DT Midstream, Inc. - Quarter Report: 2022 March (Form 10-Q)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended March 31, 2022
Or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
![dtm-20220331_g1.gif](https://www.sec.gov/Archives/edgar/data/0001842022/000184202222000009/dtm-20220331_g1.gif)
Commission File Number: 001-40392
DT Midstream, Inc.
Delaware | 38-2663964 | |||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S Employer Identification No.) |
Registrant's address of principal executive offices: 500 Woodward Ave., Suite 2900, Detroit, Michigan 48226-1279
Registrant's telephone number, including area code: (313) 402-8532
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol | Name of Exchange on which Registered | ||||||||||||
Common stock, par value $0.01 | DTM | New York Stock Exchange |
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 ☒ 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ 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 | 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 ☒
Number of shares of common stock outstanding at March 31, 2022:
Description | Shares | |||||||
Common stock, par value $0.01 | 96,734,024 |
TABLE OF CONTENTS
Page | ||||||||
DEFINITIONS
Unless the context otherwise requires, references to "we," "us," "our," "Registrant," or the "Company" and words of similar importance refer to DT Midstream and, unless otherwise specified, its consolidated subsidiaries and its unconsolidated joint ventures. As used in this Form 10-Q, the terms and definitions below have the following meanings:
Antero | Antero Resources Corporation and/or its affiliates | |||||||
Appalachia Gathering System | A 137-mile pipeline delivering Marcellus shale gas to the Texas Eastern Pipeline and Stonewall Gas Gathering | |||||||
ASU | Accounting Standards Update issued by the FASB | |||||||
Bcf | Billion cubic feet of natural gas | |||||||
Blue Union | Blue Union Gathering System, a 358-mile gathering system delivering shale gas production from the Haynesville formation of Louisiana to markets in the Gulf Coast region | |||||||
Bluestone | Bluestone Gathering Lateral Pipeline, a 65-mile lateral pipeline gathering Marcellus shale gas to the Millennium Pipeline and the Tennessee Pipeline | |||||||
Columbia Pipeline | Columbia Gas Transmission, LLC, owned by TC Energy Corporation | |||||||
COVID-19 | Coronavirus disease of 2019 | |||||||
Distribution | Pro rata distribution to DTE Energy shareholders of all the outstanding common stock of DT Midstream upon the Separation | |||||||
DT Midstream | DT Midstream, Inc., formerly known as DTE Gas Enterprises, LLC, and its consolidated subsidiaries | |||||||
DTE Energy | DTE Energy Company, the consolidating entity of DT Midstream prior to the Separation | |||||||
FASB | Financial Accounting Standards Board | |||||||
FERC | Federal Energy Regulatory Commission | |||||||
GAAP | Generally Accepted Accounting Principles in the United States | |||||||
Generation Pipeline | A 25-mile intrastate pipeline located in northern Ohio and owned by NEXUS | |||||||
Haynesville system | System is comprised of LEAP, Blue Union and associated facilities | |||||||
LEAP | Louisiana Energy Access Project gathering lateral pipeline, a 155-mile pipeline gathering Haynesville shale gas to markets in the Gulf Coast region | |||||||
LIBOR | London Inter-Bank Offered Rates | |||||||
Millennium Pipeline | A 263-mile interstate pipeline and compression facilities owned by Millennium Pipeline Company, LLC serving markets in the northeast Marcellus region, in which DT Midstream owns an approximate 26% interest | |||||||
NYSE | New York Stock Exchange | |||||||
NEXUS | NEXUS Gas Transmission, LLC, a joint venture which owns (i) a 256-mile interstate pipeline and three compression facilities transporting Utica and Marcellus shale gas to Ohio, Michigan and Ontario market centers and (ii) Generation Pipeline, in which DT Midstream owns a 50% interest | |||||||
SEC | U.S. Securities and Exchange Commission | |||||||
Separation | The separation or Spin-Off of DT Midstream from DTE Energy, effective July 1, 2021 | |||||||
South Romeo | South Romeo Gas Storage Corporation, a joint venture which owns the Washington 28 Storage Complex, in which DT Midstream owns a 50% interest and is the operator | |||||||
Southwestern | Southwestern Energy Company and/or its affiliates (including Indigo Minerals, LLC) | |||||||
Stonewall Gas Gathering | Stonewall Gas Gathering Lateral Pipeline, a 68-mile pipeline in which DT Midstream owns an 85% interest, gathering gas from Appalachia Gathering System for delivery to the Columbia Pipeline | |||||||
Susquehanna Gathering System | A 198-mile pipeline delivering Marcellus shale gas production to Bluestone | |||||||
Tax Matters Agreement | The agreement that governs the respective rights, responsibilities and obligations of DTE Energy and DT Midstream after the Separation with respect to all tax matters |
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DEFINITIONS
Tennessee Pipeline | Tennessee Gas Pipeline Company, LLC, owned by Kinder Morgan, Inc. | |||||||
Texas Eastern Pipeline | Texas Eastern Transmission, LP, owned by Enbridge Inc. | |||||||
Topic 606 | FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, as amended | |||||||
U.S. | Unites States of America | |||||||
USD | United States Dollar ($) | |||||||
Vector Pipeline | A 348-mile interstate pipeline and five compression facilities connecting Illinois, Michigan, and Ontario market centers, in which DT Midstream owns a 40% interest | |||||||
VIE | Variable Interest Entity | |||||||
2
FILING FORMAT
This Form 10-Q should be read in its entirety. This Form 10-Q should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements and with Management's Discussion and Analysis included in DT Midstream's 2021 Annual Report on Form 10-K.
FORWARD-LOOKING STATEMENTS
Certain information presented herein includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, and businesses of DT Midstream. Words such as "believe," "expect," "expectations," "plans," "strategy," "prospects," "estimate," "project," "target," "anticipate," "will," "should," "see," "guidance," "outlook," "confident," and other words of similar meaning in connection with a discussion of future operating or financial performance may signify forward-looking statements. Forward-looking statements are not guarantees of future results and conditions, but rather are subject to numerous assumptions, risks, and uncertainties that may cause actual future results to be materially different from those contemplated, projected, estimated, or budgeted. Many factors may impact forward-looking statements of DT Midstream including, but not limited to, the following:
•risks related to the Separation, including dependence on DTE Energy and the risk that transition services provided by DTE Energy could adversely affect our business and that the transaction may not achieve some or all of the anticipated benefits;
•changes in general economic conditions;
•competitive conditions in our industry;
•global supply chain disruptions;
•actions taken by third-party operators, processors, transporters and gatherers;
•changes in expected production from Southwestern, Antero and other third parties in our areas of operation;
•demand for natural gas gathering, transmission, storage, transportation and water services;
•the availability and price of natural gas to the consumer compared to the price of alternative and competing fuels;
•competition from the same and alternative energy sources;
•our ability to successfully implement our business plan;
•our ability to complete organic growth projects on time and on budget;
•our ability to complete acquisitions;
•the price and availability of debt and equity financing;
•restrictions in our existing and any future credit facilities and indentures;
•energy efficiency and technology trends;
•changing laws regarding cyber security and data privacy and any cyber security threat or event;
•operating hazards, environmental risks and other risks incidental to gathering, storing and transporting natural gas;
•changes in environmental laws, regulations or enforcement policies, including laws and regulations relating to climate change and greenhouse gas emissions;
•natural disasters, adverse weather conditions, casualty losses and other matters beyond our control;
•the impact of outbreaks of illnesses, epidemics and pandemics, including the COVID-19 pandemic and the economic effects of the pandemic;
•the ongoing conflict between Ukraine and Russia;
3
•interest rates;
•the impact of inflation on our business;
•labor relations;
•large customer defaults;
•changes in tax status, as well as changes in tax rates and regulations;
•intent to develop low carbon business opportunities and deploy greenhouse gas reducing technologies;
•the effects of existing and future laws and governmental regulations;
•changes in insurance markets impacting costs and the level and types of coverage available;
•the timing and extent of changes in commodity prices;
•the suspension, reduction or termination of our customers’ obligations under our commercial agreements;
•disruptions due to equipment interruption or failure at our facilities, or third-party facilities on which our business is dependent;
•the effects of future litigation;
•the qualification of the Separation as a tax-free Distribution;
•the allocation of tax attributes from DTE Energy in accordance with the Tax Matters Agreement; and
•our ability to achieve the benefits that we expect to achieve as an independent publicly traded company.
The above list of factors is not exhaustive. New factors emerge from time to time. DT Midstream cannot predict what factors may arise or how such factors may cause actual results to vary materially from those stated in forward-looking statements. Any forward-looking statements speak only as of the date on which such statements are made. We are under no obligation to, and expressly disclaim any obligation to, update or alter our forward-looking statements, whether as a result of new information, subsequent events or otherwise.
4
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
DT Midstream, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended | |||||||||||
March 31, | |||||||||||
2022 | 2021 | ||||||||||
(millions, except per share amounts) | |||||||||||
Revenues | |||||||||||
Operating revenues | $ | 215 | $ | 197 | |||||||
Operating Expenses | |||||||||||
Operation and maintenance | 61 | 50 | |||||||||
Depreciation and amortization | 42 | 41 | |||||||||
Taxes other than income | 8 | 7 | |||||||||
Asset (gains) losses and impairments, net | — | (1) | |||||||||
Operating Income | 104 | 100 | |||||||||
Other (Income) and Deductions | |||||||||||
Interest expense | 31 | 26 | |||||||||
Interest income | — | (3) | |||||||||
Earnings from equity method investees | (36) | (32) | |||||||||
Other (income) and expense | — | (1) | |||||||||
Income Before Income Taxes | 109 | 110 | |||||||||
Income Tax Expense | 25 | 29 | |||||||||
Net Income | 84 | 81 | |||||||||
Less: Net Income Attributable to Noncontrolling Interests | 3 | 3 | |||||||||
Net Income Attributable to DT Midstream | $ | 81 | $ | 78 | |||||||
Basic Earnings per Common Share | |||||||||||
Net Income Attributable to DT Midstream | $ | 0.84 | $ | 0.80 | |||||||
Diluted Earnings per Common Share | |||||||||||
Net Income Attributable to DT Midstream | $ | 0.84 | $ | 0.80 | |||||||
Weighted Average Common Shares Outstanding | |||||||||||
Basic | 96.7 | 96.7 | |||||||||
Diluted | 97.0 | 96.7 | |||||||||
See Notes to Consolidated Financial Statements (Unaudited)
5
DT Midstream, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended | |||||||||||
March 31, | |||||||||||
2022 | 2021 | ||||||||||
(millions) | |||||||||||
Net Income | $ | 84 | $ | 81 | |||||||
Foreign currency translation and unrealized gain on derivatives, net of tax | — | 1 | |||||||||
Other Comprehensive Income | — | 1 | |||||||||
Comprehensive Income | 84 | 82 | |||||||||
Less: Comprehensive Income Attributable to Noncontrolling Interests | 3 | 3 | |||||||||
Comprehensive Income Attributable to DT Midstream | $ | 81 | $ | 79 |
See Notes to Consolidated Financial Statements (Unaudited)
6
DT Midstream, Inc.
Consolidated Statements of Financial Position
(Unaudited)
March 31, | December 31, | ||||||||||
2022 | 2021 | ||||||||||
(millions) | |||||||||||
ASSETS | |||||||||||
Current Assets | |||||||||||
Cash and cash equivalents | $ | 281 | $ | 132 | |||||||
Accounts receivable (net of $— allowance for expected credit loss for each period end) | |||||||||||
Third party | 119 | 169 | |||||||||
Notes receivable | |||||||||||
Third party | 5 | 5 | |||||||||
Related party | — | 4 | |||||||||
Deferred property taxes | 19 | 25 | |||||||||
Other | 18 | 25 | |||||||||
442 | 360 | ||||||||||
Investments | |||||||||||
Investments in equity method investees | 1,679 | 1,691 | |||||||||
Property | |||||||||||
Property, plant, and equipment | 4,129 | 4,109 | |||||||||
Accumulated depreciation | (647) | (619) | |||||||||
3,482 | 3,490 | ||||||||||
Other Assets | |||||||||||
Goodwill | 473 | 473 | |||||||||
Long-term notes receivable | |||||||||||
Third party | 1 | 2 | |||||||||
Related party | 4 | — | |||||||||
Operating lease right-of-use assets | 32 | 36 | |||||||||
Intangible assets, net | 2,068 | 2,082 | |||||||||
Other | 30 | 32 | |||||||||
2,608 | 2,625 | ||||||||||
Total Assets | $ | 8,211 | $ | 8,166 |
See Notes to Consolidated Financial Statements (Unaudited)
7
DT Midstream, Inc.
Consolidated Statements of Financial Position
(Unaudited)
March 31, | December 31, | ||||||||||
2022 | 2021 | ||||||||||
(millions, except shares) | |||||||||||
LIABILITIES AND EQUITY | |||||||||||
Current Liabilities | |||||||||||
Accounts payable | |||||||||||
Third party | $ | 21 | $ | 22 | |||||||
Current portion of long-term debt | 10 | 10 | |||||||||
Operating lease liabilities | 15 | 16 | |||||||||
Dividends payable | 62 | 58 | |||||||||
Interest payable | 26 | 4 | |||||||||
Property taxes payable | 23 | 24 | |||||||||
Other | 31 | 43 | |||||||||
188 | 177 | ||||||||||
Long-Term Debt (net of current portion) | 3,033 | 3,036 | |||||||||
Other Liabilities | |||||||||||
Deferred income taxes | 878 | 856 | |||||||||
Operating lease liabilities | 20 | 21 | |||||||||
Other | 54 | 55 | |||||||||
952 | 932 | ||||||||||
Total Liabilities | 4,173 | 4,145 | |||||||||
Commitments and Contingencies (Note 9) | |||||||||||
Stockholders' Equity/Member's Equity | |||||||||||
Preferred stock ($0.01 par value, 50,000,000 shares authorized and no shares issued or outstanding at March 31, 2022 and December 31, 2021) | — | — | |||||||||
Common stock ($0.01 par value, 550,000,000 shares authorized, and 96,734,024 and 96,734,010 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively) | 1 | 1 | |||||||||
Additional paid in capital | 3,453 | 3,450 | |||||||||
Retained earnings | 446 | 431 | |||||||||
Accumulated other comprehensive income (loss) | (10) | (10) | |||||||||
Total DT Midstream Equity | 3,890 | 3,872 | |||||||||
Noncontrolling interests | 148 | 149 | |||||||||
Total Equity | 4,038 | 4,021 | |||||||||
Total Liabilities and Equity | $ | 8,211 | $ | 8,166 |
See Notes to Consolidated Financial Statements (Unaudited)
8
DT Midstream, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended | |||||||||||
March 31, | |||||||||||
2022 | 2021 | ||||||||||
(millions) | |||||||||||
Operating Activities | |||||||||||
Net Income | $ | 84 | $ | 81 | |||||||
Adjustments to reconcile Net Income to Net cash from operating activities: | |||||||||||
Depreciation and amortization | 42 | 41 | |||||||||
Amortization of operating lease right-of-use assets | 5 | 4 | |||||||||
Deferred income taxes | 22 | 28 | |||||||||
Earnings from equity method investees | (36) | (32) | |||||||||
Dividends from equity method investees | 48 | 38 | |||||||||
Asset (gains) losses and impairments, net | — | (1) | |||||||||
Changes in assets and liabilities: | |||||||||||
Accounts receivable, net | 50 | 14 | |||||||||
Accounts payable — Third party | (2) | (5) | |||||||||
Accounts payable — Related party | — | 1 | |||||||||
Interest payable | 22 | — | |||||||||
Other current and noncurrent assets and liabilities | (1) | (6) | |||||||||
Net cash and cash equivalents from operating activities | 234 | 163 | |||||||||
Investing Activities | |||||||||||
Plant and equipment expenditures | (20) | (27) | |||||||||
Distributions from equity method investees | 2 | 3 | |||||||||
Contributions to equity method investees | — | (1) | |||||||||
Notes receivable repaid by DTE Energy | — | 12 | |||||||||
Notes receivable — Third party and Related party | 1 | (4) | |||||||||
Net cash and cash equivalents used for investing activities | (17) | (17) | |||||||||
Financing Activities | |||||||||||
Repayment of long-term debt | (3) | — | |||||||||
Repayment of borrowings from DTE Energy | — | (154) | |||||||||
Repurchase of common stock | (3) | — | |||||||||
Distributions to noncontrolling interests | (4) | (6) | |||||||||
Dividends paid on common stock | (58) | — | |||||||||
Contributions from DTE Energy | — | 1 | |||||||||
Net cash and cash equivalents used for financing activities | (68) | (159) | |||||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 149 | (13) | |||||||||
Cash and Cash Equivalents at Beginning of Period | 132 | 42 | |||||||||
Cash and Cash Equivalents at End of Period | $ | 281 | $ | 29 | |||||||
Supplemental disclosure of cash information | |||||||||||
Cash paid for: | |||||||||||
Interest, net of interest capitalized | $ | 6 | $ | 26 | |||||||
Income taxes | 1 | 2 | |||||||||
Supplemental disclosure of non-cash investing and financing activities | |||||||||||
Plant and equipment expenditures in accounts payable and other accruals | $ | 9 | $ | 13 |
See Notes to Consolidated Financial Statements (Unaudited)
9
DT Midstream, Inc.
Consolidated Statements of Changes in Stockholders' Equity/Member's Equity
(Unaudited)
Additional Paid In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests | ||||||||||||||||||||||||||||||||||||||
Common Stock | |||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Total | |||||||||||||||||||||||||||||||||||||||
(dollars in millions, shares in thousands) | |||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2021 | 96,734 | $ | 1 | $ | 3,450 | $ | 431 | $ | (10) | $ | 149 | $ | 4,021 | ||||||||||||||||||||||||||||
Net Income | — | — | — | 81 | — | 3 | 84 | ||||||||||||||||||||||||||||||||||
Dividends declared on common stock ($0.64 per common share) | — | — | — | (62) | — | — | (62) | ||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | (4) | (4) | ||||||||||||||||||||||||||||||||||
Stock-based compensation | 57 | — | 3 | (1) | — | — | 2 | ||||||||||||||||||||||||||||||||||
Repurchase of common stock | (57) | — | — | (3) | — | — | (3) | ||||||||||||||||||||||||||||||||||
Balance, March 31, 2022 | 96,734 | $ | 1 | $ | 3,453 | $ | 446 | $ | (10) | $ | 148 | $ | 4,038 |
Additional Paid In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests | ||||||||||||||||||||||||||||||||||||||
Common Stock | |||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Total | |||||||||||||||||||||||||||||||||||||||
(dollars in millions, shares in thousands) | |||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2020 | — | $ | — | $ | 3,333 | $ | 751 | $ | (11) | $ | 155 | $ | 4,228 | ||||||||||||||||||||||||||||
Net Income | — | — | — | 78 | — | 3 | 81 | ||||||||||||||||||||||||||||||||||
Reorganization to C Corporation (a) | 1 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | (6) | (6) | ||||||||||||||||||||||||||||||||||
Taxes and other adjustments | — | — | (1) | 2 | — | (1) | — | ||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | 1 | — | 1 | ||||||||||||||||||||||||||||||||||
Balance, March 31, 2021 | 1 | $ | — | $ | 3,332 | $ | 831 | $ | (10) | $ | 151 | $ | 4,304 | ||||||||||||||||||||||||||||
_____________________________________
(a)Issuance of common shares at $0.01 par value upon conversion to C Corporation from a single member LLC.
See Notes to Consolidated Financial Statements (Unaudited)
10
DT Midstream, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 — SEPARATION, DESCRIPTION OF THE BUSINESS, AND BASIS OF PRESENTATION
The Separation
In connection with the Separation from DTE Energy, on January 13, 2021, DTE Gas Enterprises, LLC, and its consolidated subsidiaries converted into a Delaware corporation pursuant to a statutory conversion and changed its name to DT Midstream, Inc. ("DT Midstream"). At the conversion, DT Midstream issued 1,000 shares of common stock at $0.01 par value to its parent, a subsidiary of DTE Energy. As DT Midstream was a single member LLC as of December 31, 2020, and a corporation with stockholders' equity as of March 31, 2021 and 2022, Consolidated Statements of Changes in Stockholders' Equity/Member's Equity are presented as of March 31, 2022 and 2021. In June 2021, the DT Midstream Board of Directors authorized the issuance of an additional 96,731,466 common shares to DTE Energy in anticipation of the Separation, for a total of 96,732,466 common shares issued and outstanding. DT Midstream is authorized to issue 50,000,000 shares of preferred stock at $0.01 par value. No preferred stock was issued or outstanding at March 31, 2022.
On July 1, 2021, DTE Energy completed the Separation through the distribution of 96,732,466 shares of DT Midstream common stock to DTE Energy shareholders. Following the Separation on July 1, 2021, DT Midstream became an independent public company listed under the symbol "DTM" on the NYSE. DTE Energy no longer retains any ownership in DT Midstream.
Description of the Business
DT Midstream is an owner, operator, and developer of an integrated portfolio of natural gas midstream assets. The Company provides multiple, integrated natural gas services to customers through two primary segments: (i) Pipeline, which includes interstate pipelines, intrastate pipelines, storage systems, lateral pipelines and related treatment plants and compression and surface facilities, and (ii) Gathering, which includes gathering systems and related treatment plants and compression and surface facilities. DT Midstream's pipeline segment also includes interests in equity method investees which own and operate interstate pipelines, many of which have connectivity to DT Midstream’s assets.
DT Midstream’s core assets connect demand centers in the Midwestern U.S., Eastern Canada, Northeastern U.S. and Gulf Coast regions to production areas of the Haynesville and Marcellus/Utica dry natural gas formations in the Gulf Coast and Appalachian Basins, respectively.
Basis of Presentation
The Consolidated Financial Statements and Notes to Consolidated Financial Statements as of and for periods subsequent to July 1, 2021, the date of the Separation, reflect the consolidated financial position, results of operations and cash flows for DT Midstream as an independent company. Prior to the Separation, DT Midstream operated as a consolidated entity of DTE Energy and not as a standalone company. For the periods prior to the Separation, the Consolidated Financial Statements and Notes to Consolidated Financial Statements were prepared on a carve-out basis using the consolidated financial statements and accounting records of DTE Energy. The carve-out basis financial statements represent the historical financial position, results of operations, and cash flows of DT Midstream as they were historically managed in accordance with GAAP and reflect significant assumptions and allocations. The carve-out financial statements may not include all expenses that would have been incurred had DT Midstream existed as a standalone entity. Certain prior-period amounts have been reclassified to conform to current-year presentation.
GAAP requires management to use estimates and assumptions that impact reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results may differ from DT Midstream’s estimates. DT Midstream believes the assumptions underlying these financial statements are reasonable.
In DT Midstream's opinion, the accompanying unaudited Consolidated Financial Statements include all adjustments, consisting of only normal recurring adjustments, necessary to present a fair statement of our financial position as of March 31, 2022, results of operations for the three months ended March 31, 2022 and 2021, statement of changes in stockholders' equity/member's equity for the three months ended March 31, 2022 and 2021 and cash flows for the three months ended March 31, 2022 and 2021. The balance sheet as of December 31, 2021 was derived from audited annual financial statements, but does not contain all of the footnote disclosures from the annual financial statements. Financial results for this interim period are not necessarily indicative of results that may be expected for any other interim period or for the year ending December 31, 2022. The Consolidated Financial Statements should be read in conjunction with the DT Midstream Consolidated Financial Statements and Notes to Consolidated Financial Statements included in DT Midstream's 2021 Annual Report on Form 10-K.
11
DT Midstream, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Cost Allocations
Prior to the Separation, DT Midstream received monthly allocations of general corporate expenses from DTE Energy which were classified within the appropriate Consolidated Statements of Operations line item. Operation and maintenance for the three months ended March 31, 2021 included approximately $10 million of Separation related transaction costs for legal, accounting, auditing and other professional services. Effective July 1, 2021, with the completion of the Separation, DT Midstream no longer receives corporate allocations from DTE Energy.
Corporate allocation amounts from DTE Energy were as follows:
Three Months Ended | |||||
March 31, | |||||
2021 | |||||
(millions) | |||||
Operation and maintenance | $ | 16 | |||
Total DTE Energy corporate allocations | $ | 16 |
Cash Management
DT Midstream's sources of liquidity include cash generated from operations and available borrowings under our Revolving Credit Facility. DT Midstream began investing in money market cash equivalents in August 2021.
Prior to the Separation, DT Midstream’s sources of liquidity included cash generated from operations and loans obtained through DTE Energy’s corporate-wide cash management program ("cash management program"), including a working capital loan agreement. Cash was managed centrally, with certain net earnings reinvested in, and working capital requirements met from, existing liquid funds. Effective July 1, 2021, DT Midstream no longer participated in the cash management program and the working capital loan was terminated.
Principles of Consolidation
DT Midstream consolidates all majority-owned subsidiaries and investments in entities in which we have a controlling influence. Non-majority owned investments are accounted for using the equity method of accounting when DT Midstream is able to significantly influence the operating policies of the investee. When DT Midstream does not influence the operating policies of an investee, the equity investment is measured at fair value, if readily determinable, or if not readily determinable, at cost less impairment, if applicable. DT Midstream eliminates all intercompany balances and transactions.
DT Midstream evaluates whether an entity is a VIE whenever reconsideration events occur. DT Midstream consolidates VIEs for which we are the primary beneficiary. If DT Midstream is not the primary beneficiary and an ownership interest is held, the VIE is accounted for under the equity method of accounting. When assessing the determination of the primary beneficiary, DT Midstream considers all relevant facts and circumstances, including: the power, through voting or similar rights, to direct the activities of the VIE that most significantly impact the VIE's economic performance and the obligation to absorb the expected losses and/or the right to receive the expected returns of the VIE. DT Midstream performs ongoing reassessments of all VIEs to determine if the primary beneficiary status has changed.
The maximum risk exposure for consolidated VIEs is reflected on DT Midstream’s Consolidated Statements of Financial Position. For non-consolidated VIEs, the maximum risk exposure of DT Midstream is generally limited to its investment, notes receivable, future funding commitments, and amounts which it has guaranteed.
DT Midstream owns an 85% interest in the Stonewall Gas Gathering VIE, which owns and operates midstream natural gas assets. Stonewall Gas Gathering has contracts in which certain construction risk was designed to pass-through to customers, with DT Midstream retaining operational and customer default risk. DT Midstream is the primary beneficiary of Stonewall Gas Gathering, therefore Stonewall Gas Gathering is consolidated. DT Midstream owns a 50% interest in the South Romeo VIE and is the primary beneficiary, therefore South Romeo is consolidated.
12
DT Midstream, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
The following table summarizes the major items in the Consolidated Statements of Financial Position for consolidated VIEs as of March 31, 2022 and December 31, 2021. All assets and liabilities of a consolidated VIE are presented where it has been determined that a consolidated VIE has either (1) assets that can be used only to settle obligations of the VIE or (2) liabilities for which creditors do not have recourse to the general credit of the primary beneficiary. VIEs, in which DT Midstream holds a majority voting interest and is the primary beneficiary, that meet the definition of a business and whose assets can be used for purposes other than the settlement of the VIE's obligations have been excluded from the table below.
Amounts for consolidated VIEs are as follows:
March 31, | December 31, | ||||||||||
2022 | 2021 | ||||||||||
(millions) | |||||||||||
ASSETS (a) | |||||||||||
Cash | $ | 21 | $ | 23 | |||||||
Accounts receivable — third party | 8 | 8 | |||||||||
Other current assets | 3 | 3 | |||||||||
Intangible assets, net | 509 | 513 | |||||||||
Property, plant and equipment, net | 406 | 408 | |||||||||
Goodwill | 25 | 25 | |||||||||
$ | 972 | $ | 980 | ||||||||
LIABILITIES (a) | |||||||||||
Accounts payable and other current liabilities | $ | 5 | $ | 5 | |||||||
Other noncurrent liabilities | 4 | 4 | |||||||||
$ | 9 | $ | 9 |
_____________________________________
(a)Amounts shown are 100% of the consolidated VIEs' assets and liabilities.
DT Midstream has a variable interest in an investment in certain assets in the Utica shale region that is accounted for as a Note receivable — Third party. DT Midstream does not have an ownership interest in the entity and is not the primary beneficiary. The maximum risk exposure is limited to amounts DT Midstream has funded, which are accounted for as a note receivable, and DT Midstream does not have any future funding commitments related to this investment. See Note 2, "Significant Accounting Policies – Financing Receivables" to the Consolidated Financial Statements for additional discussion.
Amounts for non-consolidated VIEs are as follows:
March 31, | December 31, | ||||||||||
2022 | 2021 | ||||||||||
(millions) | |||||||||||
Notes receivable — current | 5 | 5 | |||||||||
Notes receivable — noncurrent | 1 | 2 | |||||||||
Related Parties
Transactions between DT Midstream and DTE Energy prior to the Separation, as well as all transactions between DT Midstream and its equity method investees, have been presented as related party transactions in the accompanying Consolidated Financial Statements.
13
DT Midstream, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Equity Method Investments
Investments in non-consolidated affiliates that are not controlled by DT Midstream, but over which we have significant influence, are accounted for using the equity method of accounting. Under the equity method, investments are recorded at historical cost as an asset and adjusted for capital contributions, dividends and distributions received, and the Company's share of the investee's earnings or losses, which are recorded as Earnings from equity method investees on the Consolidated Statements of Operations. DT Midstream's equity method investments are periodically evaluated for certain factors that may be indicative of other-than-temporary impairment. As of March 31, 2022 and December 31, 2021, DT Midstream’s share of the underlying equity in the net assets of the investees exceeded the carrying amounts of investments in equity method investees by $24 million and $32 million, respectively. The difference will be amortized over the life of the underlying assets. As of March 31, 2022 and December 31, 2021, DT Midstream's consolidated retained earnings balance includes undistributed earnings from equity method investments of $74 million and $84 million, respectively.
Equity method investees are described below:
Investments As of | % Owned As of | |||||||||||||||||||||||||
March 31, | December 31, | March 31, | December 31, | |||||||||||||||||||||||
Equity Method Investee | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
(millions) | ||||||||||||||||||||||||||
NEXUS | $ | 1,339 | $ | 1,348 | 50% | 50% | ||||||||||||||||||||
Vector Pipeline | 136 | 136 | 40% | 40% | ||||||||||||||||||||||
Millennium Pipeline | 204 | 207 | 26% | 26% | ||||||||||||||||||||||
Total investments in equity method investees | $ | 1,679 | $ | 1,691 |
For further information by segment, see Note 10, "Segment and Related Information" to the Consolidated Financial Statements.
The following table presents summarized financial information of non-consolidated equity method investees in which DT Midstream owns 50% or less. The amounts included below represent 100% of the results of continuing operations of such entities.
Summarized income statement data is as follows:
Three Months Ended | |||||||||||
March 31, | |||||||||||
2022 | 2021 | ||||||||||
(millions) | |||||||||||
Operating revenues | $ | 198 | $ | 187 | |||||||
Operating expenses | $ | 94 | $ | 94 | |||||||
Net Income | $ | 95 | $ | 84 |
14
DT Midstream, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and highly liquid money market investments with remaining maturities of three months or less, when purchased. Cash equivalents are stated at cost, which approximates fair value.
Financing Receivables
Financing receivables are primarily composed of trade accounts receivable and notes receivable. DT Midstream's financing receivables are stated at net realizable value.
DT Midstream regularly monitors the credit quality of its financing receivables by reviewing credit quality indicators and monitoring for triggering events, such as a credit rating downgrade or bankruptcy. Credit quality indicators include, but are not limited to, credit agency ratings where available, collection history, collateral, counterparty financial statements and other internal metrics. Utilizing such data, DT Midstream has determined three internal grades of credit quality. Internal grade 1 includes financing receivables for counterparties where credit rating agencies have rated the counterparty as investment grade. If credit ratings are not available, DT Midstream utilizes other credit quality indicators to determine the risk level associated with the financing receivable. Internal grade 1 may include financing receivables for counterparties for which credit rating agencies have rated the counterparty as below investment grade if, due to favorable information on other credit quality indicators, DT Midstream has determined the risk level to be similar to that of an investment grade counterparty. Internal grade 2 includes financing receivables for counterparties with limited credit information and those with a higher risk profile based upon credit quality indicators. Internal grade 3 reflects financing receivables for which the counterparties have the greatest level of risk, including those in bankruptcy status.
The following table presents DT Midstream's third party and related party notes receivable by year of origination, classified by internal grade of credit quality. The related credit quality indicators and risk ratings utilized to develop the internal grades have been updated through March 31, 2022.
__________________________________
Year of Origination | |||||||||||||||||||||||
2022 | 2021 | 2020 and prior | Total | ||||||||||||||||||||
(millions) | |||||||||||||||||||||||
Notes receivable | |||||||||||||||||||||||
Internal grade 1 (a) | $ | — | $ | — | $ | 4 | $ | 4 | |||||||||||||||
Internal grade 2 | — | — | 6 | 6 | |||||||||||||||||||
Internal grade 3 | — | — | — | — | |||||||||||||||||||
Total Notes receivable — Third party and Related party | $ | — | $ | — | $ | 10 | $ | 10 |
(a)Related party
Notes receivable are typically considered delinquent (past due) when payment is not received for periods ranging from 60 to 120 days. DT Midstream ceases accruing interest income (nonaccrual status) and may either write off or establish an allowance for credit loss for the note receivable when it is expected that all principal or interest amounts due will not be collected in accordance with the note's contractual terms. In determining an allowance for credit losses for or the write off of notes receivable, DT Midstream considers the historical payment experience and other factors that are expected to have a specific impact on collection from the counterparty, including existing and future economic conditions.
Cash payments received for notes receivable on nonaccrual status that do not bring the account contractually current are first applied to contractually owed past due interest, with any remainder applied to principal. Recognition of interest income is generally resumed when the note receivable becomes contractually current.
DT Midstream has an investment in certain assets in the Utica shale region which is accounted for as a Note receivable — Third party. In the second quarter 2021, we assessed the note receivable for expected loss and recorded a $19 million loss on the note receivable to Asset (gains) losses and impairments, net on the Consolidated Statement of Operations. Additionally, DT Midstream ceased accruing interest on the note receivable balance and reclassified the note to an Internal grade 3 receivable. Subsequently, as cash payments were received, a portion was recognized as interest income. In the first quarter 2022, we reclassified the note to an Internal grade 2 receivable based on our updated risk assessment. It is possible that significant decreases in forecasted production volumes or commodity prices could result in additional losses on the Note receivable – Third party.
15
DT Midstream, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
There are no notes receivable on nonaccrual status as of March 31, 2022. There are no past due financing receivables for DT Midstream as of March 31, 2022.
For trade accounts receivable, the customer allowance for expected credit loss is calculated based on specific review of future collections based on receivable balances generally in excess of 30 days. Existing and future economic conditions, historical loss rates, customer trends and other relevant factors that may affect our ability to collect are also considered. Receivables are written off on a specific identification basis and determined based on the specific circumstances of the associated receivable. Uncollectible expense (recovery) was zero for the three months ended March 31, 2022 and 2021.
There is no allowance for expected credit loss related to Notes Receivable or Accounts Receivable as of March 31, 2022 or December 31, 2021.
Operation and Maintenance
Operation and maintenance is primarily comprised of costs for labor, outside services, materials, compression, purchased natural gas, operating lease costs, and other operating and maintenance costs. Corporate allocations from DTE Energy, including Separation related transaction costs for legal, accounting, auditing and other professional services DTE Energy incurred for the benefit of DT Midstream, are also included in Operation and maintenance for the three months ended March 31, 2021.
NOTE 3 — NEW ACCOUNTING PRONOUNCEMENTS
Recently Issued Pronouncements
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting, as amended. Subsequently, in January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848) - Scope, as amended. The amendments in these updates provide optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The guidance can be applied prospectively from any date beginning March 12, 2020 through December 31, 2022. The optional relief is temporary and cannot be applied to contract modifications and hedging relationships entered into or evaluated after December 31, 2022. DT Midstream presently has various contracts that reference LIBOR and is assessing how this standard may be applied to specific contract modifications. DT Midstream is currently assessing the impact of this standard on our Consolidated Financial Statements.
NOTE 4 — REVENUE
Significant Accounting Policy
Revenue is measured based upon the consideration specified in a contract with a customer at the time when performance obligations are satisfied. A performance obligation is a promise in a contract to transfer a distinct good or service or a series of distinct goods or services to the customer. DT Midstream's revenues generally consist of services related to the gathering, transportation, and storage of natural gas. Revenue is recognized when performance obligations are satisfied by transferring control over a service to a customer, which occurs when the service is provided to the customer. When a customer simultaneously receives and consumes the product or service provided, revenue is recognized over time. Alternatively, if it is determined that the criteria for recognition of revenue over time is not met, the revenue is considered to be recognized at a point in time.
16
DT Midstream, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Disaggregation of Revenue
The following is a summary of revenues disaggregated by segment:
__________________________________
Three Months Ended | |||||||||||
March 31, | |||||||||||
2022 | 2021 | ||||||||||
(millions) | |||||||||||
Pipeline (a) | $ | 77 | $ | 75 | |||||||
Gathering | 138 | 122 | |||||||||
Total operating revenues | $ | 215 | $ | 197 |
(a)Includes revenues outside the scope of Topic 606 primarily related to contracts accounted for as leases of $2 million for the three months ended March 31, 2022 and 2021.
Contract Liabilities
The following is a summary of contract liability activity:
2022 | |||||
(millions) | |||||
Balance at January 1 | $ | 28 | |||
Increases due to cash received or receivable, excluding amounts recognized as revenue during the period | 1 | ||||
Revenue recognized that was included in the balance at the beginning of the period | (3) | ||||
Balance at March 31 | $ | 26 |
The contract liabilities at DT Midstream generally represent amounts paid by or receivable from customers for which the associated performance obligation has not yet been satisfied. Performance obligations associated with contract liabilities include providing services related to customer prepayments. Contract liabilities associated with these services are recognized when control has transferred to the customer.
The following table presents contract liability amounts as of March 31, 2022 that are expected to be recognized as revenue in future periods:
(millions) | |||||
Remainder of 2022 | $ | 7 | |||
2023 | 3 | ||||
2024 | 3 | ||||
2025 | 3 | ||||
2026 | 3 | ||||
2027 and thereafter | 7 | ||||
Total | $ | 26 |
Transaction Price Allocated to the Remaining Performance Obligations
In accordance with optional exemptions available under Topic 606, DT Midstream does not disclose the value of unsatisfied performance obligations for (1) contracts with an original expected length of one year or less, (2) with the exception of fixed consideration, contracts for which the amount of revenue recognized depends upon DT Midstream's invoices for actual goods provided and services performed, and (3) contracts for which variable consideration relates entirely to an unsatisfied performance obligation.
Such contracts consist of various types of performance obligations, including the delivery of midstream services. Contracts with variable volumes and/or variable pricing, including those with pricing provisions tied to a consumer price or other index, have also been excluded as the related consideration under the contract is variable at the contract inception. Contract lengths vary from cancellable to multi-year.
17
DT Midstream, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
The following table presents revenue amounts related to fixed consideration associated with unsatisfied performance obligations as of March 31, 2022 that are expected to be recognized as revenue in future periods:
(millions) | |||||
Remainder of 2022 | $ | 67 | |||
2023 | 86 | ||||
2024 | 75 | ||||
2025 | 65 | ||||
2026 | 45 | ||||
2027 and thereafter | 80 | ||||
Total | $ | 418 |
NOTE 5 — EARNINGS PER SHARE AND DIVIDENDS
Basic earnings per share is calculated by dividing Net Income attributable to DT Midstream by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect the dilution that would occur if any potentially dilutive instruments were exercised or converted into common shares. Restricted stock units and performance shares including dividend equivalents on those grants are dilutive and included in the determination of weighted average shares outstanding. Restricted stock units and performance shares do not receive cash dividends, as such, these awards are not considered participating securities.
DT Midstream issued 1,000 shares of common stock at $0.01 par value to its parent, a subsidiary of DTE Energy, in January 2021. The DT Midstream Board of Directors authorized the issuance of an additional 96,731,466 common shares to DTE Energy on June 30, 2021 for a total of 96,732,466 common shares issued and outstanding at the Separation date. This share amount is utilized for the calculation of basic and diluted earnings per share for all periods prior to the Separation presented based on Net Income attributable to DT Midstream. For the period ended March 31, 2021, these shares are treated as issued and outstanding for purposes of calculating historical earnings per share.
The following is a reconciliation of DT Midstream's basic and diluted earnings per share calculation:
Three Months Ended March 31, | |||||||||||
2022 | 2021 | ||||||||||
(millions, except per share amounts) | |||||||||||
Basic and Diluted Earnings per Common Share | |||||||||||
Net Income Attributable to DT Midstream | $ | 81 | $ | 78 | |||||||
Average number of common shares outstanding — basic | 96.7 | 96.7 | |||||||||
Incremental shares attributable to: | |||||||||||
Average dilutive restricted stock units and performance share awards | 0.3 | — | |||||||||
Average number of common shares outstanding — diluted | 97.0 | 96.7 | |||||||||
Basic Earnings per Common Share | $ | 0.84 | $ | 0.80 | |||||||
Diluted Earnings per Common Share | $ | 0.84 | $ | 0.80 |
DT Midstream declared the following cash dividends:
Quarters Ended | Quarterly Dividend | Dividend Payment Date | ||||||||||||||||||
(per-share) | (millions) | |||||||||||||||||||
2021 | ||||||||||||||||||||
September 30 | $ | 0.60 | $ | 58 | October 2021 | |||||||||||||||
December 31 | $ | 0.60 | $ | 58 | January 2022 | |||||||||||||||
2022 | ||||||||||||||||||||
March 31 | $ | 0.64 | $ | 62 | April 2022 |
18
DT Midstream, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 6 — INCOME TAXES
Effective Tax Rates
DT Midstream records income taxes during the interim period using an estimated annual effective tax rate ("ETR") and recognizes specific events discretely as they occur.
The interim ETRs of DT Midstream are 23% and 27% for the three months ended March 31, 2022 and 2021, respectively. The difference between the interim ETR and federal statutory rate of 21% is primarily related to state income taxes. The reduction in the ETR for the first quarter 2022, as compared to the first quarter 2021, is primarily driven by the remeasurement of state deferred taxes.
NOTE 7 — FAIR VALUE
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets or liabilities. These inputs can be readily observable, market corroborated, or generally unobservable inputs. DT Midstream makes certain assumptions it believes that market participants would use in pricing assets or liabilities, including assumptions about risk, and the risks inherent in the inputs to valuation techniques. DT Midstream believes it uses valuation techniques that maximize the use of observable market-based inputs and minimize the use of unobservable inputs.
A fair value hierarchy has been established that prioritizes the inputs to valuation techniques used to measure fair value in three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. All assets and liabilities are required to be classified in their entirety based on the lowest level of input that is significant to the fair value measurement in its entirety. Assessing the significance of a particular input may require judgment considering factors specific to the asset or liability and may affect the valuation of the asset or liability and its placement within the fair value hierarchy. DT Midstream classifies fair value balances based on the fair value hierarchy defined as follows:
•Level 1 — Consists of unadjusted quoted prices in active markets for identical assets or liabilities that DT Midstream has the ability to access as of the reporting date.
•Level 2 — Consists of inputs other than quoted prices included within Level 1 that are directly observable for the assets or liabilities or indirectly observable through corroboration with observable market data.
•Level 3 — Consists of unobservable inputs for assets or liabilities whose fair value is estimated based on internally developed models or methodologies using inputs that are generally less readily observable and supported by little, if any, market activity at the measurement date. Unobservable inputs are developed based on the best available information and subject to cost-benefit constraints.
19
DT Midstream, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Fair Value of Financial Instruments
The following table presents the carrying amount and fair value of financial instruments:
______________________________________
March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
Carrying | Fair Value | Carrying | Fair Value | ||||||||||||||||||||||||||||||||||||||||||||
Amount | Level 1 | Level 2 | Level 3 | Amount | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||||||||||||||
(millions) | |||||||||||||||||||||||||||||||||||||||||||||||
Cash equivalents (a) | $ | 210 | $ | — | $ | 210 | $ | — | $ | 50 | $ | — | $ | 50 | $ | — | |||||||||||||||||||||||||||||||
Short-term notes receivable | |||||||||||||||||||||||||||||||||||||||||||||||
Third party | 5 | — | — | 5 | 5 | — | — | 5 | |||||||||||||||||||||||||||||||||||||||
Related party | — | — | — | — | 4 | — | — | 4 | |||||||||||||||||||||||||||||||||||||||
Long-term notes receivable | |||||||||||||||||||||||||||||||||||||||||||||||
Third party | 1 | — | — | 1 | 2 | — | — | 2 | |||||||||||||||||||||||||||||||||||||||
Related party | 4 | — | — | 4 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Long-term debt (b) | $ | 3,043 | $ | — | $ | 2,988 | $ | — | $ | 3,046 | $ | — | $ | 3,163 | $ | — | |||||||||||||||||||||||||||||||
(a)Money market cash equivalents are measured and recorded at fair value on a recurring basis.
(b)Includes debt due within one year. Carrying value represents principal of $3,092 million, net of unamortized debt discounts and issuance costs.
NOTE 8 — DEBT
DT Midstream's Credit Agreement (the "Credit Agreement") provides for a $1.0 billion 7-year term loan facility (the "Term Loan Facility") and a $750 million 5-year secured revolving credit facility (the "Revolving Credit Facility").
Long-Term Debt
DT Midstream's long-term debt outstanding included:
March 31, | December 31, | |||||||||||||||||||||||||||||||
Title | Type | Interest Rate | Maturity Date | 2022 | 2021 | |||||||||||||||||||||||||||
(millions) | ||||||||||||||||||||||||||||||||
2029 Notes | Senior Notes (b) | 4.125% | 2029 | $ | 1,100 | $ | 1,100 | |||||||||||||||||||||||||
2031 Notes | Senior Notes (b) | 4.375% | 2031 | 1,000 | 1,000 | |||||||||||||||||||||||||||
Term Loan Facility | Term Loan Facility | Variable (a) | 2028 | 992 | 995 | |||||||||||||||||||||||||||
3,092 | 3,095 | |||||||||||||||||||||||||||||||
Unamortized debt discount | (4) | (4) | ||||||||||||||||||||||||||||||
Unamortized debt issuance costs | (45) | (45) | ||||||||||||||||||||||||||||||
Long-term debt due within one year | (10) | (10) | ||||||||||||||||||||||||||||||
Long-term debt (net of current portion) | $ | 3,033 | $ | 3,036 |
(a) Variable rate is LIBOR plus 2.00%, where LIBOR will not be less than 0.50%. The Term Loan Facility includes $95 million with a one-month LIBOR interest period which ended April 29, 2022 and $897 million with a six-month LIBOR interest period ending June 30, 2022.
(b) Interest payable semi-annually in arrears each June 15 and December 15.
20
DT Midstream, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Short-Term Credit Arrangements and Borrowings
The following table presents the availability under the Revolving Credit Facility:
March 31, | |||||
2022 | |||||
(millions) | |||||
Total availability | |||||
Revolving Credit Facility, expiring June 2026 | $ | 750 | |||
Amounts outstanding | |||||
Revolving Credit Facility borrowings | — | ||||
Letters of credit | 8 | ||||
8 | |||||
Net availability | $ | 742 |
Borrowings under the Revolving Credit Facility are used for general corporate purposes and letter of credit issuances to support DT Midstream's future operations and liquidity.
The Credit Agreement covering the Term Loan Facility and Revolving Credit Facility includes financial covenants that DT Midstream must maintain. These covenants restrict the ability of DT Midstream and its subsidiaries to incur additional indebtedness and guarantee indebtedness, create or incur liens, engage in mergers, consolidations, liquidations or dissolutions, sell, transfer or otherwise dispose of assets, make investments, acquisitions, loans or advances, pay dividends and distributions or repurchase capital stock, prepay, redeem or repurchase certain junior indebtedness, enter into agreements that limit the ability of the restricted subsidiaries to make distributions to DT Midstream or the ability of DT Midstream and its restricted subsidiaries to incur liens on assets and enter into certain transactions with affiliates. The Term Loan Facility requires the maintenance of a minimum debt service coverage ratio of 1.1 to 1, and the Revolving Credit Facility requires maintenance of (i) a maximum consolidated net leverage ratio of 5 to 1, and (ii) a minimum interest coverage ratio of no less than 2.5 to 1. The debt service coverage ratio means the ratio of annual consolidated EBITDA to debt service, as defined in the Credit Agreement. The consolidated net leverage ratio means the ratio of net debt determined in accordance with GAAP to annual consolidated EBITDA. The interest coverage ratio means the ratio of annual consolidated EBITDA to annual interest expense, as defined in the Credit Agreement. At March 31, 2022, the debt service coverage ratio, the consolidated net leverage ratio and the interest coverage ratio was 5.9 to 1, 3.8 to 1 and 6.0 to 1, respectively, and DT Midstream was in compliance with these financial covenants.
Debt Issuances — Subsequent Event
On April 11, 2022, DT Midstream issued 4.300% senior secured notes of $600 million in aggregate principal amount due April 2032 (the "2032 Notes"). The Notes were issued by DT Midstream, and are guaranteed by certain of DT Midstream's subsidiaries and secured by a first priority lien on certain assets of DT Midstream and its subsidiary guarantors that secure DT Midstream's existing credit facilities. DT Midstream used the net proceeds from the sale of the 2032 Notes to partially repay existing indebtedness under our Term Loan Facility.
21
DT Midstream, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 9 — COMMITMENTS AND CONTINGENCIES
From time to time, DT Midstream is subject to legal, administrative and environmental proceedings before various courts, arbitration panels and governmental agencies concerning claims arising in the ordinary course of business. These proceedings include certain contract disputes, additional environmental reviews and investigations, audits and pending judicial matters. DT Midstream cannot predict the final disposition of such proceedings. DT Midstream regularly reviews legal matters and records provisions for claims that we can estimate and are considered probable of loss. The amount or range of reasonably possible losses is not anticipated to, either individually or in the aggregate, materially adversely affect DT Midstream’s business, financial condition and results of operations.
Guarantees
In certain limited circumstances, DT Midstream enters into contractual guarantees. DT Midstream may guarantee another entity's obligation in the event it fails to perform and may provide guarantees in certain indemnification agreements. Additionally, DT Midstream may provide indirect guarantees for the indebtedness of others. In connection with the Separation, DT Midstream assumed guarantees valued at $7 million as of March 31, 2022. Payment under these guarantees are considered remote. DT Midstream did not have any guarantees of other parties' obligations as of March 31, 2022.
Vector Pipeline Line of Credit
In July 2021 and in conjunction with the Separation, DT Midstream assumed the Vector Pipeline line of credit from DTE Energy. DT Midstream became the lender under the revolving term credit facility to Vector Pipeline, the borrower, in the amount of Canadian $70 million. The credit facility was initially executed in response to the passage of Canadian regulations requiring oil and gas pipelines to demonstrate their financial ability to respond to a catastrophic event and exists for the sole purpose of satisfying these regulations. Vector Pipeline may only draw upon the facility if the funds are required to respond to a catastrophic event. The maximum potential payout at March 31, 2022 is USD $56 million. The funding of a loan under the terms of the credit facility is considered remote.
Environmental Contingencies
In order to comply with certain state environmental regulations, DT Midstream has an obligation to restore pipeline right-of-way slope failures that may arise in the ordinary course of business in the Utica and Marcellus shale region. Slope restoration expenditures are typically capital in nature. As of March 31, 2022 and December 31, 2021, DT Midstream had accrued contingent liabilities of $20 million for future slope restoration expenditures. The accrual is included in Other current liabilities and Other liabilities in the Consolidated Statements of Financial Position. DT Midstream believes the accrued amounts are sufficient to cover estimated future expenditures.
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DT Midstream, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 10 — SEGMENT AND RELATED INFORMATION
DT Midstream sets strategic goals, allocates resources, and evaluates performance based on the following structure:
Pipeline segment owns and operates interstate and intrastate natural gas pipelines, storage systems, and natural gas gathering lateral pipelines. The segment also has interests in equity method investees that own and operate interstate natural gas pipelines. The segment is engaged in the transportation and storage of natural gas for intermediate and end user customers.
Gathering segment owns and operates gas gathering systems. The segment is engaged in collecting natural gas from points at or near customers’ wells for delivery to plants for processing, to gathering pipelines for further gathering, or to pipelines for transportation, as well as associated ancillary services, including compression, dehydration, gas treatment, water impoundment, water storage, water transportation and sand mining.
Inter-segment billing for goods and services exchanged between segments is based upon contracted prices of the provider. Inter-segment billings were not significant for the three months ended March 31, 2022 and 2021.
The following table presents financial data by business segment:
Three Months Ended | |||||||||||
March 31, | |||||||||||
2022 | 2021 | ||||||||||
(millions) | |||||||||||
Operating Revenues | |||||||||||
Pipeline | $ | 77 | $ | 75 | |||||||
Gathering | 138 | 122 | |||||||||
Total | $ | 215 | $ | 197 |
Three Months Ended | |||||||||||
March 31, | |||||||||||
2022 | 2021 | ||||||||||
(millions) | |||||||||||
Net Income Attributable to DT Midstream by Segment | |||||||||||
Pipeline | $ | 48 | $ | 42 | |||||||
Gathering | 33 | 36 | |||||||||
Total | $ | 81 | $ | 78 |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our results of operations and financial condition should be read in conjunction with our Consolidated Financial Statements and the Notes to Consolidated Financial Statements, which are included under Part I, Item 1 of this quarterly report, and the historical consolidated financial statements and notes thereto, which are included in the DT Midstream 2021 Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about the midstream industry and our business and financial results. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed in the sections entitled "Forward-Looking Statements" and "Risk Factors."
OVERVIEW
Our Business
We are an owner, operator, and developer of an integrated portfolio of natural gas midstream assets. We provide multiple, integrated natural gas services to customers through our interstate pipelines, intrastate pipelines, storage systems, lateral pipelines and related treatment plants and compression and surface facilities, and gathering systems and related treatment plants and compression and surface facilities. We also own joint venture interests in equity method investees which own and operate interstate pipelines, many of which have connectivity to our wholly owned assets.
Our core assets connect demand centers in the Midwestern U.S., Eastern Canada, Northeastern U.S. and Gulf Coast regions to production areas of the Haynesville and Marcellus/Utica dry natural gas formations in the Gulf Coast and Appalachian Basins, respectively.
The Separation
On July 1, 2021, DTE Energy completed the Separation through the distribution of 96,732,466 shares of DT Midstream common stock to DTE Energy shareholders. Following the Separation on July 1, 2021, we became an independent public company listed under the symbol "DTM" on the NYSE. DTE Energy no longer retains any ownership in our company. See Note 1, "Separation, Description of the Business, and Basis of Presentation" to the Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
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RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations includes financial information prepared in accordance with GAAP. The following sections provide a detailed discussion of the operating performance and future outlook of our segments. Segment information, described below, includes intercompany revenues and expenses, as well as other income and deductions that are eliminated in the Consolidated Financial Statements.
In November 2020, the SEC issued a final rule to modernize and simplify Management's Discussion and Analysis and certain financial disclosure requirements in SEC Regulation S-K. As permitted by this final rule, the analysis below reflects the optional approach to discuss results of operations in a sequential-quarter basis, which we believe will provide the most useful information to investors in assessing our quarterly results of operations going forward. Also, as required by the final rule, we have included the comparison of the current quarter to the prior-year quarter for this filing only, and we will cease to provide this comparison in future filings.
For purposes of the following discussion, any increases or decreases refer to the comparison of the three months ended March 31, 2022 to the three months ended December 31, 2021, or to the three months ended March 31, 2021, as applicable.
The following table summarizes our consolidated financial results:
Three Months Ended | |||||||||||||||||
March 31, | December 31, | March 31, | |||||||||||||||
2022 | 2021 | 2021 | |||||||||||||||
(millions, except per share amounts) | |||||||||||||||||
Operating revenues | $ | 215 | $ | 223 | $ | 197 | |||||||||||
Net Income Attributable to DT Midstream | 81 | 87 | 78 | ||||||||||||||
Diluted Earnings per Common Share | $ | 0.84 | $ | 0.89 | $ | 0.80 |
Operating revenues decreased compared to the three months ended December 31, 2021 in both our Pipeline and Gathering segments. Operating revenues increased compared to the three months ended March 31, 2021 in both our Pipeline and Gathering segments.
Three Months Ended | |||||||||||||||||
March 31, | December 31, | March 31, | |||||||||||||||
2022 | 2021 | 2021 | |||||||||||||||
(millions) | |||||||||||||||||
Net Income Attributable to DT Midstream by Segment | |||||||||||||||||
Pipeline | $ | 48 | $ | 51 | $ | 42 | |||||||||||
Gathering | 33 | 36 | 36 | ||||||||||||||
Total | $ | 81 | $ | 87 | $ | 78 |
Net income attributable to DT Midstream decreased $6 million compared to the three months ended December 31, 2021 due to lower earnings at both our Pipeline and Gathering segments. Net income attributable to DT Midstream increased $3 million compared to the three months ended March 31, 2021 due to higher earnings at our Pipeline segment, partially offset by lower earnings at our Gathering segment.
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Pipeline
The Pipeline segment consists of our interstate pipelines, intrastate pipelines, storage systems, lateral pipelines and related treatment plants and compression and surface facilities. This segment also includes our equity method investments. Pipeline results and outlook are discussed below:
Three Months Ended | |||||||||||||||||
March 31, | December 31, | March 31, | |||||||||||||||
2022 | 2021 | 2021 | |||||||||||||||
(millions) | |||||||||||||||||
Operating revenues | $ | 77 | $ | 80 | $ | 75 | |||||||||||
Operation and maintenance | 13 | 15 | 19 | ||||||||||||||
Depreciation and amortization | 16 | 16 | 16 | ||||||||||||||
Taxes other than income | 4 | 3 | 4 | ||||||||||||||
Operating Income | 44 | 46 | 36 | ||||||||||||||
Interest expense | 13 | 14 | 11 | ||||||||||||||
Interest income | — | — | (1) | ||||||||||||||
Earnings from equity method investees | (36) | (36) | (32) | ||||||||||||||
Other (income) and expense | — | — | (2) | ||||||||||||||
Income Tax Expense | 16 | 15 | 15 | ||||||||||||||
Net Income | 51 | 53 | 45 | ||||||||||||||
Less: Net Income Attributable to Noncontrolling Interests | 3 | 2 | 3 | ||||||||||||||
Net Income Attributable to DT Midstream | $ | 48 | $ | 51 | $ | 42 |
Operating revenues decreased $3 million compared to the three months ended December 31, 2021 primarily due to lower Stonewall Gas Gathering operating revenues as a result of decreased short-term contracts.
Operation and maintenance expense decreased $6 million compared to the three months ended March 31, 2021 primarily due to lower Separation related transaction costs of $5 million.
Earnings from equity method investees increased $4 million compared to the three months ended March 31, 2021 primarily due to higher revenue at NEXUS and Millennium Pipeline as a result of improved contracting.
Outlook
We believe our long-term agreements with customers and the location and connectivity of our pipeline assets position the business for future growth. We will continue to pursue economically attractive expansion opportunities that leverage our current asset footprint and strategic relationships. These growth opportunities include future Haynesville system expansion (LEAP), completion of a new customer interconnection at Stonewall Gas Gathering, and additional growth related to our equity method investments.
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Gathering
The Gathering segment consists of our gathering systems and related treatment plants and compression and surface facilities. Gathering results and outlook are discussed below:
Three Months Ended | |||||||||||||||||
March 31, | December 31, | March 31, | |||||||||||||||
2022 | 2021 | 2021 | |||||||||||||||
(millions) | |||||||||||||||||
Operating revenues | $ | 138 | $ | 143 | $ | 122 | |||||||||||
Operation and maintenance | 48 | 51 | 31 | ||||||||||||||
Depreciation and amortization | 26 | 26 | 25 | ||||||||||||||
Taxes other than income | 4 | 2 | 3 | ||||||||||||||
Asset (gains) losses and impairments, net | — | — | (1) | ||||||||||||||
Operating Income | 60 | 64 | 64 | ||||||||||||||
Interest expense | 18 | 17 | 15 | ||||||||||||||
Interest income | — | — | (2) | ||||||||||||||
Other (income) and expense | — | 1 | 1 | ||||||||||||||
Income Tax Expense | 9 | 10 | 14 | ||||||||||||||
Net Income Attributable to DT Midstream | $ | 33 | $ | 36 | $ | 36 |
Operating revenues decreased $5 million compared to the three months ended December 31, 2021 primarily due to lower Blue Union revenue and Susquehanna Gathering System production-related revenue. Operating revenues increased $16 million compared to the three months ended March 31, 2021 primarily due to higher Blue Union production-related revenue of $14 million and higher Appalachia Gathering System production-related revenue of $3 million.
Operation and maintenance expense decreased $3 million compared to the three months ended December 31, 2021 primarily due to lower employee-related expenses. Operation and maintenance expense increased $17 million compared to the three months ended March 31, 2021 primarily due to higher Blue Union expenses of $21 million, partially offset by lower Separation related transaction costs of $5 million. Higher Blue Union expenses were driven by higher gathered volumes and associated variable costs to operate facilities and planned maintenance.
Interest expense increased $3 million compared to the three months ended March 31, 2021 primarily due to higher interest rates on our external debt as compared to interest rates on borrowings from DTE Energy.
Income tax expense decreased $5 million compared to the three months ended March 31, 2021 primarily due to a decrease in Income before income taxes.
Outlook
We believe our long-term agreements with producers and the quality of the natural gas reserves in the Marcellus/Utica and Haynesville shale regions position the business for future growth. We will continue to pursue economically attractive expansion opportunities that leverage our current asset footprint and strategic relationships. These growth opportunities include future Haynesville system expansion (Blue Union) and expansion opportunities at the Appalachia Gathering System.
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STRATEGY
Our principal business objective is to safely and reliably operate and develop natural gas assets across our premier footprint. Our proven leadership and highly engaged employees have an excellent track record. Prospectively, we intend to continue this track record by executing on our natural gas-centric business strategy focused on disciplined capital deployment and supported by a flexible, well capitalized balance sheet. Additionally, we intend to develop low carbon business opportunities and deploy greenhouse gas reducing technologies as part of our goal of being leading environmental stewards in the midstream industry and have announced a net zero carbon emissions goal by 2050. Our strategy is premised on the following principles:
•disciplined capital deployment in assets supported by strong fundamentals;
•capitalize on asset integration and utilization opportunities;
•pursue economically attractive opportunities;
•grow cash flows supported by long-term firm revenue contracts; and
•provide exceptional service to our customers.
CAPITAL INVESTMENTS
Capital spending within our company is primarily for ongoing maintenance and expansion of our existing assets, and if identified, attractive growth opportunities. We have been disciplined in our capital deployment and make growth investments that meet our criteria in terms of strategy, management skills, and identified risks and expected returns. All potential investments are analyzed for their rates of return and cash payback on a risk adjusted basis. We anticipate total capital expenditures, inclusive of contributions to equity method investees, in 2022 of approximately $350 million to $400 million.
ENVIRONMENTAL MATTERS
We are subject to extensive U.S. federal, state, and local environmental regulations. Additional compliance costs may result as the effects of various substances on the environment are studied and governmental regulations are developed and implemented. Actual costs to comply with such regulation could vary substantially from our expectations. Pending or future legislation or regulation could have a material impact on our operations and financial position. Potential impacts include expenditures for environmental equipment, such as pollution control equipment, beyond what is currently planned, financing costs related to additional capital expenditures and the replacement costs of aging pipelines and other facilities.
For further discussion of environmental matters, see Note 9, "Commitments and Contingencies" to the Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
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CAPITAL RESOURCES AND LIQUIDITY
Cash Requirements
Our principal liquidity requirements are to finance our operations, fund capital expenditures, satisfy our indebtedness obligations, and pay dividends, as deemed appropriate. We believe we will have sufficient internal and external capital resources to fund anticipated capital and operating requirements. We expect that cash from operations in 2022 will be approximately $605 million to $655 million.
Three Months Ended | |||||||||||
March 31, | |||||||||||
2022 | 2021 | ||||||||||
(millions) | |||||||||||
Cash and Cash Equivalents at Beginning of Period | $ | 132 | $ | 42 | |||||||
Net cash and cash equivalents from operating activities | 234 | 163 | |||||||||
Net cash and cash equivalents used for investing activities | (17) | (17) | |||||||||
Net cash and cash equivalents used for financing activities | (68) | (159) | |||||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 149 | (13) | |||||||||
Cash and Cash Equivalents at End of Period | $ | 281 | $ | 29 |
Operating Activities
Cash flows from our operations can be impacted in the short term by the volumes gathered or transported through our systems, changing commodity prices, seasonality, weather fluctuations, dividends from equity method investees and the financial condition of our customers. Our preference to enter into firm service contracts with firm reservation fees helps minimize our long-term exposure to commodity prices and its impact on the financial condition of our customers and provides us more stable operating performance and cash flows.
Net cash and cash equivalents from operating activities increased $71 million in the three months ended March 31, 2022 primarily due to net changes in working capital, an increase in dividends received from equity method investees, and an increase in operating income after adjustment for non-cash items including depreciation and amortization expense, amortization of operating lease right-of-use assets, and assets (gains) losses and impairments. These increases were partially offset by an increase in interest expense and a decrease in interest income.
Investing Activities
Cash outflows associated with investing activities are primarily the result of plant and equipment expenditures, acquisitions, and contributions to equity method investees. Cash inflows from investing activities are generated from collection of notes receivable, distributions from equity method investees, and proceeds from asset sales.
Net cash and cash equivalents used for investing activities was unchanged in the three months ended March 31, 2022. During the three months ended March 31, 2022, a decrease in notes receivable repaid by DTE Energy was mostly offset by a decrease in DT Midstream's plant and equipment expenditures.
Financing Activities
Prior to the Separation we relied on short-term borrowings and contributions from DTE Energy as a source of funding for capital requirements not satisfied by our operations. In June 2021, we issued senior notes in an aggregate principal amount of $2.1 billion and entered into a Credit Agreement providing for a $1.0 billion Term Loan Facility and a $750 million Revolving Credit Facility. See Note 8, "Debt" to the Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Net cash and cash equivalents used for financing activities decreased $91 million in the three months ended March 31, 2022, primarily due to no repayments of borrowings from DTE Energy, partially offset by dividends paid on common stock to stockholders, repayment of long-term debt and repurchase of common stock.
During the three months ended March 31, 2022, DT Midstream paid cash dividends on common stock of $0.60 per share related to the quarter ended December 31, 2021. See Note 5, "Earnings per Share and Dividends" to the Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
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Outlook
We expect to continue executing on our natural gas-centric business strategy focused on disciplined capital deployment and supported by a flexible, well capitalized balance sheet. Other than the impact of the items discussed below on our debt and equity capitalization, we are not aware of any trends or other demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in our liquidity increasing or decreasing materially.
Our working capital requirements will be primarily driven by changes in accounts receivable and accounts payable. We continue our efforts to identify opportunities to improve cash flows through working capital initiatives and obtaining additional long-term firm commitments from customers.
Historically, our sources of liquidity included cash generated from operations and, prior to the Separation, loans obtained through DTE Energy’s corporate-wide cash management program. After the Separation, our sources of liquidity include cash generated from operating activities and available borrowings under our Revolving Credit Facility. We began investing in money market cash equivalents in August 2021.
In June 2021, we issued long-term debt in the form of $2.1 billion Senior Notes and a $1.0 billion Term Loan Facility. Proceeds were used for the repayment of the Short-term borrowings due to DTE Energy as well as a one-time special dividend provided to DTE Energy. We also entered into a $750 million secured Revolving Credit Facility for general corporate purposes and letter of credit issuances to support our future operations and liquidity. The Credit Agreement covering the Term Loan Facility and Revolving Credit Facility includes financial covenants that DT Midstream must maintain. See Note 8, "Debt" to the Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for additional discussion on the financial covenants.
As of March 31, 2022, we had $8 million of letters of credit outstanding and no borrowings outstanding under our Revolving Credit Facility. We have approximately $1 billion of available liquidity as of March 31, 2022, consisting of cash and cash equivalents and amounts available under our Revolving Credit Facility.
In April 2022, we issued long-term debt in the form of $600 million Senior Secured Notes. We used the net proceeds from the sale of the Senior Secured Notes to partially repay existing indebtedness under our Term Loan Facility. See Note 8, "Debt" to the Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
We expect to pay regular cash dividends to DT Midstream common stockholders in the future. Any payment of future dividends is subject to approval by the Board of Directors and may depend on our future earnings, cash flows, capital requirements, financial condition, and the effect a dividend payment would have on our compliance with relevant financial covenants. Over the long-term, we expect to grow our dividend consistent with cash flow growth and are targeting a payout ratio consistent with pure-play midstream companies.
We believe we will have sufficient operating flexibility, cash resources and funding sources to maintain adequate amounts of liquidity and to meet future operating cash, capital expenditure and debt servicing needs. However, virtually all of our businesses are capital intensive, or require access to capital, and the inability to access adequate capital could adversely impact future earnings and cash flows.
See Note 1, "Separation, Description of the Business, and Basis of Presentation", Note 8, "Debt" and Note 9, "Commitments and Contingencies" to the Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
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OFF-BALANCE SHEET ARRANGEMENTS
We are party to off-balance sheet arrangements, which include our equity method investments. See the section entitled "Principles of Consolidation" in Note 1, "Separation, Description of the Business, and Basis of Presentation" to the Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for further discussion of the nature, purpose and other details of such agreements.
Other off-balance sheet arrangements include the Vector Pipeline Line of Credit and our guarantees, which are discussed further in Note 9, "Commitments and Contingencies" to the Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 3, "New Accounting Pronouncements" to the Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Price Risk
Our business is dependent on the continued availability of natural gas production and reserves in our areas of operation. Low prices for natural gas, including those resulting from regional basis differentials, could adversely affect development of additional reserves and production that is accessible by our pipeline and storage assets. We manage our exposure through the use of short, medium, and long-term storage, gathering, and transportation contracts. Consequently, our existing operations and cash flows have limited direct exposure to commodity price risk.
Credit Risk
We are exposed to credit risk, which is the risk that we may incur a loss if a counterparty fails to perform under a contract. We manage our exposure to credit risk associated with customers through credit analysis, credit approval, credit limits and monitoring procedures. For certain transactions, we may request letters of credit, cash collateral, prepayments or guarantees as forms of credit support. Our FERC tariffs require tariff customers that do not meet specified credit standards to provide three months of credit support however, we are exposed to credit risk beyond this three-month period when our tariffs do not require our customers to provide additional credit support. For some of our more recent long-term contracts associated with system expansions, we have entered into negotiated credit agreements that provide for enhanced forms of credit support if certain credit standards are not met.
We depend on key customers in the Haynesville shale formation in the Gulf Coast and in the Utica and Marcellus shale formation in the Northeast for a significant portion of our revenues. The loss of, or reduction in volumes from, any of these key customers could result in a decline in demand for our services and materially adversely affect our business, financial condition and results of operations.
We engage with customers that are non-investment grade, including two of our key customers, Southwestern and Antero. These customers are otherwise considered creditworthy or are required to make prepayments or provide security to satisfy credit concerns.
We regularly monitor for bankruptcy proceedings that may impact our counterparties.
Interest Rate Risk
We are subject to interest rate risk in connection with the issuance of debt. Our exposure to interest rate risk arises primarily from changes in LIBOR. As of March 31, 2022, we had floating rate debt of $992 million and a floating rate debt-to-total debt ratio of 33% related to the variable rate Term Loan Facility issued in June 2021. In April 2022, we used the net proceeds from the sale of the 2032 Notes to partially repay existing indebtedness under the Term Loan Facility, which reduced our exposure to interest rate risk. See Note 8, "Debt" to the Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Summary of Sensitivity Analysis
A sensitivity analysis was performed on the fair values of our long-term debt obligations. The sensitivity analysis involved increasing and decreasing rates at March 31, 2022 by a hypothetical 10% and calculating the resulting change in the fair values. The hypothetical losses related to long-term debt would be realized only if we transferred all of our fixed-rate long-term debt to other creditors. The results of the sensitivity analysis:
Assuming a 10% Increase in Rates | Assuming a 10% Decrease in Rates | Change in the Fair Value of | ||||||||||||||||||
Activity | As of March 31, 2022 | |||||||||||||||||||
(millions) | ||||||||||||||||||||
Interest rate risk | $ | (80) | $ | 83 | Long-term debt |
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Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures
Management of DT Midstream carried out an evaluation, under the supervision and with the participation of DT Midstream's Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of DT Midstream's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2022, which is the end of the period covered by this report. Based on this evaluation, DT Midstream's CEO and CFO have concluded that such disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by DT Midstream in reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms and (ii) is accumulated and communicated to DT Midstream's management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Due to the inherent limitations in the effectiveness of any disclosure controls and procedures, management cannot provide absolute assurance that the objectives of its disclosure controls and procedures will be attained.
(b) Changes in internal control over financial reporting
Prior to and after the Separation, DT Midstream relied on certain material processes and internal controls over financial reporting performed by DTE Energy. In January 2022, DT Midstream transitioned from DTE Energy's Enterprise Resource Planning ("ERP") system to a stand-alone ERP system.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
For information on legal proceedings and matters related to DT Midstream, see Note 9, "Commitments and Contingencies" to the Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Item 1A. Risk Factors
There are various risks associated with the operations of DT Midstream's businesses. To provide a framework to understand the operating environment of DT Midstream, a brief explanation of the more significant risks associated with DT Midstream's businesses is provided in Part 1, Item 1A. Risk Factors in DT Midstream's 2021 Annual Report on Form 10-K. Although DT Midstream has tried to identify and discuss key risk factors, others could emerge in the future.
Item 2. Purchases of DTM Equity Securities by the Issuer and Affiliated Purchasers
The following table provides information about DT Midstream's purchases of equity securities that are registered by DT Midstream pursuant to Section 12 of the Exchange Act of 1934 for the quarter ended March 31, 2022:
_____________________________
Number of Shares Purchased (a) | Average Price Paid per Share (a) | Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Average Price Paid per Share | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | |||||||||||||||||||||||||
January 1-31, 2022 | — | $ | — | — | $ | — | — | ||||||||||||||||||||||
February 1-28, 2022 | — | — | — | — | — | ||||||||||||||||||||||||
March 1-31, 2022 | 57,445 | $ | 55.00 | 57,445 | $ | 55.00 | 67,555 | ||||||||||||||||||||||
Total | 57,445 | 57,445 |
(a) In February 2022, DT Midstream announced a repurchase program that approved the repurchase of up to 125,000 shares of common stock through December 31, 2022. Represents shares of DTM common stock purchased on the open market to offset an equivalent amount of common shares issued under its stock-based compensation program.
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Item 6. Exhibits
Exhibit Number | Description | |||||||
(i) Exhibits incorporated by reference: | ||||||||
Amended and Restated Certificate of Incorporation of DT Midstream, Inc., effective July 1, 2021 (Exhibit 3.1 to DT Midstream's Form 8-K filed July 1, 2021) | ||||||||
Amended and Restated Bylaws of DT Midstream, Inc., effective July 1, 2021 (Exhibit 3.2 to DT Midstream's Form 8-K filed July 1, 2021) | ||||||||
Indenture, dated as of June 9, 2021, among DT Midstream, Inc., the Guarantors and U.S. Bank National Association, as trustee. (Exhibit 4.1 to DT Midstream's Form 8-K filed June 10, 2021) | ||||||||
Indenture, dated as of April 11, 2022, among DT Midstream, Inc., the Guarantors and U.S. Bank Trust Company, National Association, as trustee. (Exhibit 4.1 to DT Midstream's Form 8-K filed April 11, 2022) | ||||||||
Pari Passu Intercreditor Agreement, dated as of April 11, 2022, among DT Midstream, Inc., the Guarantors, Barclays Bank PLC, as Credit Agreement Agent, and U.S. Bank Trust Company, National Association, as Notes Collateral Agent. (Exhibit 4.2 to DT Midstream's Form 8-K filed April 11, 2022) | ||||||||
(ii) Exhibits filed herewith: | ||||||||
Chief Executive Officer Section 302 Form 10-Q Certification of Periodic Report | ||||||||
Chief Financial Officer Section 302 Form 10-Q Certification of Periodic Report | ||||||||
101.INS | 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. | |||||||
101.SCH | XBRL Taxonomy Extension Schema | |||||||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | |||||||
101.DEF | XBRL Taxonomy Extension Definition Database | |||||||
101.LAB | XBRL Taxonomy Extension Label Linkbase | |||||||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase | |||||||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||
(iii) Exhibits furnished herewith: | ||||||||
Chief Executive Officer Section 906 Form 10-Q Certification of Periodic Report | ||||||||
Chief Financial Officer Section 906 Form 10-Q Certification of Periodic Report |
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.
Date: | May 5, 2022 | ||||||||||
DT MIDSTREAM, INC. | |||||||||||
By: | /S/ JEFFREY A. JEWELL | ||||||||||
Jeffrey A. Jewell Chief Financial and Accounting Officer | |||||||||||
(Duly Authorized Officer) |
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