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)
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)
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 | |
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_____________________________________
(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)
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.
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.
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.
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 | | | | | | | | | | |
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.
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.
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.
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 |
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.
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.
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.
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.
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 | | | | | |