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Section 1: 10-Q (10-Q)

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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 March 31, 2019
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 001-35714
_____________________________________________ 
MPLX LP
(Exact name of registrant as specified in its charter)
 _____________________________________________
Delaware
 
27-0005456
(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) 421-2414
(Registrant’s telephone number, including area code)
 _____________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x     No  ¨

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
¨  
Smaller reporting company
¨
 
 
 
 
 
 
Emerging growth company
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes  ¨    No  x
Securities Registered pursuant to Section 12(b) of the Act
Title of each class
 Trading symbol(s)
Name of each exchange on which registered
Common Units Representing Limited Partnership Interests
MPLX
New York Stock Exchange

MPLX LP had 794,349,225 common units outstanding at May 3, 2019.


Table of Contents

Table of Contents
 
Page
 
 
 
 
 

Unless the context otherwise requires, references in this report to “MPLX LP,” “MPLX,” “the Partnership,” “we,” “our,” “us,” or like terms refer to MPLX LP and its subsidiaries. Additionally, throughout this Quarterly Report on Form 10-Q, we have used terms in our discussion of the business and operating results that have been defined in our Glossary of Terms.


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Table of Contents

Glossary of Terms

The abbreviations, acronyms and industry technology used in this report are defined as follows.
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
ATM Program
An at-the-market program for the issuance of common units
Barrel
One stock tank barrel, or 42 United States gallons of liquid volume, used in reference to crude oil or other liquid hydrocarbons
Bcf/d
One billion cubic feet per day
Btu
One British thermal unit, an energy measurement
Condensate
A natural gas liquid with a low vapor pressure mainly composed of propane, butane, pentane and heavier hydrocarbon fractions
DCF (a non-GAAP financial measure)
Distributable Cash Flow
EBITDA (a non-GAAP financial measure)
Earnings Before Interest, Taxes, Depreciation and Amortization
FASB
Financial Accounting Standards Board
GAAP
Accounting principles generally accepted in the United States of America
Gal
Gallon
Gal/d
Gallons per day
IDR
Incentive Distribution Right
Initial Offering
Initial public offering on October 31, 2012
LIBOR
London Interbank Offered Rate
mbpd
Thousand barrels per day
MMBtu
One million British thermal units, an energy measurement
MMcf/d
One million cubic feet of natural gas per day
NGL
Natural gas liquids, such as ethane, propane, butanes and natural gasoline
NYSE
New York Stock Exchange
Partnership Agreement
Fourth Amended and Restated Agreement of Limited Partnership of MPLX LP, dated as of February 1, 2018
Predecessor
Collectively:
- The related assets, liabilities and results of operations of Hardin Street Marine LLC (“HSM”) prior to the date of the acquisition, March 31, 2016, effective January 1, 2015
- The related assets, liabilities and results of operations of Hardin Street Transportation LLC (“HST”), Woodhaven Cavern LLC (“WHC”) and MPLX Terminals LLC (“MPLXT”) prior to the date of the acquisition, March 1, 2017, effective January 1, 2015 for HST and WHC and April 1, 2016 for MPLXT
Realized derivative gain/loss
The gain or loss recognized when a derivative matures or is settled
SEC
United States Securities and Exchange Commission
SMR
Steam methane reformer, operated by a third party and located at the Javelina gas processing and fractionation complex in Corpus Christi, Texas
Unrealized derivative gain/loss
The gain or loss recognized on a derivative due to changes in fair value prior to the instrument maturing or settling
VIE
Variable interest entity


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Part I—Financial Information

Item 1. Financial Statements
MPLX LP
Consolidated Statements of Income (Unaudited)
 
Three Months Ended 
 March 31,
(In millions, except per unit data)
2019
 
2018
Revenues and other income:
 
 
 
Service revenue
$
438

 
$
382

Service revenue - related parties
578

 
471

Service revenue - product related
34

 
44

Rental income
94

 
79

Rental income - related parties
193

 
145

Product sales
202

 
207

Product sales - related parties
11

 
4

Income from equity method investments
70

 
61

Other income

 
4

Other income - related parties
26

 
23

Total revenues and other income
1,646

 
1,420

Costs and expenses:
 
 
 
Cost of revenues (excludes items below)
210

 
206

Purchased product costs
194

 
187

Rental cost of sales
37

 
29

Rental cost of sales - related parties
3

 
1

Purchases - related parties
212

 
177

Depreciation and amortization
211

 
176

General and administrative expenses
82

 
69

Other taxes
19

 
18

Total costs and expenses
968

 
863

Income from operations
678

 
557

Related party interest and other financial costs
1

 
1

Interest expense (net of amounts capitalized of $7 million and $9 million, respectively)
156

 
112

Other financial costs
14

 
17

Income before income taxes
507

 
427

(Benefit)/provision for income taxes
(2
)
 
4

Net income
509

 
423

Less: Net income attributable to noncontrolling interests
6

 
2

Net income attributable to MPLX LP
503

 
421

Less: Preferred unit distributions
20

 
16

Limited partners’ interest in net income attributable to MPLX LP
$
483

 
$
405

Per Unit Data (See Note 6)
 
 
 
Net income attributable to MPLX LP per limited partner unit:
 
 
 
Common - basic
$
0.61

 
$
0.61

Common - diluted
$
0.61

 
$
0.61

Weighted average limited partner units outstanding:
 
 
 
Common - basic
794

 
661

Common - diluted
795

 
661


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

3



MPLX LP
Consolidated Statements of Comprehensive Income (Unaudited)
 
Three Months Ended 
 March 31,
(In millions)
2019
 
2018
Net income
$
509

 
$
423

Other comprehensive income/(loss), net of tax:
 
 
 
Remeasurements of pension and other postretirement benefits related to equity method investments, net of tax
1

 
(2
)
Comprehensive income
510

 
421

Less comprehensive income attributable to:
 
 
 
Noncontrolling interests
6

 
2

Comprehensive income attributable to MPLX LP
$
504

 
$
419


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


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Table of Contents

MPLX LP
Consolidated Balance Sheets (Unaudited)
 
(In millions)
March 31, 2019
 
December 31, 2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
93

 
$
68

Receivables, net
365

 
417

Current assets - related parties
386

 
290

Inventories
74

 
77

Other current assets
34

 
45

Total current assets
952

 
897

Equity method investments
4,270

 
4,174

Property, plant and equipment, net
14,816

 
14,639

Intangibles, net
414

 
424

Goodwill
2,581

 
2,586

Right of use assets
262

 

Noncurrent assets - related parties
256

 
24

Other noncurrent assets
33

 
35

Total assets
23,584

 
22,779

Liabilities
 
 
 
Current liabilities:
 
 
 
Accounts payable
110

 
162

Accrued liabilities
189

 
250

Current liabilities - related parties
204

 
254

Accrued property, plant and equipment
249

 
294

Accrued interest payable
156

 
143

Operating lease liabilities
46

 

Other current liabilities
75

 
83

Total current liabilities
1,029

 
1,186

Long-term deferred revenue
94

 
80

Long-term liabilities - related parties
273

 
43

Long-term debt
13,832

 
13,392

Deferred income taxes
12

 
13

Long-term operating lease liabilities
216

 

Deferred credits and other liabilities
195

 
197

Total liabilities
15,651

 
14,911

Commitments and contingencies (see Note 20)

 

Redeemable preferred units
1,004

 
1,004

Equity
 
 
 
Common unitholders - public (290 million and 289 million units issued and outstanding)
8,326

 
8,336

Common unitholder - MPC (505 million and 505 million units issued and outstanding)
(1,632
)
 
(1,612
)
Accumulated other comprehensive loss
(15
)
 
(16
)
Total MPLX LP partners’ capital
6,679

 
6,708

Noncontrolling interests
250

 
156

Total equity
6,929

 
6,864

Total liabilities, preferred units and equity
$
23,584

 
$
22,779


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

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Table of Contents

MPLX LP
Consolidated Statements of Cash Flows (Unaudited)
 
Three Months Ended 
 March 31,
(In millions)
2019
 
2018
Increase/(decrease) in cash, cash equivalents and restricted cash
 
 
 
Operating activities:
 
 
 
Net income
$
509

 
$
423

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Amortization of deferred financing costs
13

 
16

Depreciation and amortization
211

 
176

Deferred income taxes
(2
)
 
4

Asset retirement expenditures

 
(1
)
Loss on disposal of assets
1

 

Income from equity method investments
(70
)
 
(61
)
Distributions from unconsolidated affiliates
101

 
68

Changes in:
 
 
 
Current receivables
57

 
(8
)
Inventories
3

 
2

Fair value of derivatives
7

 
(9
)
Current accounts payable and accrued liabilities
(78
)
 
(44
)
Current assets/current liabilities - related parties
(147
)
 
(126
)
Right of use assets/operating lease liabilities
3

 

Deferred revenue
14

 
7

All other, net
(4
)
 
3

Net cash provided by operating activities
618

 
450

Investing activities:
 
 
 
Additions to property, plant and equipment
(457
)
 
(455
)
Acquisitions, net of cash acquired
1

 

Disposal of assets
7

 
2

Investments in unconsolidated affiliates
(128
)
 
(38
)
Distributions from unconsolidated affiliates - return of capital
2

 

All other, net

 
1

Net cash used in investing activities
(575
)
 
(490
)
Financing activities:
 
 
 
Long-term debt - borrowings
825

 
9,610

    - repayments
(400
)
 
(4,655
)
Related party debt - borrowings
851

 
452

     - repayments
(851
)
 
(838
)
Debt issuance costs

 
(53
)
Distributions to MPC for acquisitions

 
(4,111
)
Distributions to noncontrolling interests
(6
)
 
(3
)
Distributions to preferred unitholders
(20
)
 
(16
)
Distributions to unitholders and general partner
(515
)
 
(347
)
Contributions from noncontrolling interests
94

 
1

All other, net
(4
)
 
(3
)
Net cash (used in)/provided by financing activities
(26
)
 
37

Net increase/(decrease) in cash, cash equivalents and restricted cash
17

 
(3
)
Cash, cash equivalents and restricted cash at beginning of period
76

 
9

Cash, cash equivalents and restricted cash at end of period
$
93

 
$
6


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
Unit-holders
Public
 
Common
Unit-holder
MPC
 
General 
Partner
MPC
 
Accumulated Other Comprehensive Loss
 
Non-controlling
Interests
 
Equity of Predecessor
 
Total
Balance at December 31, 2017
$
8,379

 
$
2,099

 
$
(637
)
 
$
(14
)
 
$
146

 
$

 
$
9,973

Net income (excludes amounts attributable to preferred units)
180

 
225

 

 

 
2

 

 
407

Allocation of MPC's net investment at acquisition

 
5,172

 
(4,126
)
 

 

 
(1,046
)
 

Distributions to:
 
 
 
 
 
 
 
 
 
 
 
 
 
MPC for acquisition

 
(936
)
 
(3,164
)
 

 

 

 
(4,100
)
Unitholders and general partner
(176
)
 
(171
)
 

 

 

 

 
(347
)
Noncontrolling interests

 

 

 

 
(3
)
 

 
(3
)
Contributions from:
 
 
 
 
 
 
 
 
 
 
 
 
 
MPC

 

 

 

 

 
1,046

 
1,046

Noncontrolling interests

 

 

 

 
1

 

 
1

Conversion of GP economic interests

 
(7,926
)
 
7,926

 

 

 

 

Other
2

 

 
1

 
(2
)
 

 

 
1

Balance at March 31, 2018
8,385

 
(1,537
)
 

 
(16
)
 
146

 

 
6,978

 
 
 
 
 
 
 
 
 
 
 
 
 


Balance at December 31, 2018
8,336

 
(1,612
)
 

 
(16
)
 
156

 

 
6,864

Net income (excludes amounts attributable to preferred units)
176

 
307

 

 

 
6

 

 
489

Distributions to:
 
 
 
 
 
 
 
 
 
 
 
 
 
Unitholders
(188
)
 
(327
)
 

 

 

 

 
(515
)
Noncontrolling interests

 

 

 

 
(6
)
 

 
(6
)
Contributions from:
 
 
 
 
 
 
 
 
 
 
 
 
 
Noncontrolling interests

 

 

 

 
94

 

 
94

Other
2

 

 

 
1

 

 

 
3

Balance at March 31, 2019
$
8,326

 
$
(1,632
)
 
$

 
$
(15
)
 
$
250

 
$

 
$
6,929


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 is a diversified, large-cap master limited partnership formed by Marathon Petroleum Corporation that owns and operates midstream energy infrastructure and logistics assets, and provides fuels distribution services. References in this report to “MPLX LP,” “MPLX,” “the Partnership,” “we,” “ours,” “us,” or like terms refer to MPLX LP and its subsidiaries. References to “MPC” refer collectively to Marathon Petroleum Corporation as our sponsor and its subsidiaries, other than the Partnership. We are engaged in the transportation, storage and distribution of crude oil and refined petroleum products; the gathering, processing and transportation of natural gas; and the gathering, transportation, fractionation, storage and marketing of NGLs. MPLX’s principal executive office is located in Findlay, Ohio.

MPLX’s business consists of two segments based on the nature of services it offers: Logistics and Storage (“L&S”), which relates primarily to crude oil and refined petroleum products; and Gathering and Processing (“G&P”), which relates primarily to natural gas and NGLs. See Note 9 for additional information regarding the operations and results of these segments.

Basis of Presentation – The accompanying interim consolidated financial statements are unaudited; however, in the opinion of MPLX’s 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 SEC applicable to interim period financial statements and do not include all of the information and disclosures required by GAAP for complete financial statements. Certain amounts in prior years have been reclassified to conform to current year presentation.

These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2018. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the full year.

MPLX’s consolidated financial statements include all majority-owned and controlled subsidiaries. For non-wholly-owned consolidated subsidiaries, the interests owned by third parties have been recorded as “Noncontrolling interests” on the accompanying Consolidated Balance Sheets. Intercompany investments, accounts and transactions have been eliminated. MPLX’s investments in which MPLX exercises significant influence but does not control and does not have a controlling financial interest are accounted for using the equity method. MPLX’s investments in a VIE in which MPLX exercises significant influence but does not control and is not the primary beneficiary are also accounted for using the equity method.

In preparing the Consolidated Statements of Equity, net income attributable to MPLX LP is allocated to preferred unitholders based on a fixed distribution schedule. Distributions, although earned, are not accrued until declared. The allocation of net income attributable to MPLX LP for purposes of calculating net income per limited partner unit is described in Note 6.

2. Accounting Standards

Recently Adopted

ASU 2016-02, Leases

We adopted ASU No. 2016-02, Leases (Topic 842), as of January 1, 2019, electing the transition method which permits entities to adopt the provisions of the standard using the modified retrospective approach without adjusting comparative periods. We also elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things allowed us to grandfather the historical accounting conclusions until a reassessment event is present. We have also elected the practical expedient to not recognize short-term leases on the balance sheet, the practical expedient related to right of way permits and land easements which allows us to carry forward our accounting treatment for those existing agreements, and the practical expedient to combine lease and non-lease components for the majority of our underlying classes of assets except for our third-party contractor service and equipment agreements and boat and barge equipment agreements in which we are the lessee. We did not elect the practical expedient to combine lease and non-lease components for arrangements in which we are the lessor. In instances where the practical expedient was not elected, lease and non-lease consideration is allocated based on relative standalone selling price.

Right of use (“ROU”) assets represent our right to use an underlying asset in which we obtain substantially all of the economic benefits and the right to direct the use of the asset during the lease term while lease liabilities represent our obligation to make

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lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We recognize ROU assets and lease liabilities on the balance sheet for leases with a lease term of greater than one year. Payments that are not fixed at the commencement of the lease are considered variable and are excluded from the ROU asset and lease liability calculations. In the measurement of our ROU assets and lease liabilities, the fixed lease payments in the agreement are discounted using a secured incremental borrowing rate for a term similar to the duration of the lease, as our leases do not provide implicit rates. Operating lease expense is recognized on a straight-line basis over the lease term.

Adoption of the new standard resulted in the recording of ROU assets and lease liabilities of approximately $505 million and $502 million, respectively, as of January 1, 2019. The standard did not materially impact our consolidated statements of income, cash flows or equity as a result of adoption.
As a lessor under ASC 842, MPLX may be required to re-classify existing operating leases to sales-type leases upon modification and related reassessment of the leases. If such a modification were to occur, it may result in the de-recognition of existing assets, recognition of a receivable in the amount of the present value of fixed payments expected to be received by MPLX under the lease, and recognition of a corresponding gain or loss in the period of change. MPLX will evaluate the impacts of lease reassessments as modifications occur.

We also adopted the following standard during the first quarter of 2019, which did not have a material impact to our financial statements or financial statement disclosures:
ASU
 
Effective Date
2017-12
Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities
January 1, 2019

Not Yet Adopted
ASU 2017-04, Intangibles - Goodwill and Other - Simplifying the Test for Goodwill Impairment
In January 2017, the FASB issued an ASU which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the new guidance, the recognition of an impairment charge is calculated based on the amount by which the carrying amount exceeds the reporting unit’s fair value, which could be different from the amount calculated under the current method using the implied fair value of the goodwill; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The guidance should be applied on a prospective basis, and is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.
ASU 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued an ASU related to the accounting for credit losses on certain financial instruments. The guidance requires that for most financial assets, losses be based on an expected loss approach which includes estimates of losses over the life of exposure that considers historical, current and forecasted information. Expanded disclosures related to the methods used to estimate the losses as well as a specific disaggregation of balances for financial assets are also required. The change is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We do not expect application of this ASU to have a material impact on our consolidated financial statements.

3. Acquisitions

Mt. Airy Terminal

On September 26, 2018, MPLX acquired an eastern U.S. Gulf Coast export terminal (the “Mt. Airy Terminal”) from Pin Oak Holdings, LLC for total consideration of $451 million. At the time of the acquisition, the terminal included tanks with 4 million barrels of third-party leased storage capacity and a dock with 120 mbpd of capacity. The Mt. Airy Terminal is located on the Mississippi River between New Orleans and Baton Rouge, is in close proximity to several Gulf Coast refineries including MPC’s Garyville Refinery and is near numerous rail lines and pipelines. The Mt. Airy Terminal is accounted for within the L&S segment. In the first quarter of 2019, an adjustment to the initial purchase price was made for approximately $5 million related to the final settlement of the acquisition. This reduced the total purchase price to $446 million and resulted in $336 million of property, plant and equipment, $121 million of goodwill and the remainder being attributable to net liabilities assumed.


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Goodwill represents the significant growth potential of the terminal due to the multiple pipelines and rail lines which cross the property, the terminal’s position as an aggregation point for liquids growth in the region for both ocean-going vessels and inland barges, the proximity of the terminal to MPC’s Garyville refinery and other refineries in the region as well as the opportunity to construct an additional dock at the site.

Refining Logistics and Fuels Distribution Acquisition

On February 1, 2018, MPC and MPLX LP closed on an agreement for the dropdown of refining logistics assets and fuels distribution services to MPLX LP. MPC contributed these assets and services in exchange for $4.1 billion in cash and a fixed number of MPLX LP common units and general partner units of 111,611,111 and 2,277,778, respectively. The fair value of the common and general partner units issued as of the acquisition date was $4.3 billion based on the closing common unit price as of February 1, 2018, as recorded on the Consolidated Statements of Equity, for a total purchase price of $8.4 billion. The equity issued consisted of: (i) 85,610,278 common units to MPLX GP LLC (“MPLX GP”), (ii) 18,176,666 common units to MPLX Logistics Holdings LLC and (iii) 7,824,167 common units to MPLX Holdings Inc. MPLX also issued 2,277,778 general partner units to MPLX GP in order to maintain its two percent general partner interest (“GP Interest”) in MPLX. MPC agreed to waive approximately one-third of the first quarter 2018 distributions on the common units issued in connection with this transaction. As a result of this waiver, MPC did not receive $23.7 million of the distributions that would have otherwise accrued on such common units with respect to the first quarter of 2018. Immediately following this transaction, the GP Interest was converted into a non-economic general partner interest.

MPLX recorded this transaction on a historical basis as required for transactions between entities under common control. No effect was given to the prior periods as these entities were not considered businesses prior to the February 1, 2018 dropdown. In connection with the dropdown, approximately $830 million of net property, plant and equipment was recorded in addition to $85 million and $130 million of goodwill allocated to MPLX Refining Logistics LLC (“Refining Logistics”) and MPLX Fuels Distribution LLC (“Fuels Distribution”), respectively. Both the refining logistics assets and the fuels distribution services are accounted for within the L&S segment.

As of the transaction date, the Refining Logistics assets included 619 tanks with approximately 56 million barrels of storage capacity (crude, finished products and intermediates), 32 rail and truck racks, 18 docks, and gasoline blenders. These assets generate revenue through storage services agreements with MPC. Refining Logistics provides certain services to MPC related to the receipt, storage, throughput, custody and delivery of petroleum products in and through certain storage and logistical facilities and assets associated with MPC’s refineries.

Fuels Distribution, which is a wholly-owned subsidiary of MPLXT, generates revenue through a fuels distribution services agreement with MPC. Fuels Distribution is structured to provide a broad range of scheduling and marketing services as MPC’s agent.


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4. Investments and Noncontrolling Interests

The following table presents MPLX’s equity method investments at the dates indicated:
 
Ownership as of
 
Carrying value at
 
March 31,
 
March 31,
 
December 31,
(In millions, except ownership percentages)
2019
 
2019
 
2018
 
 
 
 
 
 
Explorer Pipeline Company
25%
 
$
85

 
$
90

Illinois Extension Pipeline Company, L.L.C.
35%
 
280

 
275

LOCAP LLC
59%
 
27

 
27

LOOP LLC
41%
 
232

 
226

MarEn Bakken Bakken Company LLC
25%
 
492

 
498

Centrahoma Processing LLC
40%
 
158

 
160

MarkWest EMG Jefferson Dry Gas Gathering Company, L.L.C.
67%
 
247

 
236

MarkWest Utica EMG, L.L.C.
56%
 
2,017

 
2,039

Sherwood Midstream LLC
50%
 
455

 
366

Sherwood Midstream Holdings LLC
56%
 
163

 
157

Other
 
 
114

 
100

Total
 
 
$
4,270

 
$
4,174


Summarized financial information for MPLX’s equity method investments for the three months ended March 31, 2019 and 2018 is as follows:
 
Three Months Ended March 31, 2019
(In millions)
VIEs
 
Non-VIEs
 
Total
Revenues and other income
$
143

 
$
340

 
$
483

Costs and expenses
70

 
172

 
242

Income from operations
73

 
168

 
241

Net income
66

 
156

 
222

Income from equity method investments(1)
$
24

 
$
46

 
$
70


 
Three Months Ended March 31, 2018
(In millions)
VIEs
 
Non-VIEs
 
Total
Revenues and other income
$
106

 
$
297

 
$
403

Costs and expenses
62

 
155

 
217

Income from operations
44

 
142

 
186

Net income
44

 
129

 
173

Income from equity method investments(1)
$
15

 
$
46

 
$
61


(1)
Income from equity method investments” includes the impact of any basis differential amortization or accretion.


11


Table of Contents

Summarized balance sheet information for MPLX’s equity method investments as of March 31, 2019 and December 31, 2018 is as follows:
 
March 31, 2019
(In millions)
VIEs
 
Non-VIEs
 
Total
Current assets
$
162

 
$
327

 
$
489

Noncurrent assets
4,438

 
4,693

 
9,131

Current liabilities
129

 
221

 
350

Noncurrent liabilities
$
193

 
$
843

 
$
1,036


 
December 31, 2018
(In millions)
VIEs
 
Non-VIEs
 
Total
Current assets
$
235

 
$
379

 
$
614

Noncurrent assets
3,535

 
4,715

 
8,250

Current liabilities
155

 
246

 
401

Noncurrent liabilities
$
189

 
$
841

 
$
1,030


As of March 31, 2019 and December 31, 2018, the carrying value of MPLX’s equity method investments exceeded the underlying net assets of its investees by $1.0 billion for the G&P segment. As of March 31, 2019 and December 31, 2018, the carrying value of MPLX’s equity method investments in the L&S segment exceeded the underlying net assets of its investees by $112 million and $114 million, respectively. This basis difference is being amortized into net income over the remaining estimated useful lives of the underlying assets, except for $459 million and $39 million of excess related to goodwill for the G&P and L&S segments, respectively.

MarkWest Utica EMG

MarkWest Utica EMG, L.L.C.’s (“MarkWest Utica EMG”) is deemed to be a VIE. Neither MPLX nor any of its subsidiaries are deemed to be the primary beneficiary due to EMG Utica, LLC’s voting rights on significant matters. MPLX’s maximum exposure to loss as a result of its involvement with MarkWest Utica EMG includes its equity investment, any additional capital contribution commitments and any operating expenses incurred by the subsidiary operator in excess of its compensation received for the performance of the operating services. MarkWest Utica EMG holds an investment in its subsidiary, Ohio Gathering Company, L.L.C. (“Ohio Gathering”), which does not appear elsewhere in the tables above. The investment was $766 million and $750 million as of March 31, 2019 and December 31, 2018, respectively. MPLX did not provide any financial support to MarkWest Utica EMG that it was not contractually obligated to provide during the three months ended March 31, 2019.

Ohio Gathering

Ohio Gathering is a subsidiary of MarkWest Utica EMG and is engaged in providing natural gas gathering services in the Utica Shale in eastern Ohio. Ohio Gathering is a joint venture between MarkWest Utica EMG and Summit Midstream Partners, LLC. As of March 31, 2019, MPLX has an approximate 34 percent indirect ownership interest in Ohio Gathering. As Ohio Gathering is a subsidiary of MarkWest Utica EMG, which is accounted for as an equity method investment, MPLX reports its portion of Ohio Gathering’s net assets as a component of its investment in MarkWest Utica EMG.

Sherwood Midstream

Sherwood Midstream LLC (“Sherwood Midstream”) is deemed to be a VIE. Neither MPLX nor any of its subsidiaries are deemed to be the primary beneficiary of Sherwood Midstream due to Antero Midstream Partners, LP’s voting rights on significant matters. MPLX’s maximum exposure to loss as a result of its involvement with Sherwood Midstream includes its equity investment, any additional capital contribution commitments and any operating expenses incurred by the subsidiary operator in excess of its compensation received for the performance of the operating services. MPLX did not provide any financial support to Sherwood Midstream that it was not contractually obligated to provide during the three months ended March 31, 2019.


12


Table of Contents

Sherwood Midstream also has an investment in MarkWest Ohio Fractionation Company, L.L.C. (“Ohio Fractionation”), which is a VIE, that it accounts for as an equity method investment as Sherwood Midstream does not control Ohio Fractionation. During the three months ended March 31, 2019, Sherwood Midstream acquired the right to fractionation revenue and the obligation to pay expenses related to 20 mbpd of capacity in the Hopedale 4 fractionator; this transaction is shown as “Contributions from noncontrolling interests” on the Consolidated Statements of Cash Flows. MarkWest Liberty Midstream & Resources, L.L.C (“MarkWest Liberty Midstream”), a wholly-owned and consolidated subsidiary, has been deemed to be the primary beneficiary of Ohio Fractionation because it has control over the decisions that could significantly impact its financial performance, and as a result, consolidates Ohio Fractionation. The creditors of Ohio Fractionation do not have recourse to MPLX LP’s general credit through guarantees or other financial arrangements. The assets of Ohio Fractionation are the property of Ohio Fractionation and cannot be used to satisfy the obligations of MPLX LP. Sherwood Midstream’s interests are reflected in “Net income attributable to noncontrolling interests” on the Consolidated Statements of Income and “Noncontrolling interests” on the Consolidated Balance Sheets.

Sherwood Midstream Holdings

MPLX accounts for Sherwood Midstream Holdings LLC (“Sherwood Midstream Holdings”), which is a VIE, as an equity method investment as Sherwood Midstream is considered to be the general partner and controls all decisions. During the three months ended March 31, 2018, MarkWest Liberty Midstream sold to Sherwood Midstream six percent of its equity ownership in Sherwood Midstream Holdings for $15 million. MPLX’s maximum exposure to loss as a result of its involvement with Sherwood Midstream Holdings includes its equity investment, any additional capital contribution commitments and any operating expenses incurred by the subsidiary operator in excess of its compensation received for the performance of the operating services. MPLX did not provide any financial support to Sherwood Midstream Holdings that it was not contractually obligated to provide during the three months ended March 31, 2019.

Sherwood Midstream has been deemed the primary beneficiary of Sherwood Midstream Holdings due to its controlling financial interest through its authority to manage the joint venture. As a result, Sherwood Midstream consolidates Sherwood Midstream Holdings. Therefore, MPLX also reports its portion of Sherwood Midstream Holdings’ net assets as a component of its investment in Sherwood Midstream. As of March 31, 2019, MPLX has a 21.8 percent indirect ownership interest in Sherwood Midstream Holdings through Sherwood Midstream.

5. Related Party Agreements and Transactions

MPLX’s material related parties are:

MPC, which refines, markets and transports crude oil and petroleum products.
MarkWest Utica EMG, in which MPLX LP has a 56 percent interest as of March 31, 2019. MarkWest Utica EMG is engaged in natural gas processing and NGL fractionation, transportation and marketing in Ohio.
Ohio Gathering, in which MPLX LP has a 34 percent indirect interest as of March 31, 2019. Ohio Gathering is a subsidiary of MarkWest Utica EMG providing natural gas gathering service in the Utica Shale region of eastern Ohio.
Sherwood Midstream, in which MPLX LP has a 50 percent interest as of March 31, 2019. Sherwood Midstream supports the development of Antero Resources Corporation’s Marcellus Shale acreage in the rich-gas corridor of West Virginia.
Sherwood Midstream Holdings, in which MPLX LP has a 78 percent total direct and indirect interest as of March 31, 2019. Sherwood Midstream Holdings owns certain infrastructure at the Sherwood Complex that is shared by and supports the operation of both the Sherwood Midstream and MarkWest gas processing plants and de-ethanization facilities.
MarkWest EMG Jefferson Dry Gas Gathering Company, L.L.C. (“Jefferson Dry Gas”), in which MPLX LP has a 67 percent interest as of March 31, 2019. Jefferson Dry Gas provides natural dry gas gathering and related services in the Utica Shale region of Ohio.

Related Party Agreements

MPLX has various long-term, fee-based commercial agreements with MPC. Under these agreements, MPLX provides transportation, terminal, fuels distribution, marketing, storage, management, operational and other services to MPC. MPC has committed to provide MPLX with minimum throughput volumes on crude oil and refined products systems; fees for storage capacity; a fixed fee for substantially all available capacity for boats and barges under the marine transportation services

13


Table of Contents

agreement; operating and management fees; as well as reimbursements for certain direct and indirect costs. In addition, MPLX has obligations to MPC for services provided to MPLX by MPC under omnibus and employee services agreements as well as other various agreements.

MPLX is also party to a loan agreement with MPC Investment LLC (“MPC Investment”) (the “MPC Loan Agreement”). Under the terms of the MPC Loan Agreement, MPC Investment makes a loan or loans to MPLX on a revolving basis as requested by MPLX and as agreed to by MPC Investment. On April 27, 2018, MPLX and MPC Investment entered into an amendment to the MPC Loan Agreement to increase the borrowing capacity under the MPC Loan Agreement from $500 million to $1 billion in aggregate principal amount of all loans outstanding at any one time. The entire unpaid principal amount of the loan, together with all accrued and unpaid interest and other amounts (if any), shall become due and payable on December 4, 2020. MPC Investment may demand payment of all or any portion of the outstanding principal amount of the loan, together with all accrued and unpaid interest and other amounts (if any), at any time prior to December 4, 2020. Borrowings under the loan will bear interest at LIBOR plus 1.50 percent. Activity on the MPC Loan Agreement was as follows:
(In millions)
Three Months Ended March 31, 2019
 
Year Ended December 31, 2018
Borrowings
$
851

 
$
3,962

Average interest rate of borrowings
3.988
%
 
3.473
%
Repayments
$
851

 
$
4,347

Outstanding balance at end of period(1)
$

 
$

(1) Included in “Current liabilities - related parties” on the Consolidated Balance Sheets.

Related Party Revenue

Related party sales to MPC consist of crude oil and refined products pipeline transportation services based on tariff rates; storage, terminal and fuels distribution services based on contracted rates; and marine transportation services. Related party sales to MPC also consist of revenue related to volume deficiency credits.

MPLX also has operating agreements with MPC under which it receives a fee for operating MPC’s retained pipeline assets and a fixed annual fee for providing oversight and management services required to run the marine business. MPLX also receives management fee revenue for engineering, construction and administrative services for operating certain of its equity method investments.

Revenue received from related parties included on the Consolidated Statements of Income was as follows:
 
Three Months Ended March 31,
(In millions)
2019
 
2018
Service revenues - related parties
 
 
 
MPC
$
578

 
$
471

Rental income - related parties
 
 
 
MPC
193

 
145

Product sales - related parties(1)
 
 
 
MPC
11

 
4

Other income - related parties
 
 
 
MPC
10

 
10

MarkWest Utica EMG
4

 
4

Ohio Gathering
4

 
4

Sherwood Midstream
4

 
3

Jefferson Dry Gas
2

 
1

Other
2

 
1

Total Other income - related parties
$
26

 
$
23


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Table of Contents


(1)
There were additional product sales to MPC that net to zero within the consolidated financial statements as the transactions are recorded net due to the terms of the agreements under which such product was sold. For the three months ended March 31, 2019 and March 31, 2018, these sales totaled $86 million and $79 million, respectively.

Related Party Expenses

MPC provides executive management services and certain general and administrative services to MPLX under the terms of an omnibus agreement (“Omnibus charges”). Omnibus charges included in “Rental cost of sales - related parties” primarily relate to services that support MPLX’s rental operations and maintenance of assets available for rent. Omnibus charges included in “Purchases - related parties” primarily relate to services that support MPLX’s operations and maintenance activities, as well as compensation expenses. Omnibus charges included in “General and administrative expenses” primarily relate to services that support MPLX’s executive management, accounting and human resources activities. MPLX LP also obtains employee services from MPC under employee services agreements (“ESA charges”). ESA charges for personnel directly involved in or supporting operations and maintenance activities related to rental services are classified as “Rental cost of sales - related parties.” ESA charges for personnel directly involved in or supporting operations and maintenance activities related to other services are classified as “Purchases - related parties.” ESA charges for personnel involved in executive management, accounting and human resources activities are classified as “General and administrative expenses.” In addition to these agreements, MPLX purchases products from MPC, makes payments to MPC in its capacity as general contractor to MPLX, and has certain rent and lease agreements with MPC.

Expenses incurred from MPC under the omnibus and employee services agreements as well as other purchases from MPC included on the Consolidated Statements of Income are as follows:
 
Three Months Ended March 31,
(In millions)
2019
 
2018
Rental cost of sales - related parties
$
3

 
$
1

Purchases - related parties
212

 
177

General and administrative expenses
50

 
39

Total
$
265

 
$
217


Some charges incurred under the omnibus and ESA agreements are related to engineering services and are associated with assets under construction. These charges are added to “Property, plant and equipment, net” on the Consolidated Balance Sheets. For the three months ended March 31, 2019 and March 31, 2018, these charges totaled $41 million and $22 million, respectively.

Related Party Assets and Liabilities

Assets and liabilities with related parties appearing on the Consolidated Balance Sheets are detailed in the table below. This table identifies the various components of related party assets and liabilities, including those associated with leases (see Note 19 for additional information) and deferred revenue on minimum volume commitments. During the three months ended March 31, 2019 and the year ended December 31, 2018, MPC did not ship its minimum committed volumes on certain pipelines. Under MPLX’s pipeline transportation services agreements, if MPC fails to transport its minimum throughput volumes during any quarter, then MPC will pay MPLX a deficiency payment equal to the volume of the deficiency multiplied by the tariff rate then in effect. The deficiency amounts are recorded as “Current liabilities - related parties.” MPC may then apply the amount of any such deficiency payments as a credit for volumes transported on the applicable pipeline in excess of its minimum volume commitment in future periods under the terms of the applicable transportation services agreement. MPLX recognizes related party 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 credits. The use or expiration of the credits is a decrease in “Current liabilities - related parties.” In addition, capital projects MPLX is undertaking at the request of MPC are reimbursed in cash and recognized in income over the remaining term of the applicable agreements.

15


Table of Contents

(In millions)
March 31, 2019
 
December 31, 2018
Current assets - related parties
 
 
 
Receivables - MPC
$
372

 
$
281

Receivables - Other
7

 
8

Prepaid - MPC
7

 
1

Total
386

 
290

Noncurrent assets - related parties
 
 
 
Long-term receivables - MPC
24

 
24

Right of use assets - MPC
232

 

Total
256

 
24

Current liabilities - related parties
 
 
 
Payables - MPC
119

 
131

Payables - MarkWest Utica EMG
16

 
51

Payables - Sherwood Midstream
18

 
16

Payables - Other
5

 
5

Operating lease liabilities - MPC
1

 

Deferred revenue - Minimum volume deficiencies - MPC
38

 
44

Deferred revenue - Project reimbursements - MPC
7

 
7

Total
204

 
254

Long-term liabilities - related parties
 
 
 
Long-term operating lease liabilities - MPC
231

 

Long-term deferred revenue - Project reimbursements - MPC
42

 
43

Total
$
273

 
$
43


Other Related Party Transactions

From time to time, MPLX may also sell to or purchase from related parties, assets and inventory at the lesser of average unit cost or net realizable value. Sales to and purchases from related parties for the three months ended March 31, 2019 and 2018 were less than $1 million, respectively.

6. Net Income/(Loss) Per Limited Partner Unit

Net income/(loss) per unit applicable to common limited partner units is computed by dividing net income/(loss) attributable to MPLX LP less income/(loss) allocated to participating securities by the weighted average number of common units outstanding. The classes of participating securities include common units, certain equity-based compensation awards and Series A Convertible preferred units.

For the three months ended March 31, 2019 and 2018, MPLX had dilutive potential common units consisting of certain equity-based compensation awards. Potential common units omitted from the diluted earnings per unit calculation for the three months ended March 31, 2019 and 2018 were less than 1 million.
 
Three Months Ended March 31,
(In millions)
2019
 
2018
Net income attributable to MPLX LP
$
503

 
$
421

Less: Limited partners’ distributions declared on preferred units(1)
20

 
16

Limited partners’ distributions declared on common units (including common units of general partner)(1)
523

 
467

Undistributed net loss attributable to MPLX LP
$
(40
)

$
(62
)

(1)
See Note 7 for distribution information.

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Table of Contents

 
Three Months Ended March 31, 2019
(In millions, except per unit data)
Limited Partners’
Common Units
 
Redeemable Preferred Units
 
Total
Basic and diluted net income attributable to MPLX LP per unit
 
 
 
 
 
Net income attributable to MPLX LP:
 
 
 
 
 
Distributions declared
$
523

 
$
20

 
$
543

Undistributed net loss attributable to MPLX LP
(40
)
 

 
(40
)
Net income attributable to MPLX LP(1)
$
483

 
$
20

 
$
503

Weighted average units outstanding:
 
 
 
 
 
Basic
794

 
31

 
825

Diluted
795

 
31

 
826

Net income attributable to MPLX LP per limited partner unit:
 
 
 
 
 
Basic
$
0.61

 
 
 
 
Diluted
$
0.61

 
 
 
 

 
Three Months Ended March 31, 2018
(In millions, except per unit data)
Limited Partners’
Common Units
 
Redeemable Preferred Units
 
Total
Basic and diluted net income attributable to MPLX LP per unit
 
 
 
 
 
Net income attributable to MPLX LP:
 
 
 
 
 
Distributions declared (including IDRs)
$
467

 
$
16

 
$
483

Undistributed net loss attributable to MPLX LP
(62
)
 

 
(62
)
Net income attributable to MPLX LP(1)
$
405

 
$
16

 
$
421

Weighted average units outstanding:
 
 
 
 
 
Basic
661

 
31

 
692

Diluted
661

 
31

 
692

Net income attributable to MPLX LP per limited partner unit:
 
 
 
 
 
Basic
$
0.61

 


 
 
Diluted
$
0.61

 


 
 

(1)
Allocation of net income attributable to MPLX LP assumes all earnings for the period had been distributed based on the current period distribution priorities.

7. Equity

The changes in the number of common units outstanding during the three months ended March 31, 2019 are summarized below:
(In units)
Common
Balance at December 31, 2018
794,089,518

Unit-based compensation awards
148,379

Balance at March 31, 2019
794,237,897


Cash distributions In accordance with the Partnership Agreement, on April 29, 2019, MPLX declared a quarterly cash distribution, based on the results of the first quarter of 2019, totaling $523 million, or $0.6575 per common unit; this rate will also be received by preferred unitholders. These distributions will be paid on May 15, 2019 to common unitholders of record on May 9, 2019. Distributions for the first quarter of 2018 were $0.6175 per common unit.

The allocation of total quarterly cash distributions to limited and preferred unitholders is as follows for the three months ended March 31, 2019 and 2018. MPLX’s 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.

17


Table of Contents

 
Three Months Ended March 31,
(In millions)
2019
 
2018
Common and preferred unit distributions:
 
 
 
Common unitholders, includes common units of general partner
$
523

 
$
467

Preferred unit distributions
20

 
16

Total cash distributions declared
$
543

 
$
483


8. Redeemable Preferred Units

Private Placement of Preferred Units On May 13, 2016, MPLX LP completed the private placement of approximately 30.8 million 6.5 percent Series A Convertible preferred units for a cash purchase price of $32.50 per unit. The aggregate net proceeds of approximately $984 million from the sale of the preferred units were used for capital expenditures, repayment of debt and general business purposes. The preferred units rank senior to all common units with respect to distributions and rights upon liquidation. The holders of the preferred units received cumulative quarterly distributions equal to $0.528125 per unit for each quarter prior to the second quarter of 2018. Beginning with the second quarter of 2018, the holders of the preferred units are entitled to receive a quarterly distribution equal to the greater of $0.528125 per unit or the amount of distributions they would have received on an as converted basis. On April 29, 2019, MPLX declared a quarterly cash distribution of $0.6575 per common unit representing the distribution of income earned during the first quarter of 2019. The preferred units will receive the common unit rate in lieu of the lower $0.528125 base amount.

The changes in the redeemable preferred balance from December 31, 2018 through March 31, 2019 are summarized below:
(In millions)
Redeemable Preferred Units
Balance at December 31, 2018
$
1,004

Net income allocated
20

Distributions received by preferred unitholders
(20
)
Balance at March 31, 2019
$
1,004


The holders may convert their preferred units into common units at any time after the third anniversary of the issuance date or prior to liquidation, dissolution or winding up of the Partnership, in full or in part, subject to minimum conversion amounts and conditions. After the fourth anniversary of the issuance date, MPLX may convert the preferred units into common units at any time, in whole or in part, subject to certain minimum conversion amounts and conditions, if the closing price of MPLX LP common units is greater than $48.75 for the 20-day trading period immediately preceding the conversion notice date. The conversion rate for the preferred units shall be the quotient of (a) the sum of (i) $32.50, plus (ii) any unpaid cash distributions on the applicable preferred unit, divided by (b) $32.50, subject to adjustment for unit distributions, unit splits and similar transactions. The holders of the preferred units are entitled to vote on an as-converted basis with the common unitholders and have certain other class voting rights with respect to any amendment to the Partnership Agreement that would adversely affect any rights, preferences or privileges of the preferred units. In addition, upon certain events involving a change of control, the holders of preferred units may elect, among other potential elections, to convert their preferred units to common units at the then change of control conversion rate.

The preferred units are considered redeemable securities under GAAP due to the existence of redemption provisions upon a deemed liquidation event which is outside MPLX’s control. Therefore, they are presented as temporary equity in the mezzanine section of the Consolidated Balance Sheets. The preferred units have been recorded at their issuance date fair value, net of issuance costs. Income allocations increase the carrying value and declared distributions decrease the carrying value of the preferred units. As the preferred units are not currently redeemable and not probable of becoming redeemable, adjustment to the initial carrying amount is not necessary and would only be required if it becomes probable that the preferred units would become redeemable.

9. Segment Information

MPLX’s chief operating decision maker is the chief executive officer (“CEO”) of its general partner. The CEO reviews MPLX’s discrete financial information, makes operating decisions, assesses financial performance and allocates resources on a type of service basis. MPLX has two reportable segments: L&S and G&P. Each of these segments is organized and managed based upon the nature of the products and services it offers.


18


Table of Contents

L&S – transports, stores, distributes and markets crude oil and refined petroleum products.
G&P – gathers, processes and transports natural gas; and gathers, transports, fractionates, stores and markets NGLs.
During the second quarter of 2018, our CEO began to evaluate the performance of our segments using Segment Adjusted EBITDA. We have modified our presentation of segment performance metrics to be consistent with this change, including prior periods presented for consistent and comparable presentation. Amounts included in net income and excluded from Segment Adjusted EBITDA include: (i) depreciation and amortization; (ii) provision/(benefit) for income taxes; (iii) amortization of deferred financing costs; (iv) extinguishment of debt; (v) non-cash equity-based compensation; (vi) impairment expense; (vii) net interest and other financial costs; (viii) income/(loss) from equity method investments; (ix) distributions and adjustments related to equity method investments; (x) unrealized derivative gains/(losses); (xi) acquisition costs; (xii) noncontrolling interest; and (xiii) other adjustments as deemed necessary. These items are either: (i) believed to be non-recurring in nature; (ii) not believed to be allocable or controlled by the segment; or (iii) are not tied to the operational performance of the segment.

The tables below present information about revenues and other income, capital expenditures and total assets for our reportable segments:
 
Three Months Ended March 31,
(In millions)
2019
 
2018
L&S
 
 
 
Service revenue
$
612

 
$
499

Rental income
199

 
145

Product related revenue
3

 
2

Income from equity method investments
41

 
44

Other income
11

 
12

Total segment revenues and other income(1)
866

 
702

Segment Adjusted EBITDA(2)
559

 
437

Maintenance capital expenditures
13

 
22

Growth capital expenditures
103

 
154

G&P
 
 
 
Service revenue
404

 
354

Rental income
88

 
79

Product related revenue
244

 
253

Income from equity method investments
29

 
17

Other income
15

 
15

Total segment revenues and other income(1)
780

 
718

Segment Adjusted EBITDA(2)
371

 
323

Maintenance capital expenditures
6

 
3

Growth capital expenditures
$
261

 
$
271


(1)
Within the total segment revenues and other income amounts presented above, third party revenues for the L&S segment were $82 million and $74 million for the three months ended March 31, 2019 and 2018, respectively. Third party revenues for the G&P segment were $757 million and $703 million for the three months ended March 31, 2019 and 2018, respectively.
(2)
See below for the reconciliation from Segment Adjusted EBITDA to “Net income.”

(In millions)
March 31, 2019
 
December 31, 2018
Segment assets
 
 
 
Cash and cash equivalents
$
93

 
$
68

L&S(1)
7,040

 
6,566

G&P(1)
16,451

 
16,145

Total assets
$
23,584

 
$
22,779


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Table of Contents


(1)
Equity method investments included in L&S assets were $1.12 billion at March 31, 2019 and December 31, 2018, respectively. Equity method investments included in G&P assets were $3.15 billion at March 31, 2019 and $3.05 billion at December 31, 2018.

The table below provides a reconciliation between “Net income” and Segment Adjusted EBITDA.

 
Three Months Ended March 31,
(In millions)
2019
 
2018
Reconciliation to Net income:
 
 
 
L&S Segment Adjusted EBITDA
$
559

 
$
437

G&P Segment Adjusted EBITDA
371

 
323

Total reportable segments
930

 
760

Depreciation and amortization(1)
(211
)
 
(176
)
Benefit/(provision) for income taxes
2

 
(4
)
Amortization of deferred financing costs
(13
)
 
(16
)
Non-cash equity-based compensation
(6
)
 
(4
)
Net interest and other financial costs
(158
)
 
(114
)
Income from equity method investments
70

 
61

Distributions/adjustments related to equity method investments
(108
)
 
(90
)
Unrealized derivative (losses)/gains(2)
(4
)
 
7

Acquisition costs

 
(3
)
Adjusted EBITDA attributable to noncontrolling interests
7

 
2

Net income
$
509

 
$
423


(1)
Depreciation and amortization attributable to L&S was $70 million and $48 million for the three months ended March 31, 2019 and 2018, respectively. Depreciation and amortization attributable to G&P was $141 million and $128 million for the three months ended March 31, 2019 and 2018, respectively.
(2)
MPLX makes a distinction between realized and unrealized gains and losses on derivatives. During the period when a derivative contract is outstanding, changes in the fair value of the derivative are recorded as an unrealized gain or loss. When a derivative contract matures or is settled, the previously recorded unrealized gain or loss is reversed and the realized gain or loss of the contract is recorded.

10. Inventories

Inventories consist of the following:
(In millions)
March 31, 2019
 
December 31, 2018
NGLs
$
3

 
$
9

Line fill
10

 
9

Spare parts, materials and supplies
61

 
59

Total inventories
$
74

 
$
77



20



11. Property, Plant and Equipment
 
Property, plant and equipment with associated accumulated depreciation is shown below:
(In millions)
March 31, 2019
 
December 31, 2018
Natural gas gathering and NGL transportation pipelines and facilities
$
6,128

 
$
5,926

Processing, fractionation and storage facilities
5,343

 
5,336

Pipelines and related assets
2,620

 
2,560

Barges and towing vessels
635

 
620

Terminals and related assets
1,184

 
1,178

Refinery related assets
943

 
938

Land, building, office equipment and other
978

 
957

Construction-in-progress
858

 
801

Total
18,689

 
18,316

Less accumulated depreciation
3,873

 
3,677

Property, plant and equipment, net
$
14,816

 
$
14,639


12. Fair Value Measurements

Fair Values – Recurring

Fair value measurements and disclosures relate primarily to MPLX’s derivative positions as discussed in Note 13. The following table presents the financial instruments carried at fair value on a recurring basis as of March 31, 2019 and December 31, 2018 by fair value hierarchy level. MPLX has elected to offset the fair value amounts recognized for multiple derivative contracts executed with the same counterparty.
 
March 31, 2019
 
December 31, 2018
(In millions)
Assets
 
Liabilities
 
Assets
 
Liabilities
Significant unobservable inputs (Level 3)
 
 
 
 
 
 
 
Embedded derivatives in commodity contracts
$

 
$
(65
)
 
$

 
$
(61
)
Total carrying value on Consolidated Balance Sheets
$

 
$
(65
)
 
$

 
$
(61
)

Level 3 instruments include all NGL transactions and embedded derivatives in commodity contracts. The embedded derivative liability relates to a natural gas purchase agreement embedded in a keep-whole processing agreement. The fair value calculation for these Level 3 instruments used significant unobservable inputs including: (1) NGL prices interpolated and extrapolated due to inactive markets ranging from $0.60 to $1.25 and (2) the probability of renewal of 91 percent for the first five-year term and 82 percent for the second five-year term of the gas purchase agreement and related keep-whole processing agreement. Increases or decreases in the fractionation spread result in an increase or decrease in the fair value of the embedded derivative liability, respectively. An increase in the probability of renewal would result in an increase in the fair value of the related embedded derivative liability. Beyond the embedded derivative discussed above, we had no outstanding commodity contracts as of March 31, 2019 or December 31, 2018.
 
Changes in Level 3 Fair Value Measurements

The following table is a reconciliation of the net beginning and ending balances recorded for net assets and liabilities classified as Level 3 in the fair value hierarchy.

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Three Months Ended March 31, 2019
 
Three Months Ended March 31, 2018
(In millions)
Commodity Derivative Contracts (net)
 
Embedded Derivatives in Commodity Contracts (net)
 
Commodity Derivative Contracts (net)
 
Embedded Derivatives in Commodity Contracts (net)
Fair value at beginning of period
$

 
$
(61
)
 
$
(2
)
 
$
(64
)
Total (losses)/gains (realized and unrealized) included in earnings(1)

 
(6
)
 

 
3

Settlements

 
2

 

 
3

Fair value at end of period

 
(65
)
 
(2
)
 
(58
)
The amount of total losses for the period included in earnings attributable to the change in unrealized losses relating to liabilities still held at end of period
$

 
$
(5
)
 
$

 
$
3

(1)
Gains and losses on commodity derivative contracts classified as Level 3 are recorded in “Product sales” on the Consolidated Statements of Income. Gains and losses on derivatives embedded in commodity contracts are recorded in “Purchased product costs” and “Cost of revenues” on the Consolidated Statements of Income.

Fair Values – Reported

MPLX’s primary financial instruments are cash and cash equivalents, receivables, receivables from related parties, accounts payable, payables to related parties and long-term debt. MPLX’s fair value assessment incorporates a variety of considerations, including (1) the duration of the instruments, (2) MPC’s investment-grade credit rating and (3) the historical incurrence of and expected future insignificance of bad debt expense, which includes an evaluation of counterparty credit risk. MPLX believes the carrying values of its current assets and liabilities approximate fair value. The recorded value of the amounts outstanding under the bank revolving credit facility, if any, approximates fair value due to the variable interest rate that approximates current market rates. Derivative instruments are recorded at fair value, based on available market information (see Note 13).

The fair value of MPLX’s long-term debt is estimated based on recent market non-binding indicative quotes. The fair value of the SMR liability is estimated using a discounted cash flow approach based on the contractual cash flows and MPLX’s unsecured borrowing rate. The long-term debt and SMR liability fair values are considered Level 3 measurements. The following table summarizes the fair value and carrying value of the long-term debt, excluding finance leases, and SMR liability:
 
March 31, 2019
 
December 31, 2018
(In millions)
Fair Value
 
Carrying Value
 
Fair Value
 
Carrying Value
Long-term debt
$
14,430

 
$
13,921

 
$
13,169

 
$
13,484

SMR liability
$
94

 
$
85

 
$
92

 
$
86


13. Derivative Financial Instruments

As of March 31, 2019, MPLX had no outstanding commodity contracts beyond the embedded derivative discussed below.

Embedded Derivative - MPLX has a natural gas purchase commitment embedded in a keep-whole processing agreement with a producer customer in the Southern Appalachian region expiring in December 2022. The customer has the unilateral option to extend the agreement for two consecutive five-year terms through December 2032. For accounting purposes, the natural gas purchase commitment and the term extending options have been aggregated into a single compound embedded derivative. The probability of the customer exercising its options is determined based on assumptions about the customer’s potential business strategy decision points that may exist at the time they would elect whether to renew the contract. The changes in fair value of this compound embedded derivative are based on the difference between the contractual and index pricing, the probability of the producer customer exercising its option to extend and the estimated favorability of these contracts compared to current market conditions. The changes in fair value are recorded in earnings through “Purchased product costs” on the Consolidated Statements of Income. As of March 31, 2019 and December 31, 2018, the estimated fair value of this contract was a liability of $65 million and $61 million, respectively.


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Certain derivative positions are subject to master netting agreements, therefore, MPLX has elected to offset derivative assets and liabilities that are legally permissible to be offset. As of March 31, 2019 and December 31, 2018, there were no derivative assets or liabilities that were offset on the Consolidated Balance Sheets. The impact of MPLX’s derivative instruments on its Consolidated Balance Sheets is summarized below:
(In millions)
March 31, 2019
 
December 31, 2018
Derivative contracts not designated as hedging instruments and their balance sheet location
Asset
 
Liability
 
Asset
 
Liability
Commodity contracts(1)
 
 
 
 
 
 
 
Other current assets / Other current liabilities
$

 
$
(8
)
 
$

 
$
(7
)
Other noncurrent assets / Deferred credits and other liabilities

 
(57
)
 

 
(54
)
Total
$

 
$
(65
)
 
$

 
$
(61
)
(1)
Includes embedded derivatives in commodity contracts as discussed above.

For further information regarding the fair value measurement of derivative instruments, including the effect of master netting arrangements or collateral, see Note 12. There were no material changes to MPLX’s policy regarding the accounting for Level 2 and Level 3 instruments as previously disclosed in MPLX’s Annual Report on Form 10-K for the year ended December 31, 2018. MPLX does not designate any of its commodity derivative positions as hedges for accounting purposes.

The impact of MPLX’s derivative contracts not designated as hedging instruments and the location of gains and losses recognized on the Consolidated Statements of Income is summarized below:
 
Three Months Ended March 31,
(In millions)
2019
 
2018
Product sales
 
 
 
Realized (loss)/gain
$

 
$

Unrealized (loss)/gain

 
1

Total derivative (loss)/gain related to product sales

 
1

Purchased product costs
 
 
 
Realized (loss)/gain
(2
)
 
(3
)
Unrealized (loss)/gain
(4
)
 
6

Total derivative (loss)/gain related to purchased product costs
(6
)
 
3

Cost of revenues
 
 
 
Realized (loss)/gain

 

Unrealized (loss)/gain

 

Total derivative (loss)/gain related to cost of revenues

 

Total derivative (loss)/gain
$
(6
)
 
$
4



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14. Debt

MPLX’s outstanding borrowings consist of the following:
(In millions)
March 31, 2019
 
December 31, 2018
MPLX LP:
 
 
 
Bank revolving credit facility due 2022
$
425

 
$

3.375% senior notes due March 2023
500

 
500

4.500% senior notes due July 2023
989

 
989

4.875% senior notes due December 2024
1,149

 
1,149

4.000% senior notes due February 2025
500

 
500

4.875% senior notes due June 2025
1,189

 
1,189

4.125% senior notes due March 2027
1,250

 
1,250

4.000% senior notes due March 2028
1,250

 
1,250

4.800% senior notes due February 2029
750

 
750

4.500% senior notes due April 2038
1,750

 
1,750

5.200% senior notes due March 2047
1,000

 
1,000

4.700% senior notes due April 2048
1,500

 
1,500

5.500% senior notes due February 2049
1,500

 
1,500

4.900% senior notes due April 2058
500

 
500

Consolidated subsidiaries:
 
 
 
MarkWest - 4.500% - 4.875% senior notes, due 2023-2025
23

 
23

Financing lease obligations(1)
8

 
6

Total
14,283

 
13,856

Unamortized debt issuance costs
(96
)
 
(97
)
Unamortized discount
(354
)
 
(366
)
Amounts due within one year
(1
)
 
(1
)
Total long-term debt due after one year
$
13,832

 
$
13,392

(1)    See Note 19 for lease information.

Credit Agreements

MPLX has a $2.25 billion five-year bank revolving credit facility that expires in July 2022 (the “MPLX Credit Agreement”). During the three months ended March 31, 2019, MPLX borrowed $825 million under the MPLX Credit Agreement, at an average interest rate of 3.916 percent, and repaid $400 million. At March 31, 2019, MPLX had $425 million outstanding borrowings and $3 million letters of credit outstanding under the facility, resulting in total availability of $1.822 billion, or 81.0 percent of the borrowing capacity.

Senior Notes

On December 10, 2018, MPLX redeemed all of the $750 million 5.5 percent senior notes due February 15, 2023, $40 million of which was issued by the MarkWest subsidiary. These notes were redeemed at 101.833 percent of the principal amount, which resulted in a payment of $14 million related to the note premium and the immediate recognition of $46 million of unamortized debt issuance costs.

On November 15, 2018, MPLX issued $2.25 billion aggregate principal amount of senior notes in a public offering, consisting of $750 million aggregate principal amount of 4.8 percent unsecured senior notes due February 2029 and $1.5 billion aggregate principal amount of 5.5 percent unsecured senior notes due February 2049 (collectively, the “November 2018 New Senior Notes”). The November 2018 New Senior Notes were offered at a price to the public of 99.432 percent and 98.031 percent of par, respectively. The proceeds were used to repay outstanding borrowings under the MPLX Credit Agreement and the MPC Loan Agreement and to redeem the $750 million 5.5 percent senior notes due February 2023, as well as for general business

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Table of Contents

purposes. Interest on each series of the November 2018 New Senior Notes is payable semi-annually in arrears, commencing on February 15, 2019.

On February 8, 2018, MPLX issued $5.5 billion aggregate principal amount of senior notes in a public offering, consisting of $500 million aggregate principal amount of 3.375 percent unsecured senior notes due March 2023, $1.25 billion aggregate principal amount of 4.0 percent unsecured senior notes due March 2028, $1.75 billion aggregate principal amount of 4.5 percent unsecured senior notes due April 2038, $1.5 billion aggregate principal amount of 4.7 percent unsecured senior notes due April 2048, and $500 million aggregate principal amount of 4.9 percent unsecured senior notes due April 2058 (collectively, the “February 2018 New Senior Notes”). The February 2018 New Senior Notes were offered at a price to the public of 99.931 percent, 99.551 percent, 98.811 percent, 99.348 percent, and 99.289 percent of par, respectively. Also on February 8, 2018, $4.1 billion of the net proceeds were used to repay a 364-day term loan facility, which was drawn on February 1, 2018 to fund the cash portion of the dropdown consideration for Refining Logistics and Fuels Distribution. The remaining proceeds were used to repay outstanding borrowings under the MPLX Credit Agreement and the MPC Loan Agreement, as well as for general business purposes. Interest on each series of notes due in 2023 and 2028 is payable semi-annually in arrears, commencing on September 15, 2018. Interest on each series of notes due in 2038, 2048 and 2058 is payable semi-annually in arrears, commencing on October 15, 2018.

15. Revenue

Disaggregation of Revenue

The following table represents a disaggregation of revenue for each reportable segment for the three months ended March 31, 2019 and 2018:
 
Three Months Ended March 31, 2019
(In millions)
L&S
 
G&P
 
Total
Revenues and other income:
 
 
 
 
 
Service revenue
$
34

 
$
404

 
$
438

Service revenue - related parties
578

 

 
578

Service revenue - product related

 
34

 
34

Product sales
1

 
201

 
202

Product sales - related parties
2

 
9

 
11

Total revenues from contracts with customers
$
615

 
$
648

 
1,263

Non-ASC 606 revenue(1)
 
 
 
 
383

Total revenues and other income
 
 
 
 
$
1,646


(1)
Non-ASC 606 Revenue includes rental income, income from equity method investments, derivative gains and losses, mark-to-market adjustments, and other income.

 
Three Months Ended March 31, 2018
(In millions)
L&S
 
G&P
 
Total
Revenues and other income:
 
 
 
 
 
Service revenue
$
28

 
$
354

 
$
382

Service revenue - related parties
471

 

 
471

Service revenue - product related

 
44

 
44

Product sales(1)
1

 
205

 
206

Product sales - related parties
1

 
3

 
4

Total revenues from contracts with customers
$
501

 
$
606

 
1,107

Non-ASC 606 revenue(2)
 
 
 
 
313

Total revenues and other income
 
 
 
 
$
1,420


(1)
G&P “Product sales” for the three months ended March 31, 2018 includes approximately $1 million of revenue related to derivative gains and losses and mark-to-market adjustments.

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Table of Contents

(2)
Non-ASC 606 Revenue includes rental income, income from equity method investments, derivative gains and losses, mark-to-market adjustments, and other income.

Contract Balances

Contract assets typically relate to aid in construction agreements where the revenue recognized and MPLX’s rights to consideration for work completed exceeds the amount billed to the customer. Contract assets are generally classified as current and included in “Other current assets” on the Consolidated Balance Sheets.

Contract liabilities, which we refer to as “Deferred revenue” and “Long-term deferred revenue,” typically relate to advance payments for aid in construction agreements and deferred customer credits associated with makeup rights and minimum volume commitments. Related to minimum volume commitments, breakage is estimated and recognized into service revenue in instances where it is probable the customer will not use the credit in future periods. We classify contract liabilities as current or long-term based on the timing of when we expect to recognize revenue.

“Receivables, net” primarily relate to our commodity sales. Portions of the “Receivables, net” balance are attributed to the sale of commodity product controlled by MPLX prior to sale while a significant portion of the balance relates to the sale of commodity product on behalf of our producer customers. Both types of transactions are commingled and excluded from the table below. MPLX remits the net sales price back to our producer customers upon completion of the sale. Each period end, certain amounts within accounts payable relate to our payments to producer customers. Such amounts are not deemed material at period end as a result of when we settle with each producer.

The table below reflects the changes in our contract balances for the period ended March 31, 2019:

(In millions)
Balance at December 31, 2018(1)
 
Additions/ (Deletions)
 
Revenue Recognized(2)
 
Balance at March 31, 2019
Contract assets
$
4

 
$
1

 
$

 
$
5

Deferred revenue
4

 
1

 
(1
)
 
4

Deferred revenue - related parties
50

 
3

 
(9
)
 
44

Long-term deferred revenue
10

 
3

 

 
13

Long-term deferred revenue - related parties
$
42

 
$
(1
)
 
$

 
$
41


(1)
Balance represents ASC 606 portion of each respective line item.
(2)
No significant revenue was recognized related to past performance obligations in the current period.

Remaining Performance Obligations

The table below includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period.

As of March 31, 2019, the amounts allocated to contract assets and contract liabilities on the Consolidated Balance Sheets are $100 million and are reflected in the amounts below. This will be recognized as revenue as the obligations are satisfied, which is expected to occur over the next 25 years. Further, MPLX does not disclose variable consideration due to volume variability in the table below.

(In millions)
 
2019
$
884

2020
1,178

2021
1,193

2022
1,179

2023 and thereafter
5,651

Total revenue on remaining performance obligations(1),(2),(3)
$
10,085



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Table of Contents

(1)
All fixed consideration from contracts with customers is included in the amounts presented above. Variable consideration that is constrained or not required to be estimated as it reflects our efforts to perform is excluded.
(2)
Arrangements deemed implicit leases are included in “Rental income” and are excluded from this table.
(3)
Only minimum volume commitments that are deemed fixed are included in the table above. MPLX has various minimum volume commitments in processing arrangements that vary based on the actual Btu content of the gas received. These amounts are deemed variable consideration and are excluded from the table above.

We do not disclose information on the future performance obligations for any contract with an original expected duration of
one year or less.

16. Supplemental Cash Flow Information

(In millions)
March 31, 2019
 
December 31, 2018
Cash and cash equivalents
$
93

 
$
68

Restricted cash(1)

 
8

Cash, cash equivalents and restricted cash(2)
$
93

 
$
76


(1)
The restricted cash balance is included within “Other current assets” on the Consolidated Balance Sheets.
(2)
As a result of the adoption of ASU 2016-18, Statement of Cash Flows - Restricted Cash, the Consolidated Statements of Cash Flows now explain the change during the period of both “Cash and cash equivalents” and “Restricted cash.”
 
Three Months Ended March 31,
(In millions)
2019
 
2018
Net cash provided by operating activities included:
 
 
 
Interest paid (net of amounts capitalized)
$
143

 
$
103

Cash paid for amounts included in the measurement of lease liabilities
 
 
 
Payments on operating leases
19

 

Non-cash investing and financing activities:
 
 
 
Net transfers of property, plant and equipment from materials and supplies inventories
1

 
1

ROU assets obtained in exchange for new operating lease obligations
1

 

ROU assets obtained in exchange for new finance lease obligations
$
2

 
$


The Consolidated Statements of Cash Flows exclude changes to the Consolidated Balance Sheets that did not affect cash. The following is the change of additions to property, plant and equipment related to capital accruals:
 
Three Months Ended March 31,
(In millions)
2019
 
2018
Increase/(decrease) in capital accruals
$
(74
)
 
$
(6
)

17. Accumulated Other Comprehensive Loss

MPLX LP records an accumulated other comprehensive loss on the Consolidated Balance Sheets relating to pension and other post-retirement benefits provided by LOOP LLC (“LOOP”) and Explorer Pipeline Company (“Explorer”) to their employees. MPLX LP is not a sponsor of these benefit plans.

The following table shows the changes in “Accumulated other comprehensive loss” by component during the period December 31, 2018 through March 31, 2019.


27




(In millions)
Pension
Benefits
 
Other
Post-Retirement Benefits
 
Total
Balance at December 31, 2018(1)
$
(14
)
 
$
(2
)
 
$
(16
)
Other comprehensive income - remeasurements(2)

 
1

 
1

Balance at March 31, 2019(1)
$
(14
)
 
$
(1
)
 
$
(15
)

The following table shows the changes in “Accumulated other comprehensive loss” by component during the period December 31, 2017 through March 31, 2018.
(In millions)
Pension
Benefits
 
Other
Post-Retirement Benefits
 
Total
Balance at December 31, 2017(1)
$
(13
)
 
$
(1
)
 
$
(14