MPCMarathon Petroleum

We note your presentation of the non-GAAP measures refining and marketing margin and retail total margin. Please present a reconciliation for these non-GAAP measures in accordance with Item 10(e)(1)(i)(B) of Regulation S-K. In doing so, reconcile these measures to the most directly comparable GAAP measures, i.e. gross margin that includes depreciation, depletion and amortization.

Rest of the question

If you do not believe gross margin that includes depreciation, depletion and amortization expense is the most directly comparable GAAP measure, please tell us why in your response.

We have historically considered segment income from operations, our reportable segment performance measure, as the most directly comparable GAAP measure and prepared our reconciliations of the non-GAAP measures of Refining and Marketing margin and Retail total margin to reconcile to segment income from operations. In future filings we will reconcile these non-GAAP measures first to segment gross margin as the most directly comparable GAAP measure and then to segment income from operations beginning with our Form 10-Q for the quarterly period ending June 30, 2020.

Rest of the answer

Illustrations of our revised non-GAAP reconciliations are shown below for the year ended December 31, 2019:

Reconciliation of Refining and Marketing income from operations to Refining and Marketing gross margin and Refining and Marketing margin

(in millions)

Year Ended

December 31, 2019

Refining and Marketing income from operations

$

2,367

Plus (less):

Selling, general and administrative expenses

2,202

Income from equity method investments

(11

)

Net gain on disposal of assets

(6

Other income

(43

Refining and Marketing gross margin

4,509

Plus (Less):

Operating expenses (excluding depreciation and amortization)

10,655

Depreciation and amortization

1,665

Gross margin excluded from Refining and Marketing margin (a)

(568

Other taxes included in Refining and Marketing margin

Biodiesel tax credit (b)

(93

Refining and Marketing margin

16,157

(a)

The gross margin, excluding depreciation and amortization, of operations that support Refining and Marketing such as bio-diesel and ethanol ventures, power facilities and processing of credit card transactions.

(b)

Reflects a benefit for the biodiesel tax credit attributable to volumes blended in 2018.

Reconciliation of Retail income from operations to Retail gross margin and Retail margin

Retail income from operations

1,582

Operating, selling, general and administrative expenses

2,456

(82

(31

(44

Read in the reply ↗

Please revise to disclose the principal strategic alternatives that the Andeavor board considered and why, as well as when, it determined not to pursue them. We note your disclosure that Goldman Sachs discussed “potential alternative strategic options” at the April 15, 2018 meeting of the Andeavor board.

No reply letter found.

Regarding the April 17, 2018, telephonic meeting referenced at page 84, identify the members of the Marathon “executive management team.” Also identify the source(s) and discuss in greater detail the substance of the “various business scenarios, accretion/dilution analyses, value drivers and considerations, expected synergies,” etc. that team “reviewed” with the board.

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Moreover, please revise to name the individuals who participated in each stage of the discussions and negotiations. In that regard, we note general references to members of Marathon and Andeavor management.

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You refer often in the proxy statement / prospectus to the expected synergies, including suggestions that the synergies will total more than $1,000,000,000 annually. See for example the multiple references at page 84. However, you do not include a detailed description of the components and timing of the expected synergies.

Rest of the question

For proper context, please provide additional detailed disclosure comparable to that which appears in the slides that form part of the investor presentation contained in exhibit 99.2 to the first Marathon Petroleum Form 8-K dated April 30, 2018. Also revise references to the “identification of approximately $1 billion in annual gross, run-rate synergies” at page 88 and elsewhere to clarify when the synergies of that magnitude are anticipated. The investor presentation materials do not indicate such synergies for at least a few years, and at page 132 you state that “unaudited forecasted financial information … by its nature becomes less predictive with each successive year.”

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Revise to identify the source of the stated expectation that the merger will “incrementally generate in excess of $5 billion of free cash flow over the next five years,” and briefly explain how that amount was calculated.

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You state that the board considered the analyses prepared by its financial advisor, but you do not include as a “potentially negative factor” the comparable company analysis whereby Barclays determined that without synergies, the amount of the implied merger consideration to be paid exceeds the derived equity value reference range for shares of Andeavor common stock (see page 100).

Rest of the question

Please explain this apparent omission, or revise accordingly.

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In this section, further quantify and describe the pre-tax EBITDA and capital expenditure synergies estimated for FY 2019 through 2022 used by Marathon’s fairness advisor in its expected synergies analysis.

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Please discuss in greater detail the criteria used to select transactions and companies for the selected comparable company and transactions analyses of Barclays and the selected companies and transactions analyses of Morgan Stanley. For example, identify which size parameters were used, and disclose the size of the various transactions used for the analyses.

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Please disclose the material assumptions underlying the financial forecasts, including operating assumptions and Marathon’s long-term pricing forecast. We note that Barclays performed its analyses using assumptions which Marathon’s management instructed it to use.

Rest of the question

We further note that the companies prepared their forecasts based on Marathon’s long-term pricing forecast and that Goldman Sachs conducted analyses that considered refining gross margin projections for Andeavor and Marathon.

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We note several areas throughout your pro forma financial statements and related footnotes that refer to management’s inability to complete an analysis of the fair value of certain net assets to be acquired and the impact of Andeavor’s outstanding equity compensation awards.

Rest of the question

In this regard, your pro forma financial statements appear incomplete and therefore, do not provide the investor with adequate information about the continuing impact of a transaction as required under Regulation S-X, Rule 11-02. Revise your pro forma financial statements and related footnote disclosures to show how the proposed merger with Andeavor might have affected your historical financial statements if the merger had been consummated at an earlier time in accordance with Regulation S-X, Article 11.

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We note your revised disclosure in response to prior comment 7 that, for purposes of this analysis, Barclays deducted certain non-recurring one-time costs from the gross expected synergies. Please revise to quantify the expected pre-tax EBITDA synergies, capital expenditure synergies, and total synergies net of these costs for FY 2018 through 2022.

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Although you list a tax opinion as “to be filed by amendment” as exhibit 8.1, you refer at page 187 to a “closing date opinion” and disclose at page 179 that receipt by Andeavor of the tax opinion is a waivable condition. Please confirm that you will recirculate a revised proxy statement/prospectus and resolicit Andeavor stockholders if this condition is waived and the change in tax consequences would be material.

Rest of the question

Refer to Section III.D.3 of Staff Legal Bulletin No. 19.

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