MPLX LP - FORM 10-Q - August 4, 2014

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - MPLX LP	Financial_Report.xls
EX-31.1 - EX-31.1 - MPLX LP	mplx-2014630xex311.htm
EX-31.2 - EX-31.2 - MPLX LP	mplx-2014630xex312.htm
EX-32.2 - EX-32.2 - MPLX LP	mplx-2014630xex322.htm
EX-32.1 - EX-32.1 - MPLX LP	mplx-2014630xex321.htm

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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 June 30, 2014



¨	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 001-35714

_____________________________________________

MPLX LP

(Exact name of registrant as specified in its charter)

_____________________________________________



Delaware		45-5010536
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

200 E. Hardin Street, Findlay, Ohio		45840
(Address of principal executive offices)		(Zip code)

(419) 672-6500

(Registrant’s telephone number, including area code)

_____________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x

MPLX LP had 36,966,994 common units, 36,951,515 subordinated units and 1,508,541 general partner units outstanding at July 31, 2014.

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MPLX LP

Form 10-Q

Quarter Ended June 30, 2014

INDEX



	Page
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Income (Unaudited)	2
Consolidated Balance Sheets (Unaudited)	3
Consolidated Statements of Cash Flows (Unaudited)	4
Consolidated Statements of Equity (Unaudited)	5
Notes to Consolidated Financial Statements (Unaudited)	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3. Quantitative and Qualitative Disclosures about Market Risk	36
Item 4. Controls and Procedures	36

PART II – OTHER INFORMATION
Item 1. Legal Proceedings	37
Item 1A. Risk Factors	37
Item 2. Unregistered Sales of Equity Securities	37
Item 6. Exhibits	38
Signatures	39

Unless the context otherwise requires, references in this report to “MPLX LP,” the “Partnership,” “we,” “our,” “us,” or like terms refer to MPLX LP and its subsidiaries, including MPLX Operations LLC (“MPLX Operations”) and MPLX Terminal and Storage LLC (“MPLX Terminal and Storage”), both wholly-owned subsidiaries, and MPLX Pipe Line Holdings LP (“Pipe Line Holdings”), of which as of June 30, 2014 MPLX LP owned a 69.0 percent general partner interest. Pipe Line Holdings owns 100 percent of Marathon Pipe Line LLC (“MPL”) and Ohio River Pipe Line LLC (“ORPL”). References to “MPC” refer collectively to Marathon Petroleum Corporation and its subsidiaries, other than the Partnership.

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Part I—Financial Information

Item 1. Financial Statements

MPLX LP

Consolidated Statements of Income (Unaudited)



	Three Months Ended June 30,				Six Months Ended June 30,
(In millions, except per unit data)	2014		2013		2014		2013
Revenues and other income:
Sales and other operating revenues	$	18.7	$	18.8	$	35.6	$	39.6
Sales to related parties	108.1		97.3		221.9		186.4
Other income	1.1		0.9		2.6		2.1
Other income - related parties	6.0		5.2		11.1		8.8
Total revenues and other income	133.9		122.2		271.2		236.9
Costs and expenses:
Cost of revenues (excludes items below)	35.7		35.6		62.3		66.1
Purchases from related parties	23.7		23.8		47.7		45.6
Depreciation	12.4		11.9		25.0		23.6
General and administrative expenses	15.9		13.9		31.8		27.4
Other taxes	1.9		1.8		3.8		3.5
Total costs and expenses	89.6		87.0		170.6		166.2
Income from operations	44.3		35.2		100.6		70.7
Net interest and other financial costs	1.3		0.3		1.9		0.5
Income before income taxes	43.0		34.9		98.7		70.2
Provision for income taxes	0.1		0.1		0.1		0.1
Net income	42.9		34.8		98.6		70.1
Less: Net income attributable to MPC-retained interest	14.1		16.2		35.6		33.9
Net income attributable to MPLX LP	28.8		18.6		63.0		36.2
Less: General partner’s interest in net income attributable to MPLX LP	1.2		0.3		2.2		0.7
Limited partners’ interest in net income attributable to MPLX LP	$	27.6	$	18.3	$	60.8	$	35.5

Net income attributable to MPLX LP per limited partner unit:
Common - basic	$	0.37	$	0.26	$	0.79	$	0.53
Common - diluted	0.37		0.26		0.79		0.52
Subordinated - basic and diluted	0.37		0.23		0.79		0.44
Weighted average limited partner units outstanding (basic and diluted):
Common units - public	19.9		19.9		19.9		19.9
Common units - MPC	17.1		17.1		17.1		17.1
Subordinated units - MPC	37.0		37.0		37.0		37.0
Cash distributions declared per limited partner common unit	$	0.3425	$	0.2850	$	0.6700	$	0.5575

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

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MPLX LP

Consolidated Balance Sheets (Unaudited)



(In millions)	June 30, 2014			December 31, 2013
Assets
Current assets:
Cash and cash equivalents	$	43.2		$	54.1
Receivables	10.9			12.2
Receivables from related parties	45.4			48.3
Materials and supplies inventories	11.7			11.6
Other current assets	8.2			8.9
Total current assets	119.4			135.1
Property, plant and equipment, net	955.8			966.6
Goodwill	104.7			104.7
Other noncurrent assets	1.5			2.1
Total assets	$	1,181.4		$	1,208.5
Liabilities
Current liabilities:
Accounts payable	$	25.7		$	30.5
Payables to related parties	17.1			12.8
Deferred revenue - related parties	30.2			34.0
Accrued taxes	5.4			4.0
Long-term debt due within one year	0.8			0.7
Other current liabilities	3.2			1.4
Total current liabilities	82.4			83.4
Long-term deferred revenue - related parties	4.3			—
Long-term debt	264.4			9.8
Deferred credits and other liabilities	1.6			1.2
Total liabilities	352.7			94.4
Commitments and contingencies (see Note 14)
Equity
Common unitholders - public (19.9 million units issued and outstanding)	416.0			412.0
Common unitholder - MPC (17.1 million units issued and outstanding)	60.5			57.4
Subordinated unitholder - MPC (37.0 million units issued and outstanding)	216.0			209.3
General partner - MPC (1.5 million units issued and outstanding)	(204.1		)	(32.5		)
Total MPLX LP partners’ capital	488.4			646.2
Noncontrolling interest retained by MPC	340.3			467.9
Total equity	828.7			1,114.1
Total liabilities and equity	$	1,181.4		$	1,208.5

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

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MPLX LP

Consolidated Statements of Cash Flows (Unaudited)



	Six Months Ended June 30,
(In millions)	2014			2013
Increase (decrease) in cash and cash equivalents
Operating activities:
Net income	$	98.6		$	70.1
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	25.0			23.6
Asset retirement expenditures	(0.9		)	(1.6		)
Changes in:
Current receivables	1.3			4.8
Materials and supplies inventories	0.3			(0.1		)
Current accounts payable and accrued liabilities	(1.8		)	1.1
Receivables from / liabilities to related parties	7.7			11.7
All other, net	(1.8		)	(1.0		)
Net cash provided by operating activities	128.4			108.6
Investing activities:
Additions to property, plant and equipment	(13.2		)	(40.8		)
All other, net	3.8			—
Net cash used in investing activities	(9.4		)	(40.8		)
Financing activities:
Long-term debt - borrowings	270.0			—
- repayments	(15.4		)	(0.4		)
Quarterly distributions to unitholders and general partner	(48.7		)	(33.9		)
Quarterly distributions to noncontrolling interest retained by MPC	(25.8		)	(34.9		)
Distributions related to purchase of additional interest in Pipe Line Holdings	(310.0		)	(100.0		)
Net cash used in financing activities	(129.9		)	(169.2		)
Net decrease in cash and cash equivalents	(10.9		)	(101.4		)
Cash and cash equivalents at beginning of period	54.1			216.7
Cash and cash equivalents at end of period	$	43.2		$	115.3

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

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MPLX LP

Consolidated Statements of Equity (Unaudited)



	Partnership
(In millions)	Common Unitholders Public			Common Unitholder MPC			Subordinated Unitholder MPC			General Partner MPC			Noncontrolling Interest Retained by MPC			Total
Balance at December 31, 2012	$	410.7		$	57.4		$	209.3		$	13.7		$	535.7		$	1,226.8
Purchase of additional interest in Pipe Line Holdings	—			—			—			(46.4		)	(53.6		)	(100.0		)
Net Income	10.5			8.9			16.1			0.7			33.9			70.1
Quarterly distributions to unitholders and general partner	(9.0		)	(7.7		)	(16.6		)	(0.6		)	—			(33.9		)
Quarterly distributions to noncontrolling interest retained by MPC	—			—			—			—			(34.9		)	(34.9		)
Equity-based compensation	0.5			—			—			—			—			0.5
Balance at June 30, 2013	$	412.7		$	58.6		$	208.8		$	(32.6	)	$	481.1		$	1,128.6

Balance at December 31, 2013	$	412.0		$	57.4		$	209.3		$	(32.5	)	$	467.9		$	1,114.1
Purchase of additional interest in Pipe Line Holdings	—			—			—			(172.5		)	(137.5		)	(310.0		)
Net income	16.4			14.0			30.4			2.2			35.6			98.6
Quarterly distributions to unitholders and general partner	(12.8		)	(10.9		)	(23.7		)	(1.3		)	—			(48.7		)
Quarterly distributions to noncontrolling interest retained by MPC	—			—			—			—			(25.8		)	(25.8		)
Non-cash contribution from MPC	—			—			—			—			0.1			0.1
Equity-based compensation	0.4			—			—			—			—			0.4
Balance at June 30, 2014	$	416.0		$	60.5		$	216.0		$	(204.1	)	$	340.3		$	828.7

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

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Notes to Consolidated Financial Statements (Unaudited)

1. Description of the Business and Basis of Presentation

Description of the Business—MPLX LP (the “Partnership”) is a fee-based, growth-oriented master limited partnership formed to own, operate, develop and acquire pipelines and other midstream assets related to the transportation and storage of crude oil, refined products and other hydrocarbon-based products. As of June 30, 2014, the Partnership’s assets consisted of a 69.0 percent indirect interest in a network of common carrier crude oil and product pipeline systems and associated storage assets in the Midwest and Gulf Coast regions of the United States. The Partnership also owns a 100 percent interest in a butane cavern in Neal, West Virginia with approximately one million barrels of storage capacity.

The Partnership was formed on March 27, 2012, as a Delaware limited partnership. On October 31, 2012, the Partnership completed its initial public offering (the “Offering”) of 19,895,000 common units (including 2,595,000 common units issued pursuant to the exercise of the underwriters’ over-allotment option), representing limited partner interests. Unless the context otherwise requires, references in this report to “MPLX LP,” the “Partnership,” “we,” “our,” “us,” or like terms refer to MPLX LP and its subsidiaries, including MPLX Operations LLC (“MPLX Operations”) and MPLX Terminal and Storage LLC (“MPLX Terminal and Storage”), both wholly-owned subsidiaries, and MPLX Pipe Line Holdings LP (“Pipe Line Holdings”), of which MPLX LP owned a 69.0 percent general partner interest at June 30, 2014. Initially, 51.0 percent of Pipe Line Holdings was contributed to the Partnership. Due to subsequent acquisitions, this interest increased to 56.0 percent as of May 1, 2013 and 69.0 percent as of March 1, 2014, as discussed in Note 3. Pipe Line Holdings owns 100 percent of Marathon Pipe Line LLC (“MPL”) and Ohio River Pipe Line LLC (“ORPL”). References to “MPC” refer collectively to Marathon Petroleum Corporation and its subsidiaries, other than the Partnership.

Our operations consist of one reportable segment.

Basis of Presentation—Our financial position, results of operations and cash flows consist of consolidated MPLX LP activities and balances. All significant intercompany transactions and accounts have been eliminated.

The accompanying 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 and regulations of the Securities and Exchange Commission applicable to interim period financial statements and do not include all of the information and disclosures required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements.

These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013. The results of operations for the three months and six months ended June 30, 2014 are not necessarily indicative of the results to be expected for the full year.

In preparing our consolidated statements of equity, net income attributable to MPLX LP is allocated to unitholders in accordance with their respective ownership percentages. However, when distributions related to the incentive distribution rights are made, earnings equal to the amount of those distributions are first allocated to the general partner before the remaining earnings are allocated to the unitholders based on their respective ownership percentages. The allocation of net income attributable to MPLX LP for purposes of calculating net income per limited partner is described in Note 5.

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2. Accounting Standards

Not Yet Adopted

In May 2014, the Financial Accounting Standards Board ("FASB") issued an accounting standards update for revenue recognition that is aligned with the International Accounting Standards Board's revenue recognition standard issued on the same day. The guidance in the update states that revenue is recognized when a customer obtains control of a good or service. Recognition of the revenue will involve a multiple step approach including identifying the contract, identifying the separate performance obligations, determining the transaction price, allocating the price to the performance obligations and then recognizing the revenue as the obligations are satisfied. Additional disclosures will be required to provide adequate information to understand the nature, amount, timing and uncertainty of reported revenues and revenues expected to be recognized. The accounting standards update will be effective on a retrospective or modified retrospective basis for annual reporting periods beginning after December 15, 2016, and interim periods within those years, with no early adoption permitted. At this point, a final determination has not been made as to the impact of the adoption of this standards update in the first quarter of 2017. However, we do not expect it to have a material impact on our consolidated results of operations, financial position or cash flows.

In April 2014, the FASB issued an accounting standards update that redefines the criteria for determining discontinued operations and introduces new disclosures related to these disposals. The updated definition of a discontinued operation is the disposal of a component(s) of an entity or the classification of a component(s) of an entity as held for sale which represents a strategic shift for an entity and has (or will have) a major impact on an entity's operations and financial results. The standard requires disclosure of additional financial information for discontinued operations and individually material components not qualifying for discontinued operation presentation, as well as information regarding an entity's continuing involvement with the discontinued operation. The accounting standards update is effective prospectively for annual periods beginning on or after December 15, 2014, and interim periods within those years. Early adoption is permitted. Adoption of this standards update in the first quarter of 2015 is not expected to have an impact on our consolidated results of operations, financial position or cash flows.

3. Acquisitions

Effective March 1, 2014, we acquired a 13.0 percent interest in Pipe Line Holdings from MPC for consideration of $310.0 million, which was funded with $40.0 million of cash on hand and $270.0 million of borrowings on our bank revolver. We recorded the 13.0 percent interest at its historical carrying value of $137.5 million and the excess cash paid over historical carrying value of $172.5 million as a decrease to general partner equity. Prior to this transaction, the 13.0 percent interest was held by MPC and was reflected as part of the noncontrolling interest retained by MPC in our consolidated financial statements. Beginning March 1, 2014, our consolidated financial statements reflect the 69.0 percent general partner interest in Pipe Line Holdings owned by MPLX LP, while the 31.0 percent limited partner interest held by MPC is reflected as a noncontrolling interest.

On May 1, 2013, we acquired a 5.0 percent interest in Pipe Line Holdings from MPC for consideration of $100.0 million, which was funded with cash on hand. We recorded the 5.0 percent interest in Pipe Line Holdings at its historical carrying value of $53.6 million and the excess cash paid over historical carrying value of $46.4 million as a decrease to general partner equity.

These acquisitions were accounted for on a prospective basis and the terms of the acquisitions were approved by the conflicts committee of the board of directors of our general partner, which is comprised entirely of independent directors.

Changes in MPLX LP’s equity resulting from changes in its ownership interest in Pipe Line Holdings for the three months and six months ended June 30, 2014 and 2013 were as follows:



	Three Months Ended June 30,					Six Months Ended June 30,
(In millions)	2014		2013			2014			2013
Net income attributable to MPLX LP	$	28.8	$	18.6		$	63.0		$	36.2
Transfer to noncontrolling interest retained by MPC:
Decrease in general partner-MPC equity for purchases of additional interest in Pipe Line Holdings	—		(46.4		)	(172.5		)	(46.4		)
Change from net income attributable to MPLX LP and transfer to noncontrolling interest retained by MPC	$	28.8	$	(27.8	)	$	(109.5	)	$	(10.2	)

4. Related Party Agreements and Transactions

Our related parties include:


•	MPC, which refines, markets and transports crude oil and petroleum products, primarily in the Midwest, Gulf Coast and Southeast regions of the United States.


•	Centennial Pipeline LLC (“Centennial”), in which MPC has a 50.0 percent interest. Centennial owns a products pipeline and storage facility.


•	Muskegon Pipeline LLC (“Muskegon”), in which MPC has a 60.0 percent noncontrolling interest. Muskegon owns a common carrier products pipeline.

Related Party Agreements

We have various long-term, fee-based commercial agreements with MPC under which we provide pipeline transportation and storage services to MPC, and MPC has committed to provide us with minimum quarterly throughput and storage volumes of crude oil and refined products and minimum storage volumes of butane. For detailed descriptions of our commercial and other agreements with MPC, see Item 1. Business in our Annual Report on Form 10-K for the year ended December 31, 2013.

On March 31, 2014, Pipe Line Holdings entered into a credit agreement with MPL Investment LLC, a subsidiary of MPC, providing for a $50.0 million revolving credit facility which is scheduled to terminate on March 31, 2019. The agreement requires that we remain in compliance with the covenants, terms and conditions to which we are subject under the MPLX Operations revolving credit agreement. This facility allows more efficient use of our bank revolving credit agreement. Borrowings of revolving loans under this credit facility bear interest at the one-month term LIBO Rate plus 1.375 percent. As of June 30, 2014, there were no borrowings outstanding under this facility.

We believe the terms and conditions under our agreements with MPC are generally comparable to those with unrelated parties.

Related Party Transactions

Sales to related parties were as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2014		2013		2014		2013
MPC	$	108.1	$	97.3	$	221.9	$	186.4

Related party sales to MPC consist of crude oil and product pipeline transportation services based on regulated tariff rates and storage services based on contracted rates. Related party sales to MPC also consist of revenue related to volume deficiency credits.

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The fees received for operating pipelines for related parties included in other income-related parties on the consolidated statements of income were as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2014		2013		2014		2013
MPC	$	5.7	$	4.9	$	10.5	$	8.2
Centennial	0.2		0.2		0.5		0.5
Muskegon	0.1		0.1		0.1		0.1
Total	$	6.0	$	5.2	$	11.1	$	8.8

MPC provides executive management services and certain general and administrative services to us under terms of the omnibus agreement. Charges for services included in purchases from related parties primarily relate to services that support our operations and maintenance activities, as well as compensation expenses. These charges were as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2014		2013		2014		2013
MPC	$	6.1	$	4.8	$	12.1	$	9.1

Charges for services included in general and administrative expenses primarily relate to services that support our executive management, accounting and human resources activities. These charges were as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2014		2013		2014		2013
MPC	$	7.6	$	8.1	$	15.3	$	15.8

In addition, some service costs related to engineering services are associated with assets under construction. These costs added to property, plant and equipment were as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2014		2013		2014		2013
MPC	$	1.4	$	1.8	$	2.2	$	3.5

MPLX contracts employee services from MPC under employee services agreements. Expenses incurred under these agreements are shown in the table below by the income statement line where they were recorded. The costs of personnel directly involved in or supporting operations and maintenance activities are classified as purchases from related parties. The costs of personnel involved in executive management, accounting and human resources activities are classified as general and administrative expenses.

Employee services expenses from related parties were as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2014		2013		2014		2013
Purchases from related parties	$	17.6	$	19.0	$	35.6	$	36.5
General and administrative expenses	5.4		4.4		11.0		8.5
Total	$	23.0	$	23.4	$	46.6	$	45.0

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Receivables from related parties were as follows:



(In millions)	June 30, 2014		December 31, 2013
MPC	$	45.0	$	47.4
Centennial	0.3		0.6
Muskegon	0.1		0.3
Total	$	45.4	$	48.3

Prepaid assets with related parties included in other current assets on the consolidated balance sheets were as follows:



(In millions)	June 30, 2014		December 31, 2013
MPC	$	—	$	0.4

Long-term receivables related to indemnifications provided by MPC, included in other noncurrent assets on the consolidated balance sheets, were as follows:



(In millions)	June 30, 2014		December 31, 2013
MPC	$	—	$	0.2

Payables to related parties were as follows:



(In millions)	June 30, 2014		December 31, 2013
MPC	$	17.1	$	12.8

Under our transportation services agreements, if MPC fails to transport its minimum throughput volumes during any quarter, then MPC will pay us a deficiency payment equal to the volume of the deficiency multiplied by the tariff rate then in effect. The deficiency amounts are recorded as deferred revenue-related parties. MPC may then apply the amount of any such deficiency payments as a credit for volumes transported on the applicable pipeline system in excess of its minimum volume commitment during the following four or eight quarters under the terms of the applicable transportation services agreement. We recognize revenues for the deficiency payments when credits are used for volumes transported in excess of minimum quarterly volume commitments, when it becomes impossible to physically transport volumes necessary to utilize the credits or upon the expiration of the applicable four or eight quarter period. The use or expiration of the credits is a decrease in deferred revenue-related parties.

During the six months ended June 30, 2014 and 2013, MPC did not ship its minimum committed volumes on certain of our pipeline systems. The resulting deficiencies were related to transportation services agreements which have four quarter make-up periods. In addition, capital projects we are undertaking at the request of MPC are reimbursed in cash and recognized in income over the remaining term of the applicable transportation services agreements. The deferred revenue-related parties balance associated with the minimum volume deficiencies and project reimbursements were as follows:



(In millions)	June 30, 2014		December 31, 2013
Minimum volume deficiencies - MPC	$	29.7	$	34.0
Project reimbursements - MPC	4.8		—
Total	$	34.5	$	34.0

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5. Net Income Per Limited Partner Unit

Net income per unit applicable to common limited partner units and to subordinated limited partner units is computed by dividing the respective limited partners’ interest in net income attributable to MPLX LP by the weighted average number of common units and subordinated units outstanding. Because we have more than one class of participating securities, we use the two-class method when calculating the net income per unit applicable to limited partners. The classes of participating securities include common units, subordinated units, general partner units, certain equity-based compensation awards and incentive distribution rights.



	Three Months Ended June 30,					Six Months Ended June 30,
(In millions)	2014		2013			2014		2013
Net income attributable to MPLX LP	$	28.8	$	18.6		$	63.0	$	36.2
Less: General partner's distributions declared (including IDRs) ⁽¹⁾	1.1		0.4			1.9		0.8
Limited partners’ distributions declared on common units ⁽¹⁾	12.7		10.5			24.8		20.6
Limited partner's distributions declared on subordinated units ⁽¹⁾	12.7		10.6			24.8		20.6
Distributions less than (in excess of) net income attributable to MPLX LP	$	2.3	$	(2.9	)	$	11.5	$	(5.8	)


⁽¹⁾	See Note 6.



	Three Months Ended June 30, 2014
(In millions, except per unit data)	General Partner		Limited Partners' Common Units		Limited Partner's Subordinated Units		Total
Basic and diluted net income attributable to MPLX LP per unit:
Net income attributable to MPLX LP:
Distributions declared (including IDRs)	$	1.1	$	12.7	$	12.7	$	26.5
Distributions less than net income attributable to MPLX LP	0.6		0.9		0.8		2.3
Net income attributable to MPLX LP	$	1.7	$	13.6	$	13.5	$	28.8
Weighted average units outstanding:
Basic	1.4		37.0		37.0		75.4
Diluted	1.4		37.1		37.0		75.5
Net income attributable to MPLX LP per limited partner unit:
Basic			$	0.37	$	0.37
Diluted			$	0.37	$	0.37

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	Three Months Ended June 30, 2013
(In millions, except per unit data)	General Partner			Limited Partners' Common Units			Limited Partner's Subordinated Units			Total
Basic and diluted net income attributable to MPLX LP per unit:
Net income attributable to MPLX LP:
Distributions declared	$	0.4		$	10.5		$	10.6		$	21.5
Distributions in excess of net income attributable to MPLX LP	(0.1		)	(0.7		)	(2.1		)	(2.9		)
Net income attributable to MPLX LP	$	0.3		$	9.8		$	8.5		$	18.6
Weighted average units outstanding:
Basic	1.4			37.0			37.0			75.4
Diluted	1.4			37.0			37.0			75.4
Net income attributable to MPLX LP per limited partner unit:
Basic				$	0.26		$	0.23
Diluted				$	0.26		$	0.23



	Six Months Ended June 30, 2014
(In millions, except per unit data)	General Partner		Limited Partners' Common Units		Limited Partner's Subordinated Units		Total
Basic and diluted net income attributable to MPLX LP per unit:
Net income attributable to MPLX LP:
Distributions declared	$	1.9	$	24.8	$	24.8	$	51.5
Distributions less than net income attributable to MPLX LP	2.9		4.3		4.3		11.5
Net income attributable to MPLX LP	$	4.8	$	29.1	$	29.1	$	63.0
Weighted average units outstanding:
Basic	1.4		37.0		37.0		75.4
Diluted	1.4		37.1		37.0		75.5
Net income attributable to MPLX LP per limited partner unit:
Basic			$	0.79	$	0.79
Diluted			$	0.79	$	0.79



	Six Months Ended June 30, 2013
(In millions, except per unit data)	General Partner			Limited Partners' Common Units			Limited Partner's Subordinated Units			Total
Basic and diluted net income attributable to MPLX LP per unit:
Net income attributable to MPLX LP:
Distributions declared	$	0.8		$	20.6		$	20.6		$	42.0
Distributions in excess of net income attributable to MPLX LP	(0.1		)	(1.2		)	(4.5		)	(5.8		)
Net income attributable to MPLX LP	$	0.7		$	19.4		$	16.1		$	36.2
Weighted average units outstanding:
Basic	1.4			37.0			37.0			75.4
Diluted	1.4			37.0			37.0			75.4
Net income attributable to MPLX LP per limited partner unit:
Basic				$	0.53		$	0.44
Diluted				$	0.52		$	0.44

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6. Equity

Units Outstanding - We had 36,966,994 common units outstanding as of June 30, 2014. Of that number, 17,056,515 were owned by MPC, which also owned 36,951,515 subordinated units and the 2.0 percent general partner interest, represented by 1,508,541 general partner units.

The changes in the number of units outstanding from December 31, 2013 through June 30, 2014 are summarized below:



(In units)	Common	Subordinated	General Partner	Total
Balance at December 31, 2013	36,951,515	36,951,515	1,508,225	75,411,255
Issuance of units	—	—	316	316
Unit-based compensation awards	15,479	—	—	15,479
Balance at June 30, 2014	36,966,994	36,951,515	1,508,541	75,427,050

Issuance of Additional Securities - Our partnership agreement authorizes us to issue an unlimited number of additional partnership securities for the consideration and on the terms and conditions determined by our general partner without the approval of the unitholders.

Net Income Allocation - The following table presents the allocation of the general partner’s interest in net income attributable to MPLX LP:



	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2014		2013		2014		2013
Net income attributable to MPLX LP	$	28.8	$	18.6	$	63.0	$	36.2
Less: General partner's incentive distribution rights	0.6		—		0.9		—
Net income attributable to MPLX LP available to general and limited partners	$	28.2	$	18.6	$	62.1	$	36.2

General partner's 2.0% interest in net income attributable to MPLX LP	$	0.6	$	0.3	$	1.3	$	0.7
General partner's incentive distribution rights	0.6		—		0.9		—
General partner's interest in net income attributable to MPLX LP	$	1.2	$	0.3	$	2.2	$	0.7

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Cash distributions - Our partnership agreement sets forth the calculation to be used to determine the amount and priority of cash distributions that the common and subordinated unitholders and general partner will receive. In accordance with our partnership agreement, on July 22, 2014, we declared a quarterly cash distribution of $0.3425 per unit, totaling $26.5 million. This distribution will be paid on August 14, 2014 to unitholders of record on August 4, 2014.

The allocation of total quarterly cash distributions to general and limited partners is as follows for the three and six months ended June 30, 2014 and 2013. Our distributions are declared subsequent to quarter end; therefore, the following table represents total cash distributions applicable to the period in which the distributions were earned.



	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2014		2013		2014		2013
General partner's distributions:
General partner's distributions	$	0.5	$	0.4	$	1.0	$	0.8
General partner's incentive distribution rights	0.6		—		0.9		—
Total general partner's distributions	$	1.1	$	0.4	$	1.9	$	0.8
Limited partners' distributions:
Common unitholders	$	12.7	$	10.5	$	24.8	$	20.6
Subordinated unitholders	12.7		10.6		24.8		20.6
Total limited partners' distributions	25.4		21.1		49.6		41.2
Total cash distributions declared	$	26.5	$	21.5	$	51.5	$	42.0

7. Other Items

Net interest and other financial costs were:



	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2014			2013			2014			2013
Interest income	$	—		$	(0.1	)	$	—		$	(0.3	)
Interest expense	1.3			0.3			1.9			0.6
Interest capitalized	(0.3		)	(0.2		)	(0.5		)	(0.4		)
Other financial costs	0.3			0.3			0.5			0.6
Net interest and other financial costs	$	1.3		$	0.3		$	1.9		$	0.5

8. Income Taxes

We are not a taxable entity for United States federal income tax purposes or for the majority of states that impose an income tax. Taxes on our net income generally are borne by our partners through the allocation of taxable income. Our income tax provision results from partnership activity in the states of Kentucky, Tennessee and Texas.

Our income tax provision was $0.1 million for the three months ended June 30, 2014 and 2013 and $0.1 million for the six months ended June 30, 2014 and 2013. Our effective tax rate was 0.2 percent and 0.3 percent for the three months ended June 30, 2014 and 2013 and 0.1 percent for the six months ended June 30, 2014 and 2013.

As of June 30, 2014 and December 31, 2013, we had unrecognized tax benefits of less than $0.1 million.

9. Property, Plant and Equipment

Our investment in property, plant and equipment with associated accumulated depreciation was:



(In millions)	June 30, 2014		December 31, 2013
Land	$	5.3	$	5.3
Pipelines and related assets	1,062.7		1,060.7
Storage and delivery facilities	165.0		165.7
Other	23.6		22.8
Assets under construction	31.2		21.9
Total	1,287.8		1,276.4
Less accumulated depreciation	332.0		309.8
Property, plant and equipment, net	$	955.8	$	966.6

10. Fair Value Measurements

Fair Values—Recurring

There were no assets accounted for at fair value on a recurring basis at June 30, 2014 and December 31, 2013.

Fair Values—Reported

Our primary financial instruments are trade receivables and payables. We believe the carrying values of our current assets and liabilities approximate fair value. Our fair value assessment incorporates a variety of considerations, including (1) the short-term duration of the instruments, (2) MPC’s investment-grade credit rating and (3) our historical incurrence of and expected future insignificance of bad debt expense, which includes an evaluation of counterparty credit risk. Fair value of our variable-rate long-term debt approximates the carrying value. The following table summarizes the fair value and carrying value of our long-term debt, excluding capital leases, at June 30, 2014 and December 31, 2013.



	June 30, 2014				December 31, 2013
(In millions)	Fair Value		Carrying Value		Fair Value		Carrying Value
Long-term debt	$	255.3	$	255.0	$	—	$	—

11. Debt

Our outstanding borrowings at June 30, 2014 and December 31, 2013 consisted of the following:



(In millions)	June 30, 2014		December 31, 2013
MPLX Operations - bank revolving credit agreement due 2017	$	255.0	$	—
MPL - capital lease obligations due 2020	10.2		10.5
Total	265.2		10.5
Amounts due within one year	0.8		0.7
Total long-term debt due after one year	$	264.4	$	9.8

On March 31, 2014, Pipe Line Holdings entered into a credit agreement with MPL Investment LLC, a subsidiary of MPC. As of June 30, 2014, there were no borrowings outstanding under this facility. A description of this agreement is discussed in detail in Note 4.

During the six months ended June 30, 2014, we borrowed $270.0 million under our bank revolving credit agreement, at an average interest rate of 1.5 percent, per annum, and had repayments of $15.0 million. The borrowing was used to fund our acquisition of the additional interest in Pipe Line Holdings. At June 30, 2014, we had $255.0 million of borrowings and no letters of credit outstanding under the bank revolving credit agreement, resulting in a total unused revolving credit availability of $245.0 million, or 49.0 percent of the borrowing capacity. The bank revolving credit agreement is scheduled to mature on October 31, 2017.

12. Supplemental Cash Flow Information



	Six Months Ended June 30,
(In millions)	2014		2013
Net cash provided by operating activities included:
Interest paid (net of amounts capitalized)	$	0.9	$	—
Non-cash investing and financing activities:
Net transfers of property, plant and equipment to materials and supplies inventories	$	0.4	$	3.4
Property, plant and equipment contributed by MPC	0.1		—

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:



	Six Months Ended June 30,
(In millions)	2014		2013
Additions to property, plant and equipment	$	13.2	$	40.8
Plus: Increase in capital accruals	0.5		4.2
Asset retirement expenditures	0.9		1.6
Total capital expenditures	$	14.6	$	46.6

13. Equity-Based Compensation Plan

Phantom Units—The following is a summary of phantom unit award activity of MPLX LP common limited partner units for the six months ended June 30, 2014:



	Number of Units		Weighted Average Fair Value
Outstanding at December 31, 2013	77,754		$	33.84
Granted	47,289		48.32
Issued	(27,360	)	34.45
Outstanding at June 30, 2014	97,683		40.68

Performance Units—The performance units paying out in units are accounted for as equity awards and had a weighted-average grant date fair value per unit of $1.15 for 2014, as calculated using a Monte Carlo valuation model.

The following is a summary of the equity-classified performance unit award activity of MPLX LP common limited partner units for the six months ended June 30, 2014:



	Number of Units
Outstanding at December 31, 2013	436,917
Granted	500,507
Outstanding at June 30, 2014	937,424

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14. Commitments and Contingencies

We are the subject of, or a party to, a number of pending or threatened legal actions, contingencies and commitments involving a variety of matters, including laws and regulations relating to the environment. Some of these matters are discussed below. For matters for which we have not recorded an accrued liability, we are unable to estimate a range of possible losses for the reasons discussed in more detail below. However, the ultimate resolution of some of these contingencies could, individually or in the aggregate, be material.

Environmental matters—We are subject to federal, state and local laws and regulations relating to the environment. These laws generally provide for control of pollutants released into the environment and require responsible parties to undertake remediation of hazardous waste disposal sites. Penalties may be imposed for noncompliance.

At June 30, 2014 and December 31, 2013, accrued liabilities for remediation totaled $2.6 million and $1.1 million, respectively. At June 30, 2014 and December 31, 2013, it is reasonably possible that an estimated loss existed of up to $0.4 million in excess of the amount accrued for remediation. However, it is not presently possible to estimate the ultimate amount of all remediation costs that might be incurred or penalties, if any, which may be imposed. Receivables from MPC for indemnification of environmental costs related to incidents occurring prior to the Offering were $0.2 million and $0.3 million at June 30, 2014 and December 31, 2013, respectively.

Legal Proceedings—In 2003, the State of Illinois brought an action against the Premcor Refining Group, Inc. (“Premcor”) and Apex Refining Company (“Apex”) asserting claims for environmental cleanup related to the refinery owned by these entities in the Hartford/Wood River, Illinois area. In 2006, Premcor and Apex filed third-party complaints against numerous owners and operators of petroleum products facilities in the Hartford/Wood River, Illinois area, including MPL. These complaints, which have been amended since filing, assert claims of common law nuisance and contribution under the Illinois Contribution Act and other laws for environmental cleanup costs that may be imposed on Premcor and Apex by the State of Illinois. There are several third-party defendants in the litigation and MPL has asserted cross-claims in contribution against the various third-party defendants. This litigation is currently pending in the Third Judicial Circuit Court, Madison County, Illinois. While the ultimate outcome of these litigated matters remains uncertain, neither the likelihood of an unfavorable outcome nor the ultimate liability, if any, with respect to this matter can be determined at this time and we are unable to estimate a reasonably possible loss (or range of loss) for this litigation. Under our omnibus agreement, MPC will indemnify us for the full cost of any losses should MPL be deemed responsible for any damages in this lawsuit.

Guarantees—We have entered into guarantees with maximum potential undiscounted payments totaling $1.6 million as of June 30, 2014, which consist of leases of vehicles extending through 2019 that contain general lease indemnities and guaranteed residual values.

Over the years, we have sold various assets in the normal course of our business. Certain of the related agreements contain performance and general guarantees, including guarantees regarding inaccuracies in representations, warranties, covenants and agreements, and environmental and general indemnifications that require us to perform upon the occurrence of a triggering event or condition. These guarantees and indemnifications are part of the normal course of selling assets. We are typically not able to calculate the maximum potential amount of future payments that could be made under such contractual provisions because of the variability inherent in the guarantees and indemnities. Most often, the nature of the guarantees and indemnities is such that there is no appropriate method for quantifying the exposure because the underlying triggering event has little or no past experience upon which a reasonable prediction of the outcome can be based.

Contractual commitments—At June 30, 2014, our contractual commitments to acquire property, plant and equipment totaled $18.5 million. Our contractual commitments at June 30, 2014 were primarily related to a multi-year SCADA (supervisory control and data acquisition) system upgrade and other pipeline related projects.

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15. Condensed Consolidating Financial Statements

For purposes of the following footnote, MPLX LP is referred to as "Parent Guarantor" and MPLX Operations is referred to as "Subsidiary Issuer." All other consolidated subsidiaries of the Partnership are collectively referred to as "Non-Guarantor Subsidiaries." The condensed consolidating financial information is provided in connection with the potential issuance of debt securities by the Subsidiary Issuer, which are anticipated to be fully and unconditionally guaranteed by the Parent Guarantor.

The following condensed consolidating financial information reflects the Partnership’s stand-alone accounts, the accounts of the Subsidiary Issuer, the combined accounts of the Non-Guarantor Subsidiaries, consolidating adjustments and the Partnership’s consolidated financial information. The condensed consolidating financial information should be read in conjunction with the Partnership’s accompanying consolidated financial statements and related notes. The Parent Guarantor's and the Subsidiary Issuer’s investment in and equity income from their consolidated subsidiaries are presented in accordance with the equity method of accounting in which the equity income from consolidated subsidiaries includes the results of operations of the Partnership assets.



Consolidating Statements of Income

	Three Months Ended June 30, 2014
(In millions)	Parent Guarantor		Subsidiary Issuer		Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Revenues and other income:
Sales and other operating revenues	$	—	$	—	$	18.7		$	—		$	18.7
Sales to related parties	—		—		108.1			—			108.1
Other income	—		—		1.1			—			1.1
Other income - related parties	—		—		6.0			—			6.0
Equity in earnings of subsidiaries	30.9		32.7		—			(63.6		)	—
Total revenues and other income	30.9		32.7		133.9			(63.6		)	133.9
Costs and expenses:
Cost of revenues (excludes items below)	—		—		35.7			—			35.7
Purchases from related parties	—		—		23.7			—			23.7
Depreciation	—		—		12.4			—			12.4
General and administrative expenses	2.1		—		13.8			—			15.9
Other taxes	—		—		1.9			—			1.9
Total costs and expenses	2.1		—		87.5			—			89.6
Income from operations	28.8		32.7		46.4			(63.6		)	44.3
Net interest and other financial costs (income)	—		1.8		(0.5		)	—			1.3
Income before income taxes	28.8		30.9		46.9			(63.6		)	43.0
Provision for income taxes	—		—		0.1			—			0.1
Net income	28.8		30.9		46.8			(63.6		)	42.9
Less: Net income attributable to MPC-retained interest	—		—		—			14.1			14.1
Net income attributable to MPLX LP	$	28.8	$	30.9	$	46.8		$	(77.7	)	$	28.8

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Consolidating Statements of Income

	Three Months Ended June 30, 2013
(In millions)	Parent Guarantor		Subsidiary Issuer		Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Revenues and other income:
Sales and other operating revenues	$	—	$	—	$	18.8		$	—		$	18.8
Sales to related parties	—		—		97.3			—			97.3
Other income	—		—		0.9			—			0.9
Other income - related parties	—		—		5.2			—			5.2
Equity in earnings of subsidiaries	19.6		20.2		—			(39.8		)	—
Total revenues and other income	19.6		20.2		122.2			(39.8		)	122.2
Costs and expenses:
Cost of revenues (excludes items below)	—		—		35.6			—			35.6
Purchases from related parties	—		—		23.8			—			23.8
Depreciation	—		—		11.9			—			11.9
General and administrative expenses	1.0		—		12.9			—			13.9
Other taxes	—		—		1.8			—			1.8
Total costs and expenses	1.0		—		86.0			—			87.0
Income from operations	18.6		20.2		36.2			(39.8		)	35.2
Net interest and other financial costs (income)	—		0.6		(0.3		)	—			0.3
Income before income taxes	18.6		19.6		36.5			(39.8		)	34.9
Provision for income taxes	—		—		0.1			—			0.1
Net income	18.6		19.6		36.4			(39.8		)	34.8
Less: Net income attributable to MPC-retained interest	—		—		—			16.2			16.2
Net income attributable to MPLX LP	$	18.6	$	19.6	$	36.4		$	(56.0	)	$	18.6

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Consolidating Statements of Income

	Six Months Ended June 30, 2014
(In millions)	Parent Guarantor		Subsidiary Issuer		Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Revenues and other income:
Sales and other operating revenues	$	—	$	—	$	35.6		$	—		$	35.6
Sales to related parties	—		—		221.9			—			221.9
Other income	—		—		2.6			—			2.6
Other income - related parties	—		—		11.1			—			11.1
Equity in earnings of subsidiaries	66.8		69.6		—			(136.4		)	—
Total revenues and other income	66.8		69.6		271.2			(136.4		)	271.2
Costs and expenses:
Cost of revenues (excludes items below)	—		—		62.3			—			62.3
Purchases from related parties	—		—		47.7			—			47.7
Depreciation	—		—		25.0			—			25.0
General and administrative expenses	3.8		—		28.0			—			31.8
Other taxes	—		—		3.8			—			3.8
Total costs and expenses	3.8		—		166.8			—			170.6
Income from operations	63.0		69.6		104.4			(136.4		)	100.6
Net interest and other financial costs (income)	—		2.8		(0.9		)	—			1.9
Income before income taxes	63.0		66.8		105.3			(136.4		)	98.7
Provision for income taxes	—		—		0.1			—			0.1
Net income	63.0		66.8		105.2			(136.4		)	98.6
Less: Net income attributable to MPC-retained interest	—		—		—			35.6			35.6
Net income attributable to MPLX LP	$	63.0	$	66.8	$	105.2		$	(172.0	)	$	63.0

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Consolidating Statements of Income

	Six Months Ended June 30, 2013
(In millions)	Parent Guarantor		Subsidiary Issuer		Non-Guarantor Subsidiaries		Consolidating Adjustments		Total
Revenues and other income:
Sales and other operating revenues	$	—	$	—	$	39.6	$	—	$	39.6
Sales to related parties	—		—		186.4		—		186.4
Other income	—		—		2.1		—		2.1
Other income - related parties	—		—		8.8		—		8.8