognized a gain of $183 million during the third quarter and first nine months of 2012 associated with the settlement agreement with the buyer of our Minnesota Assets, which included $86 million of the deferred gain that was recorded when the sale transaction was originally closed. See Note 6 to the unaudited consolidated financial statements for additional information on the Minnesota Assets sale and subsequent settlement with the buyer.

We recorded pretax pension settlement expenses of $23 million in the third quarter and $83 million in the first nine months of 2013 resulting from the level of employee lump sum retirement distributions that occurred during those periods, compared to $33 million in the third quarter and $116 million in the first nine months of 2012.

### Liquidity and Capital Resources

### Cash Flows

Our cash and cash equivalents balance was $2.02 billion at September 30, 2013 compared to $4.86 billion at December 31, 2012. Net cash provided by (used in) operating activities, investing activities and financing activities for the first nine months of 2013 and 2012 are presented in the following table.

*(In millions)*

| Net cash provided by (used in): | Nine Months Ended September 30, 2013 | 2012 |
| --- | ---: | ---: |
| Operating activities | $2,050 | $2,449 |
| Investing activities | (2,251) | (1,033) |
| Financing activities | (2,641) | (1,108) |
| Total | $(2,842) | $308 |

Net cash provided by operating activities decreased $399 million in the first nine months of 2013 compared to the first nine months of 2012, primarily due to a decrease in net income, partially offset by favorable changes in working capital compared to 2012. Changes in working capital were a net $330 million use of cash in the first nine months of 2013 compared to a net $1.35 billion use of cash in the first nine months of 2012. The $330 million use of cash from working capital changes in the first nine months of 2013 was primarily due to increases in crude oil and refined product inventory volumes and current receivables, partially offset by an increase in accounts payable and accrued liabilities. Changes in inventories were a $1.33 billion use of cash in the first nine months of 2013, primarily due to increases in crude oil and refined product inventory volumes. Current receivables increased $983 million from year-end 2012, primarily due to higher refined product receivable volumes attributable to an increase in refined product sales volumes associated with the Galveston Bay refinery acquired in February 2013, and an increase in income taxes receivable associated with federal income taxes. Accounts payable increased $2.18 billion from year-end 2012, primarily due to higher crude oil payable volumes related to the addition of the Galveston Bay refinery in February 2013 and higher crude oil prices at the end of the third quarter of 2013 compared to year-end 2012. The $1.35 billion use of cash from working capital changes in the first nine months of 2012 was primarily due to a decrease in accounts payable and accrued liabilities resulting primarily from a reduction in crude oil payable volumes and an increase in inventories resulting primarily from interim seasonal increases in refined products and crude oil inventory volumes. Partially offsetting these uses of cash was a decrease in accounts receivable primarily caused by lower crude oil receivable volumes, partially offset by higher refined products receivables.

Net cash used in investing activities increased $1.22 billion in the first nine months of 2013 compared to the first nine months of 2012, primarily due to the Galveston Bay Refinery and Related Assets acquisition in February 2013, partially offset by lower capital expenditures in 2013 due to the completion of the Detroit refinery heavy oil upgrading and expansion project in late 2012.

The consolidated statements of cash flows exclude changes to the consolidated balance sheets that did not affect cash. A reconciliation of additions to property, plant and equipment to reported total capital expenditures and investments follows.

*(In millions)*

|  | Nine Months Ended September 30, 2013 | 2012 |
| --- | ---: | ---: |
| Additions to property, plant and equipment | $733 | $966 |
| Acquisitions(a) | 1,386 | 180 |
| Increase (decrease) in capital accruals | 63 | (77) |
| Total capital expenditures | 2,182 | 1,069 |
| Investments in equity method investees | 86 | 12 |
| Total capital expenditures and investments | $2,268 | $1,081 |

(a) Includes $1.36 billion in 2013 for the acquisition of the Galveston Bay Refinery and Related Assets, comprised of total consideration, excluding inventory and other current assets, of $1.15 billion plus assumed liabilities of $210 million. The 2012 acquisitions exclude the inventory acquired and liability assumed. See Note 4 to the unaudited consolidated financial statements.

Capital expenditures and investments are summarized by segment below.

*(In millions)*

|  | Nine Months Ended September 30, 2013 | 2012 |
| --- | ---: | ---: |
| Refining & Marketing(a) | $1,797 | $513 |
| Speedway(b) | 177 | 257 |
| Pipeline Transportation(c) | 173 | 169 |
| Corporate and Other(d) | 121 | 142 |
| Total | $2,268 | $1,081 |

(a) Includes $1.29 billion in 2013 for the acquisition of the Galveston Bay Refinery and Related Assets. See Note 4 to the unaudited consolidated financial statements.

(b) Includes acquisitions of nine convenience stores in 2013 and 97 convenience stores in 2012.

(c) Includes $70 million in 2013 for the acquisition of the Galveston Bay Refinery and Related Assets. See Note 4 to the unaudited consolidated financial statements.

(d) Includes capitalized interest of $15 million and $95 million for the nine months ended September 30, 2013 and 2012, respectively.

The acquisition of the Galveston Bay Refinery and Related Assets comprised 60 percent of our total capital spending in the first nine months of 2013. The Detroit refinery heavy oil upgrading and expansion project, which we completed in the fourth quarter of 2012, comprised 56 percent (excluding capitalized interest associated with this project) of our Refining & Marketing segment capital spending in the first nine months of 2012.

Net cash used in financing activities increased $1.53 billion in the first nine months of 2013 compared to the first nine months of 2012. The uses of cash for both periods were primarily for common stock repurchases under our share repurchase plans and dividend payments.

Cash used in common stock repurchases under the share repurchase plans authorized by our board of directors increased $1.49 billion in the first nine months of 2013 compared to the first nine months of 2012. During the first nine months of 2013, we paid $2.34 billion to repurchase 30 million common shares through open market repurchases compared to $850 million paid to repurchase 20 million shares under an ASR program during the nine months of 2012. See Note 8 to the unaudited consolidated financial statements for further discussion of the share repurchase plans.

Cash used in dividend payments increased $67 million in the first nine months of 2013 compared to the first nine months of 2012, primarily due to an average 9 cent per share increase in our quarterly dividend payment for the nine months, partially offset by a decrease in the number of outstanding shares of our common stock attributable to share repurchases. Our dividend payments totaled $1.12 per common share in the first nine months of 2013 compared to $0.85 per common share in the first nine months of 2012.

### Derivative Instruments

See Item 3. Quantitative and Qualitative Disclosures about Market Risk for a discussion of derivative instruments and associated market risk.

### Capital Resources

As of September 30, 2013, we had no borrowings or letters of credit outstanding under our revolving credit agreements or our trade receivables securitization facility and our liquidity totaled $5.52 billion consisting of:

*(In millions)*

|  | September 30, 2013 |
| --- | ---: |
| Cash and cash equivalents | $2,018 |
| Revolving credit agreement(a) | 2,500 |
| Trade receivables securitization facility | 1,000 |
| Total | $5,518 |

(a) Excludes MPLX’s $500 million revolving credit agreement, which was undrawn as of September 30, 2013.

Because of the alternatives available to us, including internally generated cash flow and access to capital markets, we believe that our short-term and long-term liquidity is adequate to fund not only our current operations, but also our near-term and long-term funding requirements, including capital spending programs, the repurchase of shares of our common stock, dividend payments, defined benefit plan contributions, repayment of debt maturities and other amounts that may ultimately be paid in connection with contingencies.

Our revolving credit agreement (the “MPC Credit Agreement”) and MPLX’s revolving credit agreement (the “MPLX Credit Agreement”) contain representations and warranties, affirmative and negative covenants and events of default that we consider usual and customary for agreements of these types. The financial covenant included in the MPC Credit Agreement requires us to maintain, as of the last day of each fiscal quarter, a ratio of Consolidated Net Debt to Total Capitalization (as defined in the MPC Credit Agreement) of no greater than 0.65 to 1.00. As of September 30, 2013, we were in compliance with this debt covenant with a ratio of Consolidated Net Debt to Total Capitalization of 0.18 to 1.00, as well as the other covenants contained in the MPC Credit Agreement.

The financial covenant included in the MPLX Credit Agreement requires MPLX to maintain a ratio of Consolidated Total Debt (as defined in the MPLX Credit Agreement) as of the end of each fiscal quarter to Consolidated EBITDA (as defined in the MPLX Credit Agreement) for the prior four fiscal quarters of not greater than 5.0 to 1.0 (or 5.5 to 1.0 during the six-month period following certain acquisitions). As of September 30, 2013, MPLX was in compliance with this debt covenant with a ratio of Consolidated Total Debt to Consolidated EBITDA of 0.1 to 1.0, as well as the other covenants contained in the MPLX Credit Agreement.

Our intention is to maintain an investment grade credit profile. As of September 30, 2013, the credit ratings on our senior unsecured debt were at or above investment grade level as follows.

|  |  |
| --- | --- |
| Rating Agency | Rating |
| Moody’s | Baa2 (positive outlook) |
| Standard & Poor’s | BBB (stable outlook) |

The ratings reflect the respective views of the rating agencies. Although it is our intention to maintain a credit profile that supports an investment grade rating, there is no assurance that these ratings will continue for any given period of time. The ratings may be revised or withdrawn entirely by the rating agencies if, in their respective judgments, circumstances so warrant.

Neither the MPC Credit Agreement, the MPLX Credit Agreement nor our trade receivables securitization facility contain credit rating triggers that would result in the acceleration of interest, principal or other payments in the event that our credit ratings are downgraded. However, any downgrades of our senior unsecured debt to below investment grade ratings would increase the applicable interest rates, yields and other fees payable under the MPC Credit Agreement and our trade receivables securitization facility. In addition, a downgrade of our senior unsecured debt rating to below investment grade levels could, under certain circumstances, decrease the amount of trade receivables that are eligible to be sold under our trade receivables securitization facility, impact our ability to purchase crude oil on an unsecured basis and could result in us having to post a letter of credit under an existing transportation services agreement.

### Debt-to-Total-Capital Ratio

Our debt-to-total capital ratio (total debt to total debt-plus-equity) was 23 percent at September 30, 2013 and 22 percent December 31, 2012.

*(In millions)*

|  | September 30, 2013 | December 31, 2012 |
| --- | ---: | ---: |
| Long-term debt due within one year | $23 | $19 |
| Long-term debt | 3,380 | 3,342 |
| Total debt | $3,403 | $3,361 |
| **Calculation of debt-to-total-capital ratio:** |  |  |
| Total debt | $3,403 | $3,361 |
| Total equity | 11,264 | 12,105 |
| Total capital | $14,667 | $15,466 |
| Debt-to-total-capital ratio | 23% | 22% |

### Capital Requirements

We have a capital and investment budget for 2013 of $1.62 billion, excluding capitalized interest and the purchase price for the Galveston Bay Refinery and Related Assets. The budget includes spending on refining, retail marketing, transportation, logistics and brand marketing projects as well as amounts designated for corporate activities. During the nine months ended September 30, 2013, our capital expenditures and investments were $891 million, excluding capitalized interest and the purchase price for the Galveston Bay Refinery and Related Assets. There have been no material changes to our 2013 capital and investment budget since our Annual Report on Form 10-K for the year ended December 31, 2012 was filed. We continuously evaluate our capital budget and make changes as conditions warrant.

Pursuant to the purchase and sale agreement for the Galveston Bay Refinery and Related Assets, we may be required to pay to the seller a contingent earnout of up to an additional $700 million over six years, subject to certain conditions. See Note 4 to the unaudited consolidated financial statements.

During the nine months ended September 30, 2013, we made contributions of $158 million to our funded pension plans. We may make additional contributions to our funded pension plans in 2013 depending on the anticipated funding status and plan asset performance.

On October 30, 2013, our board of directors approved a 42 cents per share dividend, payable December 10, 2013 to stockholders of record at the close of business on November 20, 2013.

On January 30, 2013, we announced that our board of directors approved an additional $2.0 billion share repurchase authorization. The board also extended the remaining $650 million share repurchase authorization for a total outstanding authorization of $2.65 billion through December 2014. On September 26, 2013, we announced that our board of directors approved an additional $2.0 billion share repurchase authorization through September 2015. During the first nine months of 2013, the final shares from the $500 million ASR program were delivered to us and we paid $2.34 billion to acquire 30 million common shares through open market share repurchases. During the third quarter of 2013, we also entered into agreements to acquire additional common shares for $42 million, which were settled in early October 2013. At September 30, 2013, the initial $2.0 billion repurchase authorization announced on February 1, 2012 and extended on January 30, 2013 had been exhausted. As of September 30, 2013, we had total outstanding repurchase authorizations pursuant to the authorizations announced on January 30, 2013 and September 26, 2013 of $2.31 billion, of which $309 million expires in December 2014 and $2.0 billion expires in September 2015.

We may utilize various methods to effect additional repurchases, which could include open market purchases, negotiated block transactions, ASRs 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.

The above discussion of the share repurchase authorizations includes forward-looking statements. Factors that could affect the share repurchase plan and its timing include, but are not limited to, business conditions, availability of liquidity and the market price of our common stock. These factors, among others, could cause actual results to differ materially from those set forth in the forward-looking statements.

### Contractual Cash Obligations

The following table provides aggregated information on our consolidated obligations to make future payments under existing contracts as of September 30, 2013.

*(In millions)*

|  | Total | 2013 | 2014-2015 | 2016-2017 | Later Years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Long-term debt(a) | $5,712 | $2 | $332 | $1,039 | $4,339 |
| Capital lease obligations | 527 | 11 | 93 | 90 | 333 |
| Operating lease obligations | 1,004 | 50 | 344 | 247 | 363 |
| Purchase obligations:(b) |  |  |  |  |  |
| Crude oil, feedstock, refined product and renewable fuel contracts(c) | 14,038 | 10,615 | 2,406 | 759 | 258 |
| Transportation and related contracts | 1,893 | 62 | 392 | 395 | 1,044 |
| Contracts to acquire property, plant and equipment(d)(e) | 876 | 139 | 349 | 388 | — |
| Service, materials and other contracts(f) | 1,883 | 206 | 557 | 393 | 727 |
| Total purchase obligations | 18,690 | 11,022 | 3,704 | 1,935 | 2,029 |
| Other long-term liabilities reported in the consolidated balance sheet(g) | 914 | 30 | 305 | 144 | 435 |
| Total contractual cash obligations | $26,847 | $11,115 | $4,778 | $3,455 | $7,499 |

(a) Includes interest payments for our senior notes and commitment and administrative fees for the MPC Credit Agreement, the MPLX Credit Agreement and our trade receivables securitization facility.

(b) Includes both short- and long-term purchases obligations.

(c) These contracts include variable price arrangements with estimated prices to be paid primarily based on current market conditions. We are in the process of implementing systems that will allow us to estimate prices based on futures curves, which as of September 30, 2013, has been implemented for contracts with purchase obligations of $2.81 billion.

(d) Includes obligations to advance funds to equity method investees.

(e) Includes $700 million of contingent consideration associated with the acquisition of the Galveston Bay Refinery and Related Assets. See Note 4 to the unaudited consolidated financial statements.

(f) Primarily includes contracts to purchase services such as utilities, supplies and various other maintenance and operating services.

(g) Primarily includes obligations for pension and other postretirement benefits including medical and life insurance, which we have estimated through 2022. See Note 20 to the unaudited consolidated financial statements.

### Off-Balance Sheet Arrangements

Off-balance sheet arrangements comprise those arrangements that may potentially impact our liquidity, capital resources and results of operations, even though such arrangements are not recorded as liabilities under accounting principles generally accepted in the United States. Although off-balance sheet arrangements serve a variety of our business purposes, we are not dependent on these arrangements to maintain our liquidity and capital resources, and we are not aware of any circumstances that are reasonably likely to cause the off-balance sheet arrangements to have a material adverse effect on liquidity and capital resources.

We have provided various guarantees related to equity method investees. In conjunction with our spinoff from Marathon Oil, we entered into various indemnities and guarantees to Marathon Oil. These arrangements are described in Note 22 to the unaudited consolidated financial statements.

Our opinions concerning liquidity and capital resources and our ability to avail ourselves in the future of the financing options mentioned in the above forward-looking statements are based on currently available information. If this information proves to be inaccurate, future availability of financing may be adversely affected. Factors that affect the availability of financing include our performance (as measured by various factors, including cash provided by operating activities), the state of worldwide debt and equity markets, investor perceptions and expectations of past and future performance, the global financial climate, and, in particular, with respect to borrowings, the levels of our outstanding debt and credit ratings by rating agencies. The discussion of liquidity and capital resources above also contains forward-looking statements regarding expected capital and investment spending. The forward-looking statements about our capital and investment budget are based on current expectations, estimates and projections and are not guarantees of future performance. Actual results may differ materially from these expectations, estimates and projections and are subject to certain risks, uncertainties and other factors, some of which are beyond our control and are difficult to predict. Some factors that could cause actual results to differ materially include prices of and demand for crude oil and refinery feedstocks and refined products, actions of competitors, delays in obtaining necessary third-party approvals, changes in labor, materials, and equipment costs and availability, planned and unplanned outages, the delay of, cancellation of or failure to implement planned capital projects, project cost overruns, disruptions or interruptions of our refining operations due to the shortage of skilled labor and unforeseen hazards such as weather conditions, acts of war or terrorist acts and the governmental or military response, and other operating and economic considerations.

### Transactions with Related Parties

We believe that transactions with related parties were conducted under terms comparable to those with unrelated parties.

### Environmental Matters and Compliance Costs

We have incurred and may continue to incur substantial capital, operating and maintenance, and remediation expenditures as a result of environmental laws and regulations. If these expenditures, as with all costs, are not ultimately reflected in the prices of our products and services, our operating results will be adversely affected. We believe that substantially all of our competitors must comply with similar environmental laws and regulations. However, the specific impact on each competitor may vary depending on a number of factors, including the age and location of its operating facilities, marketing areas, production processes and whether it is also engaged in the petrochemical business or the marine transportation of crude oil and refined products.

On January 25, 2013, the U.S. Court of Appeals for the D.C. circuit vacated the 2012 cellulosic biofuel requirements under the RFS2 program. In light of this ruling, the Environmental Protection Agency (“EPA”) is reconsidering and is anticipated to lower the 2011 and has subsequently eliminated the 2012 cellulosic biofuel requirements under the RFS2 program. The EPA also has proposed a rule establishing a quality assurance program for RINs purchased to help meet the annual biofuel requirements under the RFS2 program. This rule should be finalized later this year and is aimed at reducing the chances that RINs are fraudulently created or sold.

On March 29, 2013, the EPA announced its proposed Tier 3 fuel standards. The proposed Tier 3 fuel standards require, among other things, a lower annual average sulfur level in gasoline to no more than 10 parts per million beginning in calendar year 2017. MPC and its trade organizations have submitted public comments on the standards and the agency is expected to finalize the Tier 3 fuel standards later this year. Our cost of compliance may be material; however, we will likely not be able to reasonably estimate our compliance costs until we have had time to review the final standards and develop our compliance plans.

There have been no other significant changes to our environmental matters and compliance costs during the nine months ended September 30, 2013.

### Critical Accounting Estimates

The preparation of financial statements in accordance with US GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the respective reporting periods. Accounting estimates are considered to be critical if (1) the nature of the estimates and assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and (2) the impact of the estimates and assumptions on financial condition or operating performance is material. Actual results could differ from the estimates and assumptions used. The following critical accounting estimates have been updated since our Annual Report on Form 10-K for the year ended December 31, 2012 was filed.

### Fair Value Estimates

#### Acquisitions

In accounting for business combinations, acquired assets and liabilities are recorded based on estimated fair values as of the date of acquisition. The excess or shortfall of the purchase price when compared to the fair value of the net tangible and identifiable intangible assets acquired, if any, is recorded as goodwill or a bargain purchase gain, respectively. A significant amount of judgment is involved in estimating the individual fair values of property, plant and equipment, intangible assets and other assets and liabilities. We use all available information to make these fair value determinations and, for certain acquisitions, engage third-party consultants for assistance.

The fair value of assets and liabilities as of the acquisition date are often estimated using a combination of approaches, including the income approach, which requires us to project related future cash inflows and outflows and apply an appropriate discount rate; the cost approach, which requires estimates of replacement costs and depreciation and obsolescence estimates; and the market approach which uses market data and adjusts for entity specific differences. The estimates used in determining fair values are based on assumptions believed to be reasonable but which are inherently uncertain. Accordingly, actual results may differ from the projected results used to determine fair value. See Note 4 to the unaudited consolidated financial statements for additional information on our acquisitions.

#### Derivatives

We record all derivative instruments at fair value. All of our commodity derivatives are cleared through exchanges which provide active trading information for identical derivatives and do not require any assumptions in arriving at fair value.

### Accounting Standards Not Yet Adopted

As of September 30, 2013, there are no accounting standards that have not yet been adopted.

## Market risk

As filed, 3,224 characters.

For a detailed discussion of our risk management strategies and our derivative instruments, see Item 7A. Quantitative and Qualitative Disclosures about Market Risk in our Annual Report on Form 10-K for the year ended December 31, 2012.

See Notes 15 and 16 to the unaudited consolidated financial statements for more information about the fair value measurement of our derivatives, as well as the amounts recorded in our consolidated balance sheets and statements of income. We do not designate any of our commodity derivative instruments as hedges for accounting purposes.

Sensitivity analysis of the incremental effects on income from operations (“IFO”) of hypothetical 10 percent and 25 percent increases and decreases in commodity prices for open commodity derivative instruments as of September 30, 2013 is provided in the following table.

|  | Incremental Change in IFO from a Hypothetical Price Increase of |  | Incremental Change in IFO from a Hypothetical Price Decrease of |  |
| --- | ---: | ---: | ---: | ---: |
| (In millions) | 10% | 25% | 10% | 25% |
| As of September 30, 2013 |  |  |  |  |
| Crude | $(199) | $(497) | $202 | $505 |
| Refined products | (7) | (12) | 20 | 49 |

We remain at risk for possible changes in the market value of commodity derivative instruments; however, such risk should be mitigated by price changes in the underlying physical commodity. Effects of these offsets are not reflected in the above sensitivity analysis.

We evaluate our portfolio of commodity derivative instruments on an ongoing basis and add or revise strategies in anticipation of changes in market conditions and in risk profiles. Changes to the portfolio after September 30, 2013 would cause future IFO effects to differ from those presented above.

Sensitivity analysis of the projected incremental effect of a hypothetical 100-basis-point shift in interest rates on financial assets and liabilities as of September 30, 2013 is provided in the following table.

*(In millions)*

| Financial assets (liabilities)(a) | Fair Value |  | Incremental Change in Fair Value |  |
| --- | ---: | --- | ---: | --- |
| Long-term debt(b) | $(3,270) | (c) | $(296) | (d) |

(a) Fair value of cash and cash equivalents, receivables, accounts payable and accrued interest approximate carrying value and are relatively insensitive to changes in interest rates due to the short-term maturity of the instruments. Accordingly, these instruments are excluded from the table.

(b) Excludes capital leases.

(c) Fair value was based on market prices, where available, or current borrowing rates for financings with similar terms and maturities.

(d) Assumes a 100-basis-point decrease in the weighted average yield-to-maturity at September 30, 2013.

At September 30, 2013, our portfolio of long-term debt was substantially comprised of fixed-rate instruments. Therefore, the fair value of the portfolio is relatively sensitive to interest rate fluctuations. Our sensitivity to interest rate declines and corresponding increases in the fair value of our debt portfolio unfavorably affects our results of operations and cash flows only when we elect to repurchase or otherwise retire fixed-rate debt at prices above carrying value.

## Controls and procedures

As filed, 6,842 characters.

### Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended) was carried out under the supervision and with the participation of our management, including our chief executive officer and chief financial officer. Based upon that evaluation, the chief executive officer and chief financial officer concluded that the design and operation of these disclosure controls and procedures were effective as of September 30, 2013, the end of the period covered by this report.

### Internal Control over Financial Reporting and Changes in Internal Control over Financial Reporting

During the quarter ended September 30, 2013, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Supplementary Statistics (Unaudited)

*(In millions)*

| Income from Operations by segment | Three Months Ended September 30, 2013 | 2012 | Nine Months Ended September 30, 2013 | 2012 |
| --- | ---: | ---: | ---: | ---: |
| Refining & Marketing | $227 | $1,691 | $2,235 | $3,959 |
| Speedway | 102 | 76 | 292 | 233 |
| Pipeline Transportation(a) | 54 | 52 | 163 | 144 |
| Items not allocated to segments: |  |  |  |  |
| Corporate and other unallocated items(a) | (59) | (74) | (190) | (245) |
| Minnesota Assets sale settlement gain | — | 183 | — | 183 |
| Pension settlement expenses | (23) | (33) | (83) | (116) |
| **Income from operations** | $301 | $1,895 | $2,417 | $4,158 |
| **Capital Expenditures and Investments(b)(c)** |  |  |  |  |
| Refining & Marketing | $243 | $182 | $1,797 | $513 |
| Speedway(d) | 65 | 59 | 177 | 257 |
| Pipeline Transportation | 42 | 71 | 173 | 169 |
| Corporate and Other(e) | 61 | 48 | 121 | 142 |
| Total | $411 | $360 | $2,268 | $1,081 |

(a) Included in the Pipeline Transportation segment for the three and nine months ended September 30, 2013 are $5 million and $15 million, respectively, of corporate overhead costs attributable to MPLX, which were included in items not allocated to segments prior to MPLX’s October 31, 2012 initial public offering. These expenses are not currently allocated to other segments.

(b) Capital expenditures include changes in capital accruals.

(c) The nine months ended September 30, 2013 includes $1.36 billion for the acquisition of the Galveston Bay Refinery and Related Assets, comprised of total consideration, excluding inventory, of $1.15 billion plus assumed liabilities of $210 million. The total consideration amount of $1.15 billion includes the base purchase price and a fair-value estimate of $600 million for the contingent consideration. See Note 4 to the unaudited consolidated financial statements.

(d) Includes Speedway’s acquisitions of convenience stores. See Note 4 to the unaudited consolidated financial statements.

(e) Includes capitalized interest of $7 million and $29 million for the three months ended September 30, 2013 and 2012, respectively, and $15 million and $95 million for the nine months ended September 30, 2013 and 2012, respectively.

### Supplementary Statistics (Unaudited)

|  | Three Months Ended September 30, 2013 | 2012 | Nine Months Ended September 30, 2013 | 2012 |
| --- | ---: | ---: | ---: | ---: |
| **MPC Consolidated Refined Product Sales Volumes (thousands of barrels per day)(a)(b)** | 2,155 | 1,622 | 2,063 | 1,590 |
| **Refining & Marketing Operating Statistics(b)** |  |  |  |  |
| Refinery Throughputs (thousands of barrels per day): |  |  |  |  |
| Crude oil refined | 1,682 | 1,186 | 1,603 | 1,180 |
| Other charge and blendstocks | 195 | 159 | 202 | 155 |
| Total | 1,877 | 1,345 | 1,805 | 1,335 |
| Crude Oil Capacity Utilization percent(c) | 99 | 99 | 97 | 99 |
| Refined Product Yields (thousands of barrels per day): |  |  |  |  |
| Gasoline | 938 | 728 | 917 | 723 |
| Distillates | 578 | 439 | 570 | 420 |
| Propane | 39 | 25 | 37 | 25 |
| Feedstocks and special products | 259 | 95 | 227 | 109 |
| Heavy fuel oil | 31 | 21 | 31 | 18 |
| Asphalt | 70 | 67 | 57 | 64 |
| Total | 1,915 | 1,375 | 1,839 | 1,359 |
| Refining & Marketing Refined Product Sales Volume (thousands of barrels per day)(d) | 2,148 | 1,605 | 2,052 | 1,569 |
| Refining & Marketing Gross Margin (dollars per barrel)(e) | $2.55 | $13.12 | $5.42 | $10.92 |
| Refinery Direct Operating Costs in Refining & Marketing Gross Margin (dollars per barrel):(f) |  |  |  |  |
| Turnaround and major maintenance | $0.96 | $1.18 | $0.94 | $1.04 |
| Depreciation and amortization | 1.27 | 1.44 | 1.32 | 1.40 |
| Other manufacturing(g) | 4.10 | 3.16 | 4.00 | 3.13 |
| Total | $6.33 | $5.78 | $6.26 | $5.57 |
| **Speedway Operating Statistics** |  |  |  |  |
| Convenience stores at period-end | 1,471 | 1,463 |  |  |
| Gasoline & distillate sales (millions of gallons) | 803 | 779 | 2,329 | 2,241 |
| Gasoline & distillate gross margin (dollars per gallon)(h) | $0.1404 | $0.1100 | $0.1483 | $0.1281 |
| Merchandise sales (in millions) | $843 | $826 | $2,360 | $2,297 |
| Merchandise gross margin (in millions) | $224 | $217 | $620 | $599 |
| Same store gasoline sales volume (period over period) | 1.0% | (3.9)% | 0.6% | (1.1)% |
| Same store merchandise sales excluding cigarettes (period over period) | 5.6% | 4.1% | 3.8% | 8.0% |
| **Pipeline Transportation Operating Statistics** |  |  |  |  |
| Pipeline Throughputs (thousands of barrels per day)(i): |  |  |  |  |
| Crude oil pipelines | 1,317 | 1,136 | 1,308 | 1,150 |
| Refined products pipelines | 913 | 1,044 | 930 | 972 |
| Total | 2,230 | 2,180 | 2,238 | 2,122 |

(a) Total average daily volumes of refined product sales to wholesale, branded and retail (Speedway segment) customers.

(b) Includes the impact of the Galveston Bay Refinery and Related Assets beginning on the February 1, 2013 acquisition date.

(c) Based on calendar day capacity, which is an annual average that includes downtime for planned maintenance and other normal operating activities.

(d) Includes intersegment sales.

(e) Sales revenue less cost of refinery inputs, purchased products and refinery direct operating costs (including turnaround and major maintenance, depreciation and amortization and other manufacturing expenses), divided by Refining & Marketing segment refined product sales volume.

(f) Per barrel of total refinery throughputs.

(g) Includes utilities, labor, routine maintenance and other operating costs.

(h) The price paid by consumers less the cost of refined products, including transportation, consumer excise taxes and bankcard processing fees, divided by gasoline and distillate sales volume.

(i) On owned common-carrier pipelines, excluding equity method investments.

## Risk factors

As filed, 240 characters.

We are subject to various risks and uncertainties in the course of our business. The discussion of such risks and uncertainties may be found under Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2012.

Filed Nov 7, 2013.
Source: SEC EDGAR, the filing index for accession 0001510295-13-000003. Last ingested by Listed: Nov 3, 2026, 14:28 ET. No prices; not investment advice.