MPLX LP
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Set forth below are the unaudited pro forma consolidated statements of income for each of the years in the two-year period ended December 31, 2016 and the unaudited pro forma consolidated balance sheet as of December 31, 2016, together with the notes to the unaudited pro forma consolidated financial statements, of MPLX LP, that give effect to the acquisitions of Hardin Street Transportation LLC and Woodhaven Cavern LLC (collectively, "HST") and MPLX Terminals LLC ("MPLXT"). The unaudited pro forma consolidated financial statements have been prepared based on the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016 with certain pro forma adjustments made to those financial statements as further discussed below. The pro forma consolidated financial statements should be read in conjunction with such historical consolidated financial statements, including the related financial statement notes. Unless otherwise stated or the context otherwise indicates, all references to “MPLX”, “the Partnership”, “we”, “our”, “us”, or similar expressions refer to MPLX LP, including its consolidated subsidiaries. References to "MPC", refer to Marathon Petroleum Corporation and its subsidiaries, other than the Partnership.
MPC contributed the assets of HST and MPLXT to newly created and wholly-owned subsidiaries and entered into commercial agreements related to services provided by these new entities to MPC on January 1, 2015 and April 1, 2016, respectively (the "Acquired Businesses"). Prior to these dates, these entities were not considered businesses. Pursuant to a Membership Interests Contributions Agreement entered into on March 1, 2017 (the "Contributions Agreement"), MPC contributed certain terminal, pipeline and storage assets, held by the the Acquired Businesses, to the Partnership for total consideration valued at $2,015 million (the "Acquisition"). MPC is contributing these assets in exchange for the issuance of $504 million in MPLX equity (the "Equity Consideration") and $1,511 million in cash. The Equity Consideration consisted of (i) 12,832,060 common units representing limited partner interests in the Partnership ("Common Units") and (ii) 261,879 general partner units to our general partner to maintain is two percent general partner interest in the Partnership. The final total consideration may differ immaterially from the Contributions Agreement as it is dependent on the March 1, 2017 MPLX common unit price. In connection with the Acquisition, the Partnership and its subsidiaries assumed various agreements with MPC contemplated by the Contributions Agreement, which provide for, among other items, the Partnership's reimbursement of MPC for the provision of certain general and administrative services.
HST owns and operates various private crude oil and refined product pipeline systems and associated storage tanks. These pipeline systems consist of 174 miles of crude oil pipelines and 430 miles of refined products pipelines while the associated 73 tanks have approximately 7.8 million barrels of storage capacity. Additionally, HST owns and operates 9 butane and propane storage caverns located in Michigan with approximately 1.8 million barrels of natural gas liquids storage capacity.
MPLXT owns and operates 59 terminals for the receipt, storage, blending, additization, handling and redelivery of refined petroleum products. Additionally, MPLXT operates one leased terminal and has partial ownership interests in two terminals. Collectively, these 62 terminals have a combined total shell capacity of approximately 23.6 million barrels. The terminal facilities are located primarily in the Midwest, Gulf Coast and Southeast regions of the United States.
The assets of HST and MPLXT are recorded at historical cost as the Acquisition is among entities under common control. The pro forma adjustments are based on currently available information and certain estimates and assumptions; therefore, actual results may differ from the pro forma amounts. However, management believes the assumptions are reasonable for presenting the significant effects of the Acquisition and that the pro forma adjustments give appropriate effect to those assumptions, are factually supportable and are properly applied in the unaudited pro forma consolidated financial statements.
The unaudited pro forma consolidated balance sheet as of December 31, 2016 has been prepared to give effect to the Acquisition as if it had occurred on December 31, 2016. The unaudited pro forma consolidated statements of income for the two-year period ended December 31, 2016, have been prepared to give effect to the acquisition of HST and MPLXT as if it had occurred on January 1, 2015 and April 1, 2016, respectively, as these entities were not considered businesses prior to these dates. For the purposes of these unaudited pro forma consolidated financial statements, the total consideration described above is based on a 10-day average of the MPLX common unit price from February 8, 2017 through the close of trading on February 22, 2017. On December 4, 2015, MarkWest Energy Partners, L.P. ("MWE") merged with a wholly-owned subsidiary of MPLX (the "MarkWest Merger"). The operating results of MWE for the period of December 4, 2015 through December 31, 2015, are included in the MPLX LP historical consolidated statement of income for the year ended December 31, 2015. The unaudited pro forma consolidated statement of income for the year ended December 31, 2015 has been prepared to reflect the MarkWest Merger as of January 1, 2015.
MPLX LP
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2016
|
| | | | | | | | | | | | | | | | | | | |
| (In millions, except per unit data) | MPLX LP Historical (1) | | HST Historical (Note 5) | | MPLXT Historical (Note 6) | | HST/MPLXT Pro Forma Adjustments | | MPLX LP Pro Forma |
| Revenues and other income: | | | | | | | | | |
| Service revenue | $ | 958 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 958 |
|
| Service revenue - related parties | 603 |
| | 118 |
| | 220 |
| | (4 | ) | (z) | 937 |
|
| Rental income | 298 |
| | — |
| | — |
| | — |
| | 298 |
|
| Rental income - related parties | 114 |
| | 50 |
| | 77 |
| | (6 | ) | (z) | 235 |
|
| Product sales | 572 |
| | — |
| | — |
| | — |
| | 572 |
|
| Product sales - related parties | 11 |
| | — |
| | — |
| | — |
| | 11 |
|
| Gain on sale of assets | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
| (Loss) income from equity method investments | (74 | ) | | — |
| | — |
| | — |
| | (74 | ) |
| Other income | 6 |
| | — |
| | — |
| | — |
| | 6 |
|
| Other income - related parties | 101 |
| | — |
| | — |
| | (14 | ) | (y) | 87 |
|
| Total revenues and other income | 2,590 |
| | 168 |
| | 297 |
| | (24 | ) | | 3,031 |
|
| Costs and expenses: | | | | | | | | | |
| Cost of revenues (excludes items below) | 354 |
| | 39 |
| | 63 |
| | (2 | ) | (z) | 454 |
|
| Purchased product costs | 448 |
| | — |
| | — |
| | — |
| | 448 |
|
| Rental cost of sales | 53 |
| | 4 |
| | — |
| | — |
| | 57 |
|
| Rental cost of sales - related parties | — |
| | 2 |
| | — |
| | (3 | ) | (y)(z) | (1 | ) |
| Purchases - related parties | 316 |
| | 21 |
| | 69 |
| | (13 | ) | (y) | 393 |
|
| Depreciation and amortization | 546 |
| | 16 |
| | 29 |
| | (1 | ) | (z) | 590 |
|
| Impairment expense | 130 |
| | — |
| | — |
| | — |
| | 130 |
|
| General and administrative expenses | 193 |
| | 7 |
| | 27 |
| | — |
| | 227 |
|
| Other taxes | 43 |
| | 3 |
| | 4 |
| | — |
| | 50 |
|
| Total costs and expenses | 2,083 |
| | 92 |
| | 192 |
| | (19 | ) | | 2,348 |
|
| Income from operations | 507 |
| | 76 |
| | 105 |
| | (5 | ) | | 683 |
|
| Related party interest and other financial (income) costs | 1 |
| | (1 | ) | | 1 |
| | — |
| | 1 |
|
| Interest expense | 210 |
| | — |
| | — |
| | 104 |
| (w) | 314 |
|
| Other financial costs | 50 |
| | — |
| | — |
| | 1 |
| (w) | 51 |
|
| Income (loss) before income taxes | 246 |
| | 77 |
| | 104 |
| | (110 | ) | | 317 |
|
| (Benefit) provision for income taxes | (12 | ) | | — |
| | — |
| | 1 |
| (p) | (11 | ) |
| Net income (loss) | 258 |
| | 77 |
| | 104 |
| | (111 | ) | | 328 |
|
| Less: Net income attributable to noncontrolling interests | 2 |
| | — |
| | — |
| | — |
| | 2 |
|
| Less: Net income attributable to Predecessor | 23 |
| | — |
| | — |
| | — |
| | 23 |
|
| Net income attributable to MPLX LP | 233 |
| | 77 |
| | 104 |
| | (111 | ) | | 303 |
|
| Less: Preferred unit distributions | 41 |
| | | | | | — |
| | 41 |
|
| Less: General partner’s interest in net income attributable to MPLX LP | 191 |
| | | | | | 8 |
| (q) | 199 |
|
| Limited partners’ interest in net income (loss) attributable to MPLX LP | $ | 1 |
| | | | | | $ | (15 | ) | | $ | 63 |
|
| Per Unit Data (Note 3) | | | | | | | | | |
| Net income attributable to MPLX LP per limited partner unit: | | | | | | | | | |
| Common - basic | $ | — |
| | | | | | | | $ | 0.18 |
|
| Common - diluted | — |
| | | | | | | | 0.18 |
|
| Weighted average limited partner units outstanding: | | | | | | | | | |
| Common - basic | 331 |
| | | | | | 11 |
| | 342 |
|
| Common - diluted | 338 |
| | | | | | 11 |
| | 349 |
|
(1) Financial information has been retrospectively adjusted for the acquisition of Hardin Street Marine LLC from MPC.
See Notes to the Unaudited Pro Forma Consolidated Financial Statements.
MPLX LP
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2015
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (In millions, except per unit data) | MPLX LP Historical (1) | | MWE Historical (Note 4) | | MWE Pro Forma Adjustments | | HST Historical (Note 5) | | HST Pro Forma Adjustments | | MPLX LP Pro Forma |
| Revenues and other income: | | | | | | | | | | | |
| Service revenue | $ | 130 |
| | $ | 880 |
| | $ | (8 | ) | (a) | $ | — |
| | $ | — |
| | $ | 1,002 |
|
| Service revenue - related parties | 593 |
| | — |
| | — |
| | 112 |
| | (4 | ) | (z) | 701 |
|
| Rental income | 20 |
| | 251 |
| | (3 | ) | (a) | — |
| | — |
| | 268 |
|
| Rental income - related parties | 101 |
| | — |
| | — |
| | 46 |
| | (1 | ) | (z) | 146 |
|
| Product sales | 36 |
| | 597 |
| | (7 | ) | (b) | — |
| | — |
| | 626 |
|
| Product sales - related parties | 1 |
| | — |
| | 7 |
| (b) | — |
| | — |
| | 8 |
|
| Income from equity method investments | 3 |
| | 12 |
| | (7 | ) | (c)(d) | — |
| | — |
| | 8 |
|
| Other income | 6 |
| | (6 | ) | | — |
| | — |
| | — |
| | — |
|
| Other income - related parties | 71 |
| | — |
| | — |
| | — |
| | (14 | ) | (y) | 57 |
|
| Total revenues and other income | 961 |
| | 1,734 |
| | (18 | ) | | 158 |
| | (19 | ) | | 2,816 |
|
| Costs and expenses: | | | | | | | | | | | |
| Cost of revenues (excludes items below) | 225 |
| | 298 |
| | — |
| | 26 |
| | (4 | ) | (z) | 545 |
|
| Purchased product costs | 20 |
| | 421 |
| | (7 | ) | (e) | — |
| | — |
| | 434 |
|
| Rental cost of sales | 5 |
| | 51 |
| | — |
| | 6 |
| | — |
| | 62 |
|
| Rental cost of sales - related parties | — |
| | — |
| | — |
| | 2 |
| | (3 | ) | (y)(z) | (1 | ) |
| Purchases - related parties | 166 |
| | — |
| | — |
| | 20 |
| | (13 | ) | (y) | 173 |
|
| Depreciation and amortization | 116 |
| | 521 |
| | (59 | ) | (f)(g) | 14 |
| | (1 | ) | (z) | 591 |
|
| Impairment expense | — |
| | 26 |
| | — |
| | — |
| | — |
| | 26 |
|
| General and administrative expenses | 118 |
| | 185 |
| | (92 | ) | (h)(i) | 7 |
| | — |
| | 218 |
|
| Other taxes | 13 |
| | — |
| | — |
| | 2 |
| | — |
| | 15 |
|
| Total costs and expenses | 663 |
| | 1,502 |
| | (158 | ) | | 77 |
| | (21 | ) | | 2,063 |
|
| Income from operations | 298 |
| | 232 |
| | 140 |
| | 81 |
| | 2 |
| | 753 |
|
| Debt retirement expense | — |
| | 118 |
| | — |
| (j) | — |
| | — |
| | 118 |
|
| Related party interest and other financial costs | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Interest expense | 35 |
| | 189 |
| | (1 | ) | (k) | — |
| | 104 |
| (w) | 327 |
|
| Other financial costs | 13 |
| | 6 |
| | 18 |
| (j)(l) | — |
| | 1 |
| (w) | 38 |
|
| Income (loss) before income taxes | 250 |
| | (81 | ) | | 123 |
| | 81 |
| | (103 | ) | | 270 |
|
| (Benefit) provision for income taxes | 1 |
| | (18 | ) | | 7 |
| (m) | — |
| | (1 | ) | (p) | (11 | ) |
| Net income (loss) | 249 |
| | (63 | ) | | 116 |
| | 81 |
| | (102 | ) | | 281 |
|
| Less: Net income attributable to noncontrolling interests | 1 |
| | (25 | ) | | (13 | ) | (n) | — |
| | — |
| | (37 | ) |
| Less: Net income attributable to Predecessor | 92 |
| | — |
| | — |
| | — |
| | — |
| | 92 |
|
| Net income (loss) attributable to MPLX LP | 156 |
| | (38 | ) | | 129 |
| | 81 |
| | (102 | ) | | 226 |
|
| Less: General partner’s interest in net income attributable to MPLX LP | 57 |
| | | | 43 |
| (o) | | | 4 |
| (q) | 104 |
|
| Limited partners’ interest in net income (loss) attributable to MPLX LP | $ | 99 |
| | | | $ | 48 |
| |
|
| | $ | (25 | ) | | $ | 122 |
|
| Per Unit Data (Note 3) | | | | | | | | | | | |
| Net income attributable to MPLX LP per limited partner unit: | | | | | | | | | | | |
| Common - basic | $ | 1.23 |
| | | | | | | | | | $ | 0.44 |
|
| Common - diluted | 1.22 |
| | | | | | | | | | 0.42 |
|
| Subordinated - basic and diluted | 0.11 |
| | | | | | | | | | — |
|
| Weighted average limited partner units outstanding: | | | | | | | | | | | |
| Common - basic | 79 |
| | | | 192 |
| | | | 5 |
| | 276 |
|
| Common - diluted | 80 |
| | | | 202 |
| | | | 5 |
| | 287 |
|
| Subordinated - basic and diluted | 18 |
| | | | — |
| | | | — |
| | 18 |
|
(1) Financial information has been retrospectively adjusted for the acquisition of Hardin Street Marine LLC from MPC.
See Notes to the Unaudited Pro Forma Consolidated Financial Statements.
MPLX LP
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2016
|
| | | | | | | | | | | | | | | | | | | |
| (In millions) | MPLX LP Historical | | HST Historical (Note 5) | | MPLXT Historical (Note 6) | | HST/MPLXT Pro Forma Adjustments | | MPLX LP Pro Forma |
| Assets | | | | | | | | | |
| Current assets: | | | | | | | | | |
| Cash and cash equivalents | $ | 234 |
| | $ | — |
| | $ | — |
| | $ | 709 |
| (w)(x) | $ | 943 |
|
| Receivables, net | 297 |
| | 1 |
| | 1 |
| | — |
| | 299 |
|
| Receivables - related parties | 122 |
| | 92 |
| | 38 |
| | (72 | ) | (r)(v)(y) | 180 |
|
| Inventories | 54 |
| | 1 |
| | — |
| | — |
| | 55 |
|
| Other current assets | 33 |
| | — |
| | — |
| | — |
| | 33 |
|
| Total current assets | 740 |
| | 94 |
| | 39 |
| | 637 |
| | 1,510 |
|
| Equity method investments | 2,467 |
| | — |
| | 4 |
| | — |
| | 2,471 |
|
| Property, plant and equipment, net | 10,730 |
| | 273 |
| | 413 |
| | (8 | ) | (t) | 11,408 |
|
| Intangibles, net | 492 |
| | — |
| | — |
| | — |
| | 492 |
|
| Goodwill | 2,199 |
| | 27 |
| | 21 |
| | (2 | ) | (t) | 2,245 |
|
| Long-term receivables - related parties | 4 |
| | — |
| | 7 |
| | — |
| | 11 |
|
| Other noncurrent assets | 14 |
| | — |
| | — |
| | — |
| | 14 |
|
| Total assets | $ | 16,646 |
| | $ | 394 |
| | $ | 484 |
| | $ | 627 |
| | $ | 18,151 |
|
| Liabilities | | | | | | | | | |
| Current liabilities: | | | | | | | | | |
| Accounts payable | $ | 123 |
| | $ | 5 |
| | $ | 12 |
| | $ | — |
| | $ | 140 |
|
| Accrued liabilities | 228 |
| | 4 |
| | — |
| | — |
| | 232 |
|
| Payables - related parties | 75 |
| | 5 |
| | 12 |
| | (4 | ) | (y) | 88 |
|
| Deferred revenue | 2 |
| | — |
| | — |
| | — |
| | 2 |
|
| Deferred revenue - related parties | 34 |
| | 4 |
| | — |
| | — |
| | 38 |
|
| Accrued property, plant and equipment | 132 |
| | 9 |
| | 5 |
| | — |
| | 146 |
|
| Accrued taxes | 33 |
| | 1 |
| | 3 |
| | — |
| | 37 |
|
| Accrued interest payable | 53 |
| | — |
| | — |
| | — |
| | 53 |
|
| Other current liabilities | 24 |
| | 1 |
| | 2 |
| | — |
| | 27 |
|
| Total current liabilities | 704 |
| | 29 |
| | 34 |
| | (4 | ) | | 763 |
|
| Long-term deferred revenue | 12 |
| | — |
| | — |
| | — |
| | 12 |
|
| Long-term deferred revenue - related parties | 15 |
| | — |
| | 4 |
| | — |
| | 19 |
|
| Long-term debt | 4,422 |
| | — |
| | — |
| | 2,220 |
| (w) | 6,642 |
|
| Deferred income taxes | 5 |
| | — |
| | 1 |
| | — |
| | 6 |
|
| Deferred credits and other liabilities | 169 |
| | 3 |
| | 6 |
| | — |
| | 178 |
|
| Total liabilities | 5,327 |
| | 32 |
| | 45 |
| | 2,216 |
| | 7,620 |
|
| Commitments and contingencies | | | | | | | | | |
| Redeemable preferred units | 1,000 |
| | — |
| | — |
| | — |
| | 1,000 |
|
| Equity | | | | | | | | | |
| Common unitholders - public | 8,086 |
| | — |
| | — |
| | — |
| | 8,086 |
|
| Class B unitholders | 133 |
| | — |
| | — |
| | — |
| | 133 |
|
| Common unitholder - MPC | 1,069 |
| | — |
| | — |
| | 143 |
| (s) | 1,212 |
|
| General partner - MPC | 1,013 |
| | — |
| | — |
| | (931 | ) | (r)(s)(t)(v) | 82 |
|
| Net investment | — |
| | 362 |
| | 439 |
| | (801 | ) | (u) | — |
|
| Total MPLX LP partners’ capital | 10,301 |
| | 362 |
| | 439 |
| | (1,589 | ) | | 9,513 |
|
| Noncontrolling interest | 18 |
| | — |
| | — |
| | — |
| | 18 |
|
| Total equity | 10,319 |
| | 362 |
| | 439 |
| | (1,589 | ) | | 9,531 |
|
| Total liabilities, preferred units and equity | $ | 16,646 |
| | $ | 394 |
| | $ | 484 |
| | $ | 627 |
| | $ | 18,151 |
|
See Notes to Unaudited Pro Forma Consolidated Financial Statements.
MPLX LP
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Except as noted within the context of each footnote, the dollar amounts presented in the tabular data within these footnotes are stated in millions of dollars.
1. Basis of Pro Forma Presentation
The accompanying unaudited pro forma consolidated financial information is intended to reflect the impact of the Acquisition on MPLX's consolidated financial statements and presents the pro forma consolidated financial position and results of operations of MPLX based on its historical financial statements and the financial statements of HST and MPLXT, incorporated by reference in this Current Report on Form 8-K, after giving effect to the Acquisition and pro forma adjustment as described in these notes. Given the MarkWest Merger was effective December 4, 2015, the unaudited pro forma consolidated financial statements also reflect the effect of that transaction as appropriate. Pro forma adjustments are included only to the extent they are (i) directly attributable to the Acquisition, (ii) factually supportable and, (iii) with respect to the unaudited pro forma consolidated statements of income, expected to have a continuing impact on the consolidated results. Certain items included in the historical consolidated financial statements of MPLX, MWE, HST and MPLXT were not adjusted for in these unaudited pro forma consolidated financial statements, as they were not directly related to the transaction, including (i) debt refinancing and other historical changes to the capital structures and (ii) acquisitions of additional interests in consolidated entities.
The unaudited pro forma consolidated balance sheet as of December 31, 2016 has been prepared to give effect to the Acquisition as if it had occurred on December 31, 2016. The unaudited pro forma consolidated statements of income for the two-year period ended December 31, 2016, have been prepared to give effect to the acquisition of HST and MPLXT as if it had occurred on January 1, 2015 and April 1, 2016, respectively, as these entities were not considered businesses prior to these dates. The unaudited pro forma consolidated statement of income for the year ended December 31, 2015 has been prepared to reflect MPLX's acquisition of MWE as if it had occurred on January 1, 2015, using the acquisition method of accounting.
2. Pro Forma Adjustments to the Unaudited Consolidated Financial Statements
Acquisition of MarkWest Energy Partners, L.P.
At the time of the MarkWest Merger on December 4, 2015, MWE had a 60% legal ownership interest in MarkWest Utica EMG, L.L.C. ("MarkWest Utica EMG"). MarkWest Utica EMG's inability to fund its planned activities without subordinated financial support qualify it as a variable interest entity. The financing structure for MarkWest Utica EMG at its inception resulted in a de-facto agent relationship under which MWE was deemed to be the primary beneficiary of MarkWest Utica EMG. Therefore, MWE consolidated MarkWest Utica EMG in its historical financial statements. In the fourth quarter of 2015, based on economic conditions and other pertinent factors, the accounting for its investment in MarkWest Utica EMG was re-assessed. As of December 4, 2015, the entity has been deconsolidated. For purposes of the unaudited pro forma consolidated statement of income for the year ended December 31, 2015, MarkWest Utica EMG has been consolidated for the period prior to December 4, 2015 consistent with its treatment in the historical period presented.
A summary of the amounts included in the historical financial statements of MWE for the period from January 1, 2015, through December 3, 2015, related to MarkWest Utica EMG are as follows:
|
| | | |
| | Period Ended December 3, 2015 |
| Revenues and other income | $ | 152 |
|
| Cost of revenues, excluding depreciation and amortization | 27 |
|
| Depreciation and amortization | 61 |
|
| Net income attributable to noncontrolling interests | 64 |
|
| Net income (loss) | (5 | ) |
EMG Utica, LLC ("EMG Utica"), our joint venture partner in MarkWest Utica EMG, received a special non-cash allocation of income of approximately $41 million for the period from January 1, 2015 through December 3, 2015. Net income of MWE would not have changed had MarkWest Utica EMG been deconsolidated for the period from January 1, 2015 through December 3, 2015.
| |
| (a) | Adjustment to reflect the write-off of MWE's deferred revenue as of January 1, 2015 and removal of the related recognition of this deferred revenue in 2015. This deferred revenue is associated with reimbursable projects that do not represent legal obligations and therefore have no fair value. The unaudited pro forma consolidated statement of income adjustment reflects a decrease in service revenue and rental income of $8 million and $3 million, respectively, for the year ended December 31, 2015. |
| |
| (b) | Adjustment to reflect the activity between MWE and MPC as related party transactions. The activity primarily consisted of MPC purchasing feedstock for its refineries from MWE. |
| |
| (c) | As of December 3, 2015, MWE owned a 55% ownership interest in MarkWest Utica EMG Condensate L.L.C. ("Utica Condensate"). In connection with the MarkWest Merger, MWE purchased the remaining 45% interest in Utica Condensate for $83 million. Utica Condensate's business is conducted solely through its 60% ownership of Ohio Condensate Company, L.L.C. ("Ohio Condensate"). The owner of the remaining 40% interest in Ohio Condensate has certain participatory rights and as a result Ohio Condensate has been and will continue to be accounted for as an equity method investment. The unaudited pro forma consolidated statement of income adjustment reflects an additional equity loss of approximately $2 million for the period from January 1, 2015 to December 3, 2015, to reflect MWE's increased ownership of Utica Condensate as a result of the above. |
| |
| (d) | Adjustment to decrease income from equity method investments by approximately $5 million for the year ended December 31, 2015, to reflect the amortization of portions of the $113 million incremental fair value adjustment to equity method investments that was allocated to definite lived assets. |
| |
| (e) | Adjustment of $7 million for the year ended December 31, 2015, to reflect the elimination of the unrealized loss associated with MWE's accounting for the inception value of an embedded derivative. |
| |
| (f) | Adjustment to reflect the net decrease in depreciation expense of $86 million for the year ended December 31, 2015, as a result of the MarkWest Merger. Although the step-up value of the assets generated additional depreciation expense, the useful lives of certain MWE asset classes were conformed to the lives for the same major asset classes per MPLX's accounting policy resulting in a decrease in depreciation expense. The fair value of the acquired property, plant and equipment is being depreciated over a remaining weighted average period of approximately 27 years in the unaudited pro forma consolidated statement of income. |
| |
| (g) | Adjustment to reflect the increase in amortization expense for the year ended December 31, 2015, related to the fair values of the intangibles acquired in the MarkWest Merger. Additionally, this adjustment reflects the amortization of the fair value of MarkWest Utica EMG's intangibles being reported as consolidated intangible assets for the period from January 1, 2015 through December 3, 2015. The fair values of the intangibles are being amortized over a remaining estimated useful life range between 11 and 25 years based on the utilization of the assets. The tables below reflect the change in amortization expense over the periods presented as a result of the MarkWest Merger. |
|
| | | | | |
| | Estimated Fair Value | | Useful Lives (in years) |
| Intangibles, net | $ | 1,306 |
| | 11-25 |
|
| | | |
| | Period Ended December 3, 2015 |
| Reversal of amortization recorded at MWE | $ | (61 | ) |
| Amortization expense based on new book value | 88 |
|
| Change in amortization expense of intangibles | $ | 27 |
|
| |
| (h) | Adjustment to reflect the elimination of approximately $90 million of acquisition-related costs and approximately $4 million of costs related to the exchange of MWE senior notes for the year ended December 31, 2015. |
| |
| (i) | Adjustment to increase general and administrative expenses by approximately $2 million for the year ended December 31, 2015, for retention awards granted to certain MWE employees. The fair value of the retention awards will be recognized ratably over the post-acquisition service period of three years. |
| |
| (j) | Adjustment to amortize the fair value adjustment for the MWE debt assumed by MPLX. The amortization of the fair value adjustment results in an increase in other financial costs of approximately $24 million for the year ended December 31, 2015. In conjunction with MWE's June 2015 redemption of debt, a loss on extinguishment of approximately $118 million was recorded in its historical financial statements, which has not been adjusted in the unaudited pro forma consolidated statement of income for the year ended December 31, 2015. |
| |
| (k) | Adjustment to reflect reduced interest expense of $1 million for the year ended December 31, 2015 related to the fair value adjustment of the financing arrangement liability assumed by MPLX. |
| |
| (l) | Adjustment to decrease other financial costs to remove costs of approximately $6 million related to the exchange of MWE senior notes and MWE credit facility. |
| |
| (m) | MWE is not a taxable entity for federal income tax purposes. As such, MWE does not directly pay federal income tax. MarkWest Hydrocarbon, Inc. ("MarkWest Hydrocarbon"), a wholly-owned subsidiary of MWE, is a tax paying entity for both federal and state purposes. In addition to paying tax on its own earnings, MarkWest Hyrdocarbon recognizes a tax provision or benefit on its proportionate share of MWE income or loss resulting from MarkWest Hydrocarbon's ownership interest in MWE. For financial reporting purposes, such income or loss is eliminated in consolidation. As a result of the MarkWest Merger, MarkWest Hydrocarbon will also recognize a tax provision or benefit on its proportionate share of MPLX income or loss in a similar manner. The unaudited pro forma consolidated statement of income reflects a provision for income tax adjustment of $7 million for the year ended December 31, 2015. |
| |
| (n) | Adjustment to net income attributable to noncontrolling interests to reflect the effect of certain pro forma adjustments. |
| |
| (o) | Adjustment to reflect the net income attributable to the general partner, including distributions related to the general partner's incentive distribution rights ("IDRs"), to give effect to the MarkWest Merger. The adjustment reflects the combined MPLX and MWE historical cash distributions allocated per the terms of MPLX's partnership agreement. |
Acquisition of HST and MPLXT
| |
| (p) | Adjustment to recognize MarkWest Hydrocarbon's $1 million tax provision on its proportionate share of HST and MPLXT combined incremental income for the year ended December 31, 2016 and $1 million tax benefit on its proportionate share of HST's incremental income for the year ended December 31, 2015. Refer to Note 2 (m) for further details. |
| |
| (q) | Adjustment to reflect the net income attributable to the general partner, including distributions related to the general partner's IDRs, to give effect to the Acquisition. The adjustment reflects the combined MPLX, HST and MPLXT historical cash distributions allocated per the terms of MPLX's partnership agreement. |
| |
| (r) | Adjustment to reflect the termination of both HST and MPLXT's participation in MPC's cash management services agreement. As a result of the termination, per the Contributions Agreement, HST and MPLXT's combined loans receivable from related parties balance of $80 million is eliminated and HST and MPLXT distribute all such cash received to MPC. This combined distribution from HST and MPLXT is reflected in General partner - MPC equity. |
| |
| (s) | Adjustment to reflect the issuance of 12,832,060 Common Units and 261,879 general partner units to MPC in connection with the Acquisition. Pro forma equity adjustments include increases to Common unitholder - MPC and General partner - MPC of $143 million and $361 million, respectively, as 9,106,834 Common Units were issued to the general partner. |
| |
| (t) | The Partnership recorded its acquired interest in HST and MPLXT at its historical carrying value and the excess consideration paid over the historical carrying value as a decrease to general partner equity. The unaudited pro forma consolidated balance sheet reflects a decrease in General partner - MPC equity of $1,224 million; which includes $2,015 |
million total fair value consideration less HST and MPLXT's combined historical carrying value of $801 million and the reduction of $10 million in historical carrying value related to the distribution of certain of HST's assets to MPC in 2017 prior to the Acquisition.
| |
| (u) | Adjustment to reflect the elimination of MPC's combined net investment in HST and MPLXT at December 31, 2016, of $801 million. |
| |
| (v) | Adjustment to reflect the indemnification by MPC of costs of $12 million related to environmental incidents occurring prior to the Acquisition. The unaudited pro forma consolidated balance sheet reflects an increase in Receivables - related parties and General partner - MPC. |
| |
| (w) | Adjustment to reflect the net proceeds from MPLX's aggregate $2,250 million unsecured senior notes offering consisting of two series of senior notes: $1,250 million aggregate principal amount of 4.125% due in March 2027 and $1,000 million aggregate principal amount of 5.2% due in March 2047, as offering proceeds intended to fund the Acquisition. Adjustment to reflect the associated interest expense of $104 million for the year ended December 31, 2016 and 2015, respectively. Additionally, adjustment to reflect the amortization of the issuance costs of $1 million for the year ended December 31, 2016 and 2015, respectively. |
|
| | | |
| (in millions) | |
| 4.125% senior notes due 2027 | $ | 1,250 |
|
| 5.2% senior notes due 2047 | 1,000 |
|
| Total | $ | 2,250 |
|
| Unamortized debt issuance costs | (21 | ) |
| Unamortized discount | (9 | ) |
| Total long-term debt | $ | 2,220 |
|
| |
| (x) | Adjustment to reflect the $1,511 million cash payment made to MPC in connection with the Acquisition. |
| |
| (y) | Adjustments to eliminate HST and WHC's annual management fee for the years ended December 31, 2016 and 2015 of $13 million and $1 million, respectively, that is paid to MPLX per the operating and services agreements. Additional adjustment to eliminate the $4 million Accounts receivable - related parties and Payables - related parties as of December 31, 2016 for MPLX and HST/WHC, respectively, related to the management fee. |
| |
| (z) | Adjustments to remove the net income (loss) effect of $5 million and $(2 million) for the years ended December 31, 2016 and 2015, respectively, related to the distribution of certain of HST's assets to MPC in 2017 prior to the Acquisition. |
3. Pro Forma Net Income per Limited Partner Unit
The pro forma basic and diluted net income per limited partner unit is determined by dividing the limited partners' interests in pro forma net income attributable to MPLX by the weighted-average number of common units outstanding for the period. As there is more than one class of participating securities, the two-class method is used when calculating the net income per unit applicable to limited partners. The classes of securities in the calculation include common units, class B units, subordinated units, general partner units, certain equity-based compensation awards and IDRs. Presented in the tables below, all newly issued units in connection with the Acquisition for the year ended December 31, 2016, were assumed to have been outstanding since January 1, 2015 and April 1, 2016, respectively, with allocation of the units based on EBITDA for each of the Acquired Businesses. Additionally, net income attributable to the general partner, IDRs and limited partners was adjusted per the pro forma adjustments and the pro forma basic and diluted weighted average number of common units equals the actual weighted average number of common units outstanding for the years ended December 31, 2016 and 2015, plus the amount of assumed newly issued units.
|
| | | | | |
| (in millions; except exchange ratio) | Year Ended December 31, 2016 | | Year Ended December 31, 2015 |
| | | | |
| MWE weighted average common units outstanding - basic | — |
| | 176 |
|
| MarkWest Merger exchange ratio | — |
| | 1.09 |
|
| | — |
| | 192 |
|
| Common Units per the Contribution Agreement - basic | 11 |
| | 5 |
|
| MPLX weighted average common units outstanding - basic | 331 |
| | 79 |
|
| Pro forma MPLX weighted average common units outstanding - basic | 342 |
| | 276 |
|
| | | | |
| MWE weighted average common units outstanding - diluted | — |
| | 186 |
|
| MarkWest Merger exchange ratio | — |
| | 1.09 |
|
| | — |
| | 202 |
|
| Common Units per the Contribution Agreement - diluted | 11 |
| | 5 |
|
| MPLX weighted average common units outstanding - diluted | 338 |
| | 80 |
|
| Pro forma MPLX weighted average common units outstanding - diluted | 349 |
| | 287 |
|
|
| | | | | | | | | | | |
| | December 31, 2016 |
| (in millions; except per unit data) | General Partner | | Limited Partners' Common Units | | Total |
| Basic and diluted earnings per unit: | | | | | |
| Allocation of earnings: | | | | | |
| Income attributable to MPLX LP | | | | | $ | 303 |
|
| Distribution declared on Preferred units | | | | | 41 |
|
| Income allocated to participating securities | | | | | 1 |
|
| Income available to unitholders | | | | | $ | 261 |
|
| | | | | | |
| Pro forma distributions declared (including IDRs) | $ | 211 |
| | $ | 715 |
| | $ | 926 |
|
| Pro forma distributions greater than net income | | | | | |
| attributable to MPLX LP | (13 | ) | | (652 | ) | | (665 | ) |
| Net income attributable to MPLX LP | | | | | |
| unitholders - basic | $ | 198 |
| | $ | 63 |
| | $ | 261 |
|
| | | | | | |
| Pro forma weighted average units outstanding - basic | | | 342 |
| | |
| Pro forma weighted average units outstanding - diluted | | | 349 |
| | |
| Pro forma net income attributable to MPLX LP per | | | | | |
| Limited partner unit - basic | | | $ | 0.18 |
| | |
| Pro forma net income attributable to MPLX LP per | | | | | |
| Limited partner unit - diluted | | | $ | 0.18 |
| | |
|
| | | | | | | | | | | | | | | |
| | December 31, 2015 |
| (in millions; except per unit data) | General Partner | | Limited Partners' Common Units | | Limited Partner Subordinated Units | | Total |
| Basic and diluted earnings per unit: | | | | | | | |
| Allocation of earnings: | | | | | | | |
| Income attributable to MPLX LP | | | | | | | $ | 226 |
|
| Income allocated to participating securities | | | | | | | 1 |
|
| Income available to unitholders | | | | | | | $ | 225 |
|
| | | | | | | | |
| Pro forma distributions declared (including IDRs) | $ | 112 |
| | $ | 510 |
| | $ | 31 |
| | $ | 653 |
|
| Pro forma distributions greater than net income | | | | | | | |
| attributable to MPLX LP | (8 | ) | | (389 | ) | | (31 | ) | | (428 | ) |
| Net income attributable to MPLX LP | | | | | | | |
| unitholders - basic | $ | 104 |
| | $ | 121 |
| | $ | — |
| | $ | 225 |
|
| | | | | | | | |
| Pro forma weighted average units outstanding - basic | | | 276 |
| | 18 |
| | |
| Pro forma weighted average units outstanding - diluted | | | 287 |
| | 18 |
| | |
| Pro forma net income attributable to MPLX LP per | | | | | | | |
| Limited partner unit - basic | | | $ | 0.44 |
| | $ | — |
| | |
| Pro forma net income attributable to MPLX LP per | | | | | | | |
| Limited partner unit - diluted | | | $ | 0.42 |
| | $ | — |
| | |
4. The MWE Historical Financial Statements
The historical consolidated statement of income of MWE was derived from the consolidated financial statements included in MWE's Quarterly Report on Form 10-Q for the period ended September 30, 2015 and internal results for the period from October 1, 2015 through December 3, 2015. The MWE historical consolidated statement of income as presented includes the following reclassifications to conform to MPLX's financial statement presentation.
|
| | | | | | | | |
| | | MWE Historical | | MWE Historical as presented |
| Statement of Income for the period ended December 3, 2015 | | | | |
| Service revenue | | $ | 1,131 |
| | $ | 880 |
|
| Rental income | | — |
| | 251 |
|
| Derivative gain (loss) | | $ | 25 |
| | $ | — |
|
| Product sales | | 572 |
| | 597 |
|
| Facility expenses | | $ | 347 |
| | $ | — |
|
| Derivative loss related to facility expenses | | 2 |
| | — |
|
| Cost of revenues (excludes items below) | | — |
| | 298 |
|
| Rental expenses | | — |
| | 51 |
|
| Derivative gain related to purchased product costs | | $ | (2 | ) | | $ | — |
|
| Purchased product costs | | 423 |
| | 421 |
|
| Depreciation | | $ | 462 |
| | $ | — |
|
| Amortization of intangible assets | | 58 |
| | — |
|
| Accretion of asset retirement obligations | | 1 |
| | — |
|
| Depreciation and amortization | | — |
| | 521 |
|
5. The HST Historical Financial Statements
The historical financial statement information of HST was derived from the financial statements as of December 31, 2016 and for the years ended December 31, 2016 and 2015, incorporated by reference into this Current Report on Form 8-K. The HST historical financial information as presented includes the following reclassifications to conform to MPLX's financial statement presentation.
|
| | | | | | | | |
| | | HST Historical | | HST Historical as presented |
| Statement of Income for the year ended December 31, 2016 | | | | |
| Depreciation | | $ | 16 |
| | $ | — |
|
| Depreciation and amortization | | — |
| | 16 |
|
| Interest and other financial income - related parties | | $ | 1 |
| | $ | — |
|
| Related party interest and other financial (income) costs | | — |
| | (1 | ) |
| | | | |
|
| Statement of Income for the year ended December 31, 2015 | | | | |
| Depreciation | | $ | 14 |
| | $ | — |
|
| Depreciation and amortization | | — |
| | 14 |
|
|
| | | | | | | | |
| | | HST Historical | | HST Historical as presented |
| Balance Sheet as of December 31, 2016 | | | | |
| Receivables - related parties | | $ | 17 |
| | $ | 92 |
|
| Loans receivable - related parties | | 75 |
| | — |
|
| Materials and supplies inventories | | $ | 1 |
| | $ | — |
|
| Inventories | | — |
| | 1 |
|
| Accrued liabilities | | $ | 13 |
| | $ | 4 |
|
| Accrued property, plant and equipment | | — |
| | 9 |
|
| Environmental remediation liabilities | | $ | 1 |
| | $ | — |
|
| Other current liabilities | | — |
| | 1 |
|
| Long-term environmental remediation liabilities | | $ | 3 |
| | $ | — |
|
| Deferred credits and other liabilities | | — |
| | 3 |
|
6. The MPLXT Historical Financial Statements
The historical financial statement information of MPLXT was derived from the financial statements as of December 31, 2016 and for the nine months ended December 31, 2016, incorporated by reference into this Current Report on Form 8-K. The MPLXT historical financial information as presented includes the following reclassifications to conform to MPLX's financial statement presentation.
|
| | | | | | | | |
| | | MPLXT Historical | | MPLXT Historical as presented |
| Statement of Income for the nine months ended December 31, 2016 | | | | |
| Depreciation | | $ | 29 |
| | $ | — |
|
| Depreciation and amortization | | — |
| | 29 |
|
| Net interest expense - related parties | | $ | 1 |
| | $ | — |
|
| Related party interest and other financial costs | | — |
| | 1 |
|
|
| | | | | | | | |
| | | MPLXT Historical | | MPLXT Historical as presented |
| Balance Sheet as of December 31, 2016 | | | | |
| Receivables - related parties | | $ | 33 |
| | $ | 38 |
|
| Loans receivable from related parties | | 5 |
| | — |
|
| Accrued liabilities | | $ | 5 |
| | $ | — |
|
| Accrued property, plant and equipment | | — |
| | 5 |
|
| Consumer excise taxes payable | | $ | 1 |
| | $ | — |
|
| Accrued taxes | | 2 |
| | 3 |
|
| Environmental remediation liabilities | | $ | 2 |
| | $ | — |
|
| Other current liabilities | | — |
| | 2 |
|
| Long-term deferred income taxes | | $ | 1 |
| | $ | — |
|
| Deferred income taxes | | — |
| | 1 |
|
| Long-term environmental remediation liabilities | | $ | 6 |
| | $ | — |
|
| Deferred credits and other liabilities | | — |
| | 6 |
|
