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(Exact name of registrant as specified in its charter)
iDelaware
i20-3265614
(State
or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
i9 Greenway Plaza, Suite 2800
iHouston,
iTexas
i77046
i(866)
i913-2122
(Address
and Telephone Number of Registrant’s Principal Executive Office)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
NONE
NONE
NONE
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. iYesý No o
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). iYesý No o
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.
iLarge Accelerated Filerý Accelerated
Filer o Non-Accelerated Filer o Smaller Reporting Company i☐
Emerging Growth Company i☐
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐
No ý
Boardwalk Pipeline Partners, LP meets the conditions set forth in General Instructions H(1) (a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format.
The
accompanying notes are an integral part of these condensed consolidated financial statements.
9
BOARDWALK PIPELINE PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: iBasis
of Presentation
Boardwalk Pipeline Partners, LP (the Company) is a Delaware limited partnership formed in 2005 to own and operate the business conducted by its primary subsidiary Boardwalk Pipelines, LP (Boardwalk Pipelines) and its operating subsidiaries, which consists of integrated natural gas and natural gas liquids and other hydrocarbons (herein referred to together as NGLs) pipeline and storage systems. As of September 30, 2019, Boardwalk Pipelines Holding Corp. (BPHC), a wholly-owned subsidiary of Loews Corporation (Loews), owned directly or indirectly,
i100% of the Company’s capital.
i
The
accompanying unaudited condensed consolidated financial statements of the Company were prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company's financial position as of September 30, 2019, and December 31,
2018, its results of operations, comprehensive income and changes in partners' capital for the three and nine months ended September 30, 2019 and 2018, and changes in cash flows for the nine months ended September 30, 2019 and 2018. Reference is made to the Notes to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended
December 31, 2018 (2018Annual Report on Form 10-K), which should be read in conjunction with these unaudited condensed consolidated financial statements. The accounting policies described in Note 2 of Part II, Item 8 of the Company's 2018Annual Report on Form 10-K are the same used in preparing the accompanying unaudited condensed consolidated financial statements, except for the changes described in Note 2 below.
Note
2: iAccounting Policies
i
Accounting
Pronouncements Adopted in 2019 - Leases
In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 supersedes Accounting Standards Codification Topic 840, Leases (ASC 840), and requires, among other things, the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under GAAP.
Effective January 1, 2019, the Company implemented ASU 2016-02 using the modified retrospective method as of the adoption date, with no adjustment to the comparative period information,
which remains reported under ASC 840, and no cumulative effect adjustment to partners’ capital. In addition, the Company elected to apply the following practical expedients that are available to entities: (1) practical expedient package to all of its leases, which allows an entity to (i) not reassess whether expired or existing contracts are or contain leases; (ii) not reassess the lease classification for any expired or existing leases; and (iii) not reassess initial direct costs for any existing leases; (2) the practical expedient related to existing and expired land easements that were not previously accounted for as leases, which allows an entity not to assess whether existing or expired land easements contain a lease under ASU 2016-02 if the land easement had not previously been accounted
for as a lease; and (3) combining lease and nonlease components in a contract, which allows an entity to account for the combined components under the guidance for the predominant component. The Company also elected to not apply the recognition requirements in ASU 2016-02 to short-term leases and to not apply the hindsight practical expedient when considering lessee options to extend or terminate a lease.
The implementation of ASU 2016-02 resulted in the recording of a right-of-use asset of $i18.0
million and a lease liability of $i20.8 million and the derecognition of prepaid assets and deferred rent related to the Company's operating lease agreements on the Company’s Condensed Consolidated Balance Sheets as of January 1, 2019. Note 4 contains more information about the Company’s leases.
/
10
Note
3: iRevenues
The Company operates in ione
reportable segment and contracts directly with producers of natural gas, with end-use customers, including local distribution companies, marketers, electric power generators and industrial users, and with interstate and intrastate pipelines, who, in turn, provide transportation and storage services for end-users. iThe following table presents the Company's revenues disaggregated by type of service for the three
and nine months ended September 30, 2019 and 2018 (in millions):
(1)
Revenues earned from contracts with minimum volume commitments (MVCs) are included in firm service given the stand-ready nature of the performance obligation and the guaranteed nature of the fees over the contract term. The nine months ended September 30, 2019, contains $i26.2
million of proceeds received related to the bankruptcy of a customer as discussed in Note 7.
(2) Other operating revenues include certain revenues earned from operating leases, pipeline management fees and other activities that are not considered central and ongoing major business operations of the Company and do not represent revenues earned from contracts with customers.
Contract liabilities are expected to be recognized
through 2024. iSignificant changes in the contract liabilities balances during the nine months ended September 30, 2019, are as follows (in millions):
The following table includes estimated operating revenues expected to be recognized in the future related to agreements that contain performance obligations that were unsatisfied as of September 30, 2019. The amounts presented primarily consist of fixed fees or MVCs which are typically recognized over time as the performance obligation is satisfied, as in accordance with firm
service contracts. Additionally, for the Company’s customers that are charged maximum tariff rates related to its Federal Energy Regulatory Commission regulated operating subsidiaries, the amounts below reflect the current tariff rate for such services for the term of the agreements; however, the tariff rates may be subject to future adjustment. The Company has elected to exclude the following from the table: (a) unsatisfied performance obligations from usage fees associated with its firm services because of the stand-ready nature of such services; (b) consideration in contracts
that are recognized in revenue as invoiced, such as for interruptible services; and (c) consideration that was received prior to September 30, 2019, that will be recognized in future periods, such as recorded in contract liabilities. The estimated revenues reflected in the table may include estimated revenues that are anticipated under executed precedent transportation agreements for projects that are subject to regulatory approvals.
(1)
For the 2019 period, $i868.3 million represents actual fixed fee revenues recognized for the fulfillment of performance obligations during the nine months ended September 30, 2019.
/
Note
4: iiLeases/
The
Company has various operating lease commitments extending through 2028, generally covering office space and equipment rentals, some of which contain options to renew or extend the lease term. The Company also has a finance lease related to the lease of an office building in Owensboro, Kentucky, that has a fifteen-year term with two twenty-year renewal options.
12
i
The
components of lease cost were as follows (in millions):
The
following table summarizes minimum future commitments to be made under non-cancelable operating leases as of December 31, 2018 (in millions):
2019
$
i4.8
2020
i4.7
2021
i4.6
2022
i4.5
2023
i4.1
Thereafter
i1.9
Total
$
i24.6
/
Note
5: iGas and Liquids Stored Underground and Gas and NGLs Receivables and Payables
i
The
operating subsidiaries of the Company provide storage services whereby they store natural gas or NGLs on behalf of customers and also periodically hold customer gas under parking and lending (PAL) services. Since the customers retain title to the gas held by the Company in providing these services, the Company does not record the related gas on its balance sheet.
The operating subsidiaries of the
Company also periodically lend gas to customers under PAL and certain firm services, and gas or NGLs may be owed to the operating subsidiaries as a result of transportation imbalances. As of September 30, 2019, the amount of gas owed to the operating subsidiaries of the Company due to gas imbalances and gas loaned under PAL and certain firm service agreements was approximately i10.5
trillion British thermal units (TBtu). Assuming an average market price during September 2019 of $i2.23 per million British thermal unit (MMBtu), the market value of that gas was approximately $i23.4
million. As of December 31, 2018, the amount of gas owed to the operating subsidiaries due to gas imbalances and gas loaned under PAL and certain firm service agreements was approximately i13.5 TBtu. Assuming an average market price during December 2018 of $i3.68
per MMBtu, the market value of that gas was approximately $i49.7 million. As of September 30, 2019, and December 31, 2018, there were ino
outstanding NGL imbalances owed to the operating subsidiaries. If any significant customer should have credit or financial problems resulting in a delay or failure to repay the gas owed to the operating subsidiaries, it could have a material adverse effect on the Company’s financial condition, results of operations or cash flows.
Note 6: iFair
Value Measurements
i
Financial Assets and Liabilities
The following methods and assumptions were used in estimating the fair value amounts included in the disclosures for financial assets and liabilities, which are consistent with those disclosed in the 2018Annual Report on Form 10-K:
Cash
and Cash Equivalents: For cash and short-term financial assets, the carrying amount is a reasonable estimate of fair value due to the short maturity of those instruments.
The
carrying amounts and estimated fair values of the Company's financial assets and liabilities which were not recorded at fair value on the Condensed Consolidated Balance Sheets as of September 30, 2019, and December 31, 2018, were as follows (in millions):
(1)
The carrying amount of long-term debt excludes a $i7.5 million long-term finance lease obligation and
$i7.1
million of unamortized debt issuance costs.
/
Note 7: iCommitments
and Contingencies
Legal Proceedings and Settlements
The Company and its subsidiaries are parties to various legal actions arising in the normal course of business. Management believes the disposition of these outstanding legal actions will not have a material impact on the Company's financial condition, results of operations or cash flows.
Mishal and Berger Litigation
On
May 25, 2018, plaintiffs Tsemach Mishal and Paul Berger (on behalf of themselves and the purported class, Plaintiffs) initiated a purported class action in the Court of Chancery of the State of Delaware (the Court) against the following defendants: the Company, Boardwalk GP, LP (Boardwalk GP), Boardwalk GP, LLC and BPHC (together, Defendants), regarding the potential exercise by Boardwalk GP of its right to purchase the issued and outstanding common units of the Company not already owned by Boardwalk GP or its affiliates (Purchase Right).
On
June 25, 2018, Plaintiffs and Defendants entered into a Stipulation and Agreement of Compromise and Settlement, subject to the approval of the Court (the Proposed Settlement). Under the terms of the Proposed Settlement, the lawsuit would be dismissed, and related claims against the Defendants would be released by the Plaintiffs, if BPHC, the sole member of the general partner of Boardwalk GP, elected to cause Boardwalk GP to exercise its Purchase Right for a cash purchase price, as determined by the Company's Third Amended and Restated Agreement of Limited Partnership, as amended (the Limited Partnership Agreement), and gave notice of such election as provided in the Limited Partnership Agreement within a period specified by the Proposed Settlement. On June 29, 2018, Boardwalk GP elected
to exercise the Purchase Right and gave notice within the period specified by the Proposed Settlement. On July 18, 2018, Boardwalk GP completed the purchase of the Company's common units pursuant to the Purchase Right.
On September 28, 2018, the Court denied approval of the Proposed Settlement. On February 11, 2019, a substitute verified class action complaint was filed in this proceeding. The Defendants filed a motion to dismiss, which was heard by the Court in July 2019. In October 2019, the Court ruled on the motion and granted a partial dismissal, with certain aspects of the case proceeding to trial. The case will be set for trial in early
2021.
15
City of New Orleans Litigation
Gulf South Pipeline Company, LP, along with several other energy companies operating in Southern Louisiana, has been named as a defendant in a petition for damages and injunctive relief in state district court for Orleans Parish, Louisiana, (Case No. 19-3466) by the City of New Orleans. The case was filed on March 29, 2019. The lawsuit claims include, among other things, negligence, strict liability, nuisance and breach of contract, alleging that the defendants’ drilling, dredging,
pipeline and industrial operations since the 1930s have caused increased storm surge risk, increased flood protection costs and unspecified damages to the City of New Orleans. Based on the facts and circumstances presently known, in the opinion of management, this case is not expected to be material to the Company's financial condition, results of operations or cash flows.
Letter of Credit Proceeds
In the second quarter 2019, a customer of Texas Gas Transmission, LLC, a subsidiary of the Company, (Texas Gas) declared bankruptcy and rejected the transportation agreements it had with Texas Gas as part of the bankruptcy
proceedings. Subsequent to the bankruptcy declaration, Texas Gas pursued and received proceeds of $i27.7 million from existing letters of credit provided to Texas Gas as credit support. In June 2019, the bankruptcy court approved the rejection of the transportation agreements, which relieved Texas Gas from providing further transportation services to its customer. As a result, Texas Gas first applied the proceeds from the letters of credit to outstanding receivables and then recognized as transportation revenues the remaining $i26.2
million of proceeds, which represent a portion of the future performance obligations that were eliminated under the transportation agreements.
Commitments for Construction
The Company’s future capital commitments are comprised of binding commitments under purchase orders for materials ordered but not received and firm commitments under binding construction service agreements. The commitments as of September 30, 2019, were approximately $i170.7
million, all of which are expected to be settled within the next twelve months.
There were no substantial changes to the Company’s commitments under pipeline capacity agreements disclosed in Note 4 of Part II, Item 8 of the Company’s 2018Annual Report on Form 10-K. Refer to Note 4 for further information about the Company’s operating and finance lease commitments.
Note
8:iFinancing
As of September 30, 2019, and December 31, 2018, the Company had total outstanding debt of $i3.5
billion and $i3.7 billion, including amounts outstanding under the Company’s notes and debentures and its revolving credit facility.
Notes and Debentures
As of September 30,
2019, and December 31, 2018, the Company had notes and debentures outstanding of $i3.3 billion and $i3.1
billion with weighted-average interest rates of i5.06% and i5.17%.
The indentures governing the notes and debentures have restrictive covenants which provide that, with certain exceptions, neither the Company nor any of its subsidiaries may create, assume or suffer to exist any lien upon any property to secure any indebtedness unless the debentures and notes shall be equally and ratably secured. All of the Company's debt obligations are unsecured. As of September 30, 2019, Boardwalk Pipelines and its operating subsidiaries
were in compliance with their debt covenants.
Issuance of Notes
i
For the nine months ended September 30, 2019, the Company completed the following debt issuance (in millions, except interest
rate):
The net proceeds of this offering were used to retire the outstanding $i350.0
million aggregate principal amount of Boardwalk Pipelines i5.75% notes due 2019 (Boardwalk Pipelines 2019 Notes) at maturity. Initially, the Company used the net proceeds to reduce outstanding borrowings under its revolving credit facility. Subsequently, in September 2019,
the Company retired all of the outstanding aggregate principal amount of Boardwalk Pipelines 2019 Notes at maturity with borrowings under its revolving credit facility.
Revolving Credit Facility
Outstanding borrowings under the Company’s revolving credit facility as of September 30, 2019, and December 31, 2018, were $i260.0
million and $i580.0 million, with weighted-average borrowing rates of i3.28%
and i3.69%. The Company and its subsidiaries were in compliance with all covenant requirements under the revolving credit facility as of September 30, 2019. The revolving credit facility has a borrowing capacity
of $i1.5 billion through May 26, 2020, and a borrowing capacity of $i1.475
billion from May 27, 2020, to May 26, 2022.
Note 9: iEmployee Benefits
Defined
Benefit Retirement Plans and Postretirement Benefits Other Than Pension (PBOP)
i
Components of net periodic benefit cost for both the Retirement Plans and PBOP for the three months endedSeptember 30, 2019 and 2018, were as follows (in millions):
Components
of net periodic benefit cost for both the Retirement Plans and PBOP for the nine months ended September 30, 2019 and 2018, were as follows (in millions):
During
the nine months ended September 30, 2019, the Company made $i3.8 million in contributions to the defined benefit pension plan, and expects to fund an additional $i0.9
million in the remainder of 2019.
17
Defined Contribution Plans
Texas Gas employees hired on or after November 1, 2006, and all other employees of the Company are provided retirement benefits under a defined contribution money purchase plan. The Company also provides 401(k) plan benefits to its employees. Costs related
to the Company’s defined contribution plans were $i2.8 million and $i2.7
million for the three months endedSeptember 30, 2019 and 2018, and $i8.4 million and $i8.0
million for the nine months ended September 30, 2019 and 2018.
Note 10: iRelated
Party Transactions
Loews provides a variety of corporate services to the Company under service agreements, including but not limited to, information technology, tax, risk management, internal audit and corporate development services and also charges the Company for allocated overheads. The Company incurred charges related to these services of $i1.4
million and $i1.6 million for the three months endedSeptember 30, 2019 and 2018, and $i4.3
million and $i4.6 million for the nine months ended September 30, 2019 and 2018.
Total distributions paid
to BPHC and Boardwalk GP were $i25.6 million for each of the three months endedSeptember 30, 2019 and 2018, and $i76.7
million and $i51.7 million for the nine months ended September 30, 2019 and 2018. The distribution paid to BPHC and Boardwalk GP in 2019 was impacted by the increase in ownership by Boardwalk GP in the third quarter 2018.
Note
11: iiSupplemental Disclosure of Cash Flow Information(in
millions):/
Boardwalk Pipelines (Subsidiary Issuer) has issued securities which have been fully and unconditionally guaranteed by the
Company (Parent Guarantor). The Subsidiary Issuer is i100% owned by the Parent Guarantor. The Company's subsidiaries had ino
significant restrictions on their ability to pay distributions or make loans to the Company except as noted in their debt covenants and had ino restricted assets as of September 30, 2019, and December 31, 2018. Note 8 contains additional information
regarding the Company's debt and related covenants.
i
The Company has provided the following condensed consolidating financial information in accordance with Regulation S-X Rule 3-10, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.
Net cash provided by (used in) operating activities
$
i48.8
$
(i124.6
)
$
i531.1
$
i—
$
i455.3
INVESTING
ACTIVITIES:
Capital
expenditures
i—
i—
(i354.8
)
i—
(i354.8
)
Proceeds
from sale of operating assets
i—
i—
i0.9
i—
i0.9
Advances to affiliates,
net
i27.7
i44.3
(i303.7
)
i231.7
i—
Net
cash provided by (used in) investing activities
i27.7
i44.3
(i657.6
)
i231.7
(i353.9
)
FINANCING
ACTIVITIES:
Repayment
of borrowings from long-term
debt
i—
(i185.0
)
i—
i—
(i185.0
)
Proceeds
from borrowings on revolving
credit agreement
i—
i—
i525.0
i—
i525.0
Repayment
of borrowings on revolving
credit agreement
i—
i—
(i355.0
)
i—
(i355.0
)
Principal
payment of finance lease
obligation
i—
i—
(i0.4
)
i—
(i0.4
)
Advances
from affiliates, net
i0.1
i276.3
(i44.6
)
(i231.7
)
i0.1
Distributions
paid
(i76.7
)
i—
i—
i—
(i76.7
)
Net
cash (used in) provided by financing activities
(i76.6
)
i91.3
i125.0
(i231.7
)
(i92.0
)
(Decrease)
increase in cash and cash equivalents
(i0.1
)
i11.0
(i1.5
)
i—
i9.4
Cash
and cash equivalents at
beginning of period
i0.3
i4.6
i12.7
i—
i17.6
Cash and cash equivalents at
end of
period
$
i0.2
$
i15.6
$
i11.2
$
i—
$
i27.0
30
Item
2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition and results of operations should be read in conjunction with our accompanying interim condensed consolidated financial statements and related notes included elsewhere in this report and prepared in accordance with accounting principles generally accepted in the United States of America and our consolidated financial statements, related notes, Management's Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2018 (2018Annual Report on Form 10-K).
We
operate in the midstream portion of the natural gas and natural gas liquids industry, providing transportation and storage for those commodities.
Firm Agreements
A substantial portion of our transportation and storage capacity is contracted for under firm agreements. For the last twelve months ended September 30, 2019, approximately 88% of our revenues, excluding retained fuel, were derived from fixed fees under firm agreements. We expect to earn revenues of approximately $10.3 billion from fixed fees under committed firm agreements in place as of September 30, 2019, including agreements for transportation,
storage and other services, over the remaining term of those agreements. This amount has increased by approximately $1.2 billion from the comparable amount at December 2018, from contracts entered into during 2019. The table shown under Performance Obligations in Note 3 to the Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, contains more information regarding the revenues we expect to earn from fixed fees under committed firm agreements. For our customers that are charged maximum tariff rates related to our Federal Energy Regulatory Commission regulated operating subsidiaries, the amounts shown in the Note 3
table reflect the current tariff rate for such services for the term of the agreements, however, the tariff rates may be subject to future adjustment. The estimated revenues reflected in the table may include estimated revenues that are anticipated under executed precedent transportation agreements for projects that are subject to regulatory approvals. The amounts shown in the Note 3 table do not include additional revenues we have recognized and may recognize under firm agreements based on actual utilization of the contracted pipeline or storage capacity, any expected revenues for periods after the expiration dates of the existing agreements or execution of precedent agreements associated with growth projects or other events that occurred or will occur subsequent to September 30, 2019.
Each year a portion of our firm transportation and storage agreements expire. Demand for firm service is primarily based on market conditions which can vary across our pipeline systems. The amount of change in firm reservation fees under contract reflects the overall market trends, including the impact from our growth projects. We focus our marketing efforts on enhancing the value of the capacity that is up for renewal and work with customers to match gas supplies from various basins to new and existing customers and markets, including aggregating supplies at key locations along our pipelines to provide end-use customers with attractive and diverse supply options. If the market perceives the value of our available capacity to be lower than our long-term view of the capacity, we
may seek to shorten contract terms until market perception improves. For a discussion of recontracting risks associated with our transportation revenues, refer to our 2018Annual Report on Form 10-K, Part I, Item 1A. Risk Factors - We may not be able to replace expiring natural gas transportation contracts at attractive rates or on a long-term basis and may not be able to sell short-term services at attractive rates or at all due to market conditions.
Our net income for the nine months ended September 30, 2019, increased$49.0 million, or 28%, to $226.3 million compared to $177.3 million
for the nine months ended September 30, 2018, primarily due to the factors discussed below. Excluding the impact from the $24.2 million of proceeds received in 2019 related to a customer bankruptcy, as discussed in Note 7 in Part I, Item 1 of this Quarterly Report on Form 10-Q, our net income for the nine months ended September 30, 2019, would have increased $24.8 million, or 14%, compared to the comparative prior period.
Operating revenues for the nine months
ended September 30, 2019, increased$69.4 million, or 8%, to $968.0 million, compared to $898.6 million for the nine months ended September 30, 2018. Excluding the net effect of the items offset in fuel and transportation expense, primarily retained fuel, and the customer bankruptcy discussed above, operating revenues increased $46.8 million, or 5%. The increase was driven by our recently completed growth projects, partially
offset by contract restructuring and contract expirations that were recontracted at overall lower average rates.
Operating costs and expenses for the nine months ended September 30, 2019, increased$13.7 million, or 2%, to $605.1 million, compared to $591.4 million for the nine months
ended September 30, 2018. Excluding items offset in operating revenues, operating costs and expenses increased $15.3 million, or 3%, when compared to the comparable period in 2018. The operating expense increase was primarily due to higher maintenance project expenses and an increased asset base from recently completed growth projects.
Total other deductions for the nine months ended September 30, 2019, increased$6.7 million,
or 5%, to $136.2 million compared to $129.5 million for the 2018 period primarily due to lower capitalized interest due to lower capital spending and increased pension plan costs.
Liquidity and Capital Resources
We anticipate that our existing capital resources, including our revolving credit facility and our cash flows
from operating activities, will be adequate to fund our operations for 2019. We may seek to access the debt markets to fund some or all capital expenditures for growth projects, acquisitions or for general partnership purposes. We have an effective shelf registration statement under which we may publicly issue debt securities, warrants or rights from time to time.
Capital Expenditures
Maintenance capital expenditures for the nine months ended September 30, 2019 and 2018, were $76.7
million and $74.8 million. Growth capital expenditures were $186.7 million and $269.8 million for the nine months ended September 30, 2019 and 2018. For the nine months ended September 30, 2019 and 2018, we purchased $12.6 million and $10.2 million of natural gas to be used as base gas for our pipeline system.
Contractual
Obligations
Our principal debt obligations at September 30, 2019, and December 31, 2018, were $3.6 billion and $3.7 billion. Refer to Note 8 in Part I, Item 1 of this Quarterly Report on Form 10-Q and Note 10 in Part II, Item 8 of our 2018Annual Report on Form 10-K for more information on our financing activities and debt obligations.
Changes in cash flow from operating activities
Net
cash provided by operating activities increased$80.5 million to $535.8 million for the nine months ended September 30, 2019, compared to $455.3 million for the comparable 2018 period primarily due to the change in net income and the timing of receivables.
Changes in cash flow from investing activities
Net cash used in investing activities decreased$77.1
million to $276.8 million for the nine months ended September 30, 2019, compared to $353.9 million for the comparable 2018 period. The decrease was driven by a decrease of $78.8 million in capital spending related to our growth projects.
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Changes in cash flow from financing activities
Net
cash used in financing activities increased $156.9 million to $248.9 million for the nine months ended September 30, 2019, compared to $92.0 million for the comparable 2018 period primarily due to an increase in net repayments of long-term debt.
Off-Balance Sheet Arrangements
At September 30, 2019, we had no guarantees of off-balance sheet debt to third parties, no debt obligations
that contain provisions requiring accelerated payment of the related obligations in the event of specified levels of declines in credit ratings and no other off-balance sheet arrangements.
Critical Accounting Policies
Certain amounts included in or affecting our unaudited condensed consolidated financial statements and related disclosures must be estimated, requiring us to make certain judgments and assumptions with respect to values or conditions that cannot be known with certainty at the time the financial statements are prepared. These estimates and judgments affect the reported amounts for assets, liabilities, revenues, expenses and our disclosure of contingent assets
and liabilities in our financial statements. We evaluate these estimates and judgments on an ongoing basis, utilizing historical experience, consultation with third parties and other methods we consider reasonable. Nevertheless, actual results may differ significantly from our estimates. Any effects on our business, financial position or results of operations resulting from revisions to these estimates are recorded in the periods in which the facts that give rise to the revisions become known.
During 2019, there have been no significant changes to our critical accounting policies, judgments or estimates disclosed in our 2018Annual Report on Form 10-K.
Forward-Looking
Statements
Certain statements contained in this Quarterly Report on Form 10-Q, as well as some statements in periodic press releases and some oral statements made by our officials and our subsidiaries during presentations about us, are “forward-looking.” Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, events, performance or achievements, and may contain the words “expect,”“intend,”“plan,”“anticipate,”“estimate,”“believe,”“will likely result” and similar expressions. In addition, any statement made by our management concerning future financial performance (including
future revenues, earnings or growth rates), ongoing business strategies or prospects and possible actions by us or our subsidiaries, are also forward-looking statements.
Forward-looking statements are based on current expectations and projections about future events and their potential impact on us. While management believes that these forward-looking statements are reasonable as and when made, there is no assurance that future events affecting us will be those that we anticipate. All forward-looking statements are inherently subject to a variety of risks and uncertainties, many of which are beyond our control which could cause actual results to differ materially from those anticipated or projected. These include, among others, risks and uncertainties related to our ability to maintain
or replace expiring gas transportation and storage contracts, our ability to complete projects that we have commenced or will commence, the impact of changes to laws and regulations, the costs of maintaining and ensuring the integrity and reliability of our pipeline systems, successful negotiation, consummation and completion of contemplated transactions, projects and agreements, to contract and physically make our systems bi-directional, and to sell short-term capacity on our pipelines.
Refer to Part I, Item 1A. and Part II, Item 7of our 2018Annual Report on Form 10-K
for additional risks and uncertainties regarding our forward-looking statements.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Refer to Part II, Item 7A of our 2018Annual Report on Form 10-K, for discussion of our market risk.
Item
4. Controls and Procedures
Disclosure Controls and Procedures
As required by Rule 13a-15(b) of the Securities Exchange Act of 1934 (Exchange Act), we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to allow timely decisions regarding required disclosure and to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management,
including our principal executive officer and principal financial officer, as appropriate, and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon the evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of September 30, 2019, at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30,
2019, that have materially affected or that are reasonably likely to materially affect our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
For a discussion of certain of our current legal proceedings, please see Note 7
in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
For a discussion of additional Risk Factors, refer to Part 1, Item 1A of our 2018 Annual Report on Form 10-K.
Item 6. Exhibits
The following documents are filed or furnished as exhibits to this
report:
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
