DT Midstream Inc.

10/29/2024 | Press release | Distributed by Public on 10/29/2024 10:00

Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

dtm-20240930
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 September 30, 2024
Or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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, Michigan48226-1279
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 as of September 30, 2024:
Description Shares
Common stock, par value $0.01 97,156,144
TABLE OF CONTENTS
Page
Definitions
1
Filing Format
3
Forward-Looking Statements
3
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements
DT Midstream Consolidated Financial Statements (Unaudited)
5
Notes to Consolidated Financial Statements (Unaudited)
12
Note 1 - Description of the Business and Basis of Presentation
12
Note 2 - Significant Accounting Policies
14
Note 3 - New Accounting Pronouncements
15
Note 4 - Goodwill
15
Note 5 - Revenue
16
Note 6 - Earnings Per Share and Dividends
18
Note 7 - Income Taxes
18
Note 8 - Fair Value
19
Note 9 - Debt
20
Note 10 - Commitments and Contingencies
21
Note 11 - Segment and Related Information
22
Note 12 - Acquisition
22
Note 13 - Subsequent Event
23
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
24
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
32
Item 4.
Controls and Procedures
33
PART II - OTHER INFORMATION
Item 1.
Legal Proceedings
33
Item 1A.
Risk Factors
33
Item 4.
Mine Safety Disclosure
33
Item 5.
Other Information
33
Item 6.
Exhibits
34
Signature
35
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, our consolidated subsidiaries and our unconsolidated joint ventures. As used in this Form 10-Q, the terms and definitions below have the following meanings:
Appalachia Gathering
A 149-mile gathering system that gathers Marcellus shale natural gas to the Texas Eastern Pipeline and Stonewall
ASC 606
The Accounting Standards Codification of Revenue from Contracts with Customers issued by the FASB
ASU
Accounting Standards Update issued by the FASB
Bcf Billion cubic feet of natural gas
Bluestone
A 65-mile gathering lateral pipeline, and two compression facilities, that gathers Marcellus shale natural gas to Millennium and the Tennessee Pipeline
Blue Union Gathering
A 424-mile gathering system that gathers shale natural gas from the Haynesville formation of Louisiana and Texas to markets in the Gulf Coast region
CAD Canadian Dollar ($)
Clean Fuels Gathering
A 77-mile gathering system that gathers and treats coal mine methane into pipeline quality natural gas in Illinois
Columbia Pipeline
Columbia Gas Transmission, LLC, owned by TC Energy Corporation and Global Infrastructure Partners
Credit Agreement
DT Midstream's credit agreement which provides for the Revolving Credit Facility
DT Midstream
DT Midstream, Inc. and our consolidated subsidiaries
ETR Effective tax rate
Expand Energy
Expand Energy Corporation, the company resulting from the merger of Chesapeake Energy Corporation and Southwestern Energy Company which closed on October 1, 2024, and/or its affiliates
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
GAAP Generally Accepted Accounting Principles in the United States
Generation
A 25-mile intrastate pipeline in northern Ohio and owned by NEXUS
GHG Greenhouse gas
Haynesville System
Pipeline and gathering system which is comprised of LEAP, Blue Union Gathering and associated facilities
Inflation Reduction Act The Inflation Reduction Act of 2022 (H.R. 5374)
LEAP
Louisiana Energy Access Project, a 210-mile gathering lateral pipeline that gathers Haynesville shale natural gas to markets in the Gulf Coast region
LNG
Liquefied natural gas
Michigan System
A 335-mile pipeline system in northern Michigan
Millennium
Millennium Pipeline Intermediate Holdings LLC, a joint venture that, through its wholly owned subsidiary, Millennium Pipeline Company, LLC, owns a 263-mile interstate transportation pipeline and compression facilities serving markets in the northeast and supply from the northeast Marcellus region, in which DT Midstream owns a 52.5% interest
MVC Minimum volume commitment
1
DEFINITIONS
NEXUS
NEXUS Gas Transmission, LLC, a joint venture that owns (i) a 256-mile interstate transportation pipeline and three compression facilities that transports Utica and Marcellus shale natural gas to Ohio, Michigan and Ontario market centers and (ii) Generation, in which DT Midstream owns a 50% interest
Ohio Utica Gathering
A 20-mile gathering system, including compression and dehydration facilities, that gathers Utica shale natural gas from producer wells to a nearby processing plant
Revolving Credit Facility
DT Midstream's secured revolving credit facility issued under the Credit Agreement
SEC Securities and Exchange Commission
SOFR Secured Overnight Financing Rate
South Romeo
South Romeo Gas Storage Company, LLC, a joint venture which owns the Washington 28 Storage Complex, in which DT Midstream owns a 50% interest
Stonewall
A 68-mile gathering lateral pipeline, in which DT Midstream owns an 85% interest, that gathers Marcellus and Utica shale natural gas to the Columbia Pipeline
Susquehanna Gathering
A 198-mile gathering system that gathers Marcellus shale natural gas to Bluestone
Tennessee Pipeline Tennessee Gas Pipeline Company, LLC, owned by Kinder Morgan, Inc.
Term Loan Facility
DT Midstream's term loan facility issued under the Credit Agreement, which was repaid in 2024
Texas Eastern Pipeline
Texas Eastern Transmission, LP, owned by Enbridge Inc.
Tioga Gathering
A 3-mile gathering system that gathers shale natural gas to the Eastern Gas Transmission system
U.S. United States of America
USD United States Dollar ($)
Vector
Vector Pipeline LP, a joint venture that owns a 348-mile interstate transportation pipeline and five compression facilities connecting Illinois, Michigan, and Ontario market centers, in which DT Midstream owns a 40% interest
VIE Variable Interest Entity
Washington 10 Storage Complex
An interstate storage system located in Michigan with 94 Bcf of storage capacity, in which DT Midstream owns a 91% interest, and associated compression facilities
2029 Notes Senior unsecured notes of $1.1 billion in aggregate principal amount due June 2029
2031 Notes Senior unsecured notes of $1.0 billion in aggregate principal amount due June 2031
2032 Notes Senior secured notes of $600 million in aggregate principal amount due April 2032
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 2023 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:
•changes in general economic conditions, including increases in interest rates and associated Federal Reserve policies, a potential economic recession, and the impact of inflation on our business;
•industry changes, including the impact of consolidations, alternative energy sources, technological advances, infrastructure constraints and changes in competition;
•global supply chain disruptions;
•actions taken by third-party operators, processors, transporters and gatherers;
•changes in expected production from Expand Energy 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;
•our ability to successfully and timely implement our business plan;
•our ability to complete organic growth projects on time and on budget;
•our ability to finance, complete, or successfully integrate acquisitions;
•the price and availability of debt and equity financing;
•restrictions in our existing and any future credit facilities and indentures;
•the effectiveness of our information technology and operational technology systems and practices to detect and defend against evolving cyber attacks on United States critical infrastructure;
•changing laws regarding cybersecurity and data privacy, and any cybersecurity threat or event;
•operating hazards, environmental risks and other risks incidental to gathering, storing and transporting natural gas;
•geologic and reservoir risks and considerations;
•natural disasters, adverse weather conditions, casualty losses and other matters beyond our control;
•the impact of outbreaks of illnesses, epidemics and pandemics, and any related economic effects;
•the impacts of geopolitical events, including the conflicts in Ukraine and the Middle East;
•labor relations and markets, including the ability to attract, hire and retain key employee and contract personnel;
•large customer defaults;
3
•changes in tax status, as well as changes in tax rates and regulations;
•the effects and associated cost of compliance with existing and future laws and governmental regulations, such as the Inflation Reduction Act;
•changes in environmental laws, regulations or enforcement policies, including laws and regulations relating to climate change and GHG emissions;
•ability to develop low carbon business opportunities and deploy GHG reducing technologies;
•changes in insurance markets impacting costs and the level and types of coverage available;
•the timing and extent of changes in commodity prices;
•the success of our risk management strategies;
•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; and
•the risks described in our Annual Report on Form 10-K for the year ended December 31, 2023 and our reports and registration statements filed from time to time with the SEC.
The above list of factors is not exhaustive. New factors emerge from time to time. We 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 Nine Months Ended
September 30, September 30,
2024 2023 2024 2023
(millions, except per share amounts)
Revenues
Operating revenues $ 248 $ 234 $ 732 $ 678
Operating Expenses
Operation and maintenance 63 58 169 176
Depreciation and amortization 53 46 156 133
Taxes other than income 10 7 31 22
Asset (gains) losses and impairments, net - (1) - (4)
Operating Income 122 124 376 351
Other (Income) and Deductions
Interest expense 38 38 117 111
Interest income (1) - (2) (1)
Earnings from equity method investees (40) (41) (125) (132)
Loss from financing activities 4 - 4 -
Other (income) and expense - - (3) (1)
Income Before Income Taxes 121 127 385 374
Income Tax Expense 30 33 94 102
Net Income 91 94 291 272
Less: Net Income Attributable to Noncontrolling Interests 3 3 10 9
Net Income Attributable to DT Midstream $ 88 $ 91 $ 281 $ 263
Basic Earnings per Common Share
Net Income Attributable to DT Midstream $ 0.91 $ 0.94 $ 2.90 $ 2.72
Diluted Earnings per Common Share
Net Income Attributable to DT Midstream $ 0.90 $ 0.94 $ 2.87 $ 2.70
Weighted Average Common Shares Outstanding
Basic 97.1 97.0 97.1 96.9
Diluted 98.0 97.5 97.8 97.4
See Notes to Consolidated Financial Statements (Unaudited)
5
DT Midstream, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2024 2023 2024 2023
(millions)
Net Income $ 91 $ 94 $ 291 $ 272
Foreign currency translation and unrealized gain on derivatives, net of tax 1 - 1 1
Other comprehensive income 1 - 1 1
Comprehensive income 92 94 292 273
Less: Comprehensive income attributable to noncontrolling interests 3 3 10 9
Comprehensive Income Attributable to DT Midstream $ 89 $ 91 $ 282 $ 264
See Notes to Consolidated Financial Statements (Unaudited)
6
DT Midstream, Inc.
Consolidated Statements of Financial Position
(Unaudited)
September 30, December 31,
2024 2023
(millions)
ASSETS
Current Assets
Cash and cash equivalents $ 77 $ 56
Accounts receivable (net of $- allowance for expected credit loss for each period end)
137 154
Deferred property taxes 8 31
Taxes receivable 6 15
Prepaid expenses and other 21 16
249 272
Investments
Investments in equity method investees 1,301 1,762
Property
Property, plant, and equipment 5,508 5,282
Accumulated depreciation (959) (848)
4,549 4,434
Other Assets
Goodwill 473 473
Long-term notes receivable - related party 4 4
Operating lease right-of-use assets 47 38
Intangible assets, net 1,925 1,968
Other 39 31
2,488 2,514
Total Assets $ 8,587 $ 8,982
See Notes to Consolidated Financial Statements (Unaudited)
7
DT Midstream, Inc.
Consolidated Statements of Financial Position
(Unaudited)
September 30, December 31,
2024 2023
(millions, except shares)
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable $ 67 $ 94
Short-term borrowings - 165
Operating lease liabilities 15 13
Dividends payable 71 67
Interest payable 38 10
Property taxes payable 25 34
Accrued compensation 14 18
Contract liabilities 18 18
Other 14 15
262 434
Long-Term Debt, net 2,674 3,065
Other Liabilities
Deferred income taxes 1,108 1,031
Operating lease liabilities 34 27
Contract liabilities 128 111
Other 25 34
1,295 1,203
Total Liabilities 4,231 4,702
Commitments and Contingencies (Note 10)
Stockholders' Equity
Preferred stock ($0.01 par value, 50,000,000 shares authorized, and no shares issued or outstanding as of September 30, 2024 and December 31, 2023)
- -
Common stock ($0.01 par value, 550,000,000 shares authorized, and 97,156,144 and 96,971,021 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively)
1 1
Additional paid-in capital 3,498 3,485
Retained earnings 726 661
Accumulated other comprehensive income (loss) (7) (8)
Total DT Midstream Equity 4,218 4,139
Noncontrolling interests 138 141
Total Equity 4,356 4,280
Total Liabilities and Equity $ 8,587 $ 8,982
See Notes to Consolidated Financial Statements (Unaudited)
8
DT Midstream, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
2024 2023
(millions)
Operating Activities
Net Income $ 291 $ 272
Adjustments to reconcile Net Income to Net cash and cash equivalents from operating activities:
Depreciation and amortization 156 133
Stock-based compensation 17 15
Amortization of operating lease right-of-use assets 13 14
Deferred income taxes 78 91
Earnings from equity method investees (125) (132)
Dividends from equity method investees 123 152
Loss from financing activities 4 -
Changes in assets and liabilities:
Accounts receivable, net 16 15
Accounts payable 6 (4)
Interest payable 28 29
Contract liabilities 16 60
Other current and noncurrent assets and liabilities (12) (31)
Net cash and cash equivalents from operating activities 611 614
Investing Activities
Plant and equipment expenditures (260) (622)
Distributions from equity method investees 467 405
Contributions to equity method investees (4) (6)
Net cash and cash equivalents from (used for) investing activities 203 (223)
Financing Activities
Repayment of long-term debt (399) -
Borrowings under the Revolving Credit Facility 195 390
Repayment of borrowings under the Revolving Credit Facility (360) (595)
Distributions to noncontrolling interests (14) (14)
Contributions from noncontrolling interests 1 -
Dividends paid on common stock (209) (196)
Other financing activities (7) (7)
Net cash and cash equivalents from (used for) financing activities (793) (422)
Net Increase (Decrease) in Cash and Cash Equivalents 21 (31)
Cash and Cash Equivalents at Beginning of Period 56 61
Cash and Cash Equivalents at End of Period $ 77 $ 30
Supplemental disclosure of cash information
Cash paid for:
Interest, net of interest capitalized $ 80 $ 76
Income taxes 7 21
Supplemental disclosure of non-cash investing and financing activities
Plant and equipment expenditures in accounts payable and other accrued liabilities $ 47 $ 109
See Notes to Consolidated Financial Statements (Unaudited)
9
DT Midstream, Inc.
Consolidated Statements of Changes in Stockholders' 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, 2023 96,971 $ 1 $ 3,485 $ 661 $ (8) $ 141 $ 4,280
Net Income - - - 97 - 3 100
Dividends declared on common stock ($0.735 per common share)
- - - (71) - - (71)
Distributions to noncontrolling interests - - - - - (4) (4)
Stock-based compensation 138 - 2 (1) - - 1
Balance, March 31, 2024 97,109 $ 1 $ 3,487 $ 686 $ (8) $ 140 $ 4,306
Net Income - - - 96 - 4 100
Dividends declared on common stock ($0.735 per common share)
- - - (71) - - (71)
Distributions to noncontrolling interests - - - - - (5) (5)
Contributions from noncontrolling interests - - - - - 1 1
Stock-based compensation 3 - 7 (1) - - 6
Balance, June 30, 2024 97,112 $ 1 $ 3,494 $ 710 $ (8) $ 140 $ 4,337
Net Income - - - 88 - 3 91
Dividends declared on common stock ($0.735 per common share)
- - - (71) - - (71)
Distributions to noncontrolling interests - - - - - (5) (5)
Stock-based compensation 44 - 4 (1) - - 3
Other comprehensive income, net of tax - - - - 1 - 1
Balance, September 30, 2024 97,156 $ 1 $ 3,498 $ 726 $ (7) $ 138 $ 4,356
See Notes to Consolidated Financial Statements (Unaudited)
10
DT Midstream, Inc.
Consolidated Statements of Changes in Stockholders' 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, 2022 96,755 $ 1 $ 3,469 $ 547 $ (10) $ 147 $ 4,154
Net Income - - - 81 - 3 84
Dividends declared on common stock ($0.69 per common share)
- - - (67) - - (67)
Distributions to noncontrolling interests - - - - - (8) (8)
Stock-based compensation 135 - 1 - - - 1
Other comprehensive income, net of tax - - - - 1 - 1
Balance, March 31, 2023 96,890 $ 1 $ 3,470 $ 561 $ (9) $ 142 $ 4,165
Net Income - - - 91 - 3 94
Dividends declared on common stock ($0.69 per common share)
- - - (67) - - (67)
Distributions to noncontrolling interests - - - - - (2) (2)
Stock-based compensation 12 - 6 (1) - - 5
Balance, June 30, 2023 96,902 $ 1 $ 3,476 $ 584 $ (9) $ 143 $ 4,195
Net Income - - - 91 - 3 94
Dividends declared on common stock ($0.69 per common share)
- - - (67) - - (67)
Distributions to noncontrolling interests - - - - - (4) (4)
Stock-based compensation 69 - 3 - - - 3
Balance, September 30, 2023 96,971 $ 1 $ 3,479 $ 608 $ (9) $ 142 $ 4,221
See Notes to Consolidated Financial Statements (Unaudited)
11
DT Midstream, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Description of the Business
DT Midstream is an owner, operator, and developer of an integrated portfolio of natural gas midstream assets. We provide multiple, integrated natural gas services to customers through two segments: (i) Pipeline, which includes interstate pipelines, intrastate pipelines, storage systems, gathering lateral pipelines including related treatment plants and compression and surface facilities, and (ii) Gathering, which includes gathering systems, related treatment plants, and compression and surface facilities. Our Pipeline segment also includes joint venture interests in equity method investees which own and operate interstate pipelines that connect to our wholly owned assets.
Our core assets strategically connect key demand centers in the Midwestern U.S., Eastern Canada and Northeastern U.S. regions to the premium production areas of the Marcellus/Utica natural gas formation in the Appalachian Basin, and connect key demand centers and LNG export terminals in the Gulf Coast region to premium production areas of the Haynesville natural gas formation.
Basis of Presentation
The DT Midstream Consolidated Financial Statements and Notes to Consolidated Financial Statements are prepared under GAAP. These accounting principles require 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 our estimates. We believe the assumptions underlying these financial statements are reasonable.
In our opinion, the accompanying unaudited Consolidated Financial Statements include all adjustments, consisting of normal recurring adjustments, necessary to present a fair statement of our financial position as of September 30, 2024, results of operations for the three and nine months ended September 30, 2024 and 2023, statement of changes in stockholders' equity for the three and nine months ended September 30, 2024 and 2023, and cash flows for the nine months ended September 30, 2024 and 2023. The balance sheet as of December 31, 2023 was derived from audited annual financial statements but does not include all disclosures required by GAAP. 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, 2024. The Consolidated Financial Statements should be read in conjunction with DT Midstream's Consolidated Financial Statements and Notes to Consolidated Financial Statements included in DT Midstream's 2023 Annual Report on Form 10-K.
Principles of Consolidation
We consolidate all majority-owned subsidiaries and investments in entities in which we have a controlling influence. Non-controlled investments are accounted for using the equity method of accounting when we are able to significantly influence the operating policies of the investee. When we do 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. We eliminate all intercompany balances and transactions.
We evaluate whether an entity is a VIE whenever reconsideration events occur. We consolidate VIEs for which we are the primary beneficiary. When assessing the determination of the primary beneficiary, we consider 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. We perform ongoing reassessments of all VIEs to determine if the primary beneficiary status has changed.
We own an 85% interest in the Stonewall VIE and are the primary beneficiary, therefore Stonewall is consolidated. We own a 50% interest in the South Romeo VIE and are the primary beneficiary, therefore South Romeo is consolidated.
12
DT Midstream, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
The following table summarizes the major line items in the Consolidated Statements of Financial Position for consolidated VIEs as of September 30, 2024 and December 31, 2023. All assets and liabilities of a consolidated VIE are included in the table when 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. The assets and liabilities of consolidated VIEs that meet the definition of a business and whose assets can be used for purposes other than the settlement of the VIEs' obligations have been excluded from the table below.
September 30, December 31,
2024 2023
(millions)
ASSETS (a)
Cash $ 10 $ 13
Accounts receivable 9 10
Other current assets 1 2
Intangible assets, net 472 483
Property, plant and equipment, net 388 391
Goodwill 25 25
$ 905 $ 924
LIABILITIES (a)
Accounts payable and other current liabilities $ 3 $ 4
Other noncurrent liabilities 3 3
$ 6 $ 7
_____________________________________
(a)Amounts shown are 100% of the consolidated VIEs' assets and liabilities.
Related Parties
Transactions between DT Midstream and our equity method investees have been presented as related party transactions in the accompanying Consolidated Financial Statements.
Equity Method Investments
Non-controlled investments are accounted for using the equity method of accounting when we are able to significantly influence the operating policies of the investee. Under the equity method of accounting, investments are recorded at historical cost as an asset and adjusted for capital contributions, dividends and distributions received, and our share of the investee's earnings or losses, which are recorded as earnings from equity method investees on the Consolidated Statements of Operations. Equity method investments and related activity are included in the Pipeline segment.
Our equity method investments are periodically evaluated for certain factors that may be indicative of other-than-temporary impairment. As of September 30, 2024 and December 31, 2023, our carrying amounts of investments in equity method investees exceeded our share of the underlying equity in the net assets of the investees by $340 million and $352 million, respectively. The difference will be amortized over the life of the underlying assets. As of both September 30, 2024 and December 31, 2023, our consolidated retained earnings balance did not have undistributed earnings from equity method investments. We use the cumulative earnings approach to classify proceeds received from equity method investees as dividends or distributions on the Consolidated Statements of Cash Flows.
Equity method investees are described below:
Investments As of % Owned As of
September 30, December 31, September 30, December 31,
Equity Method Investee 2024 2023 2024 2023
(millions)
NEXUS $ 882 $ 900 50% 50%
Vector 134 135 40% 40%
Millennium 285 727 52.5% 52.5%
Total investments in equity method investees $ 1,301 $ 1,762
13
DT Midstream, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
In September 2024, Millennium closed on the sale of $800 million of senior unsecured notes with a weighted-average coupon rate of 5.88%. We received a distribution from Millennium of $416 million, net of fees and expenses, which reduced our investment balance. We used the proceeds from the distribution to repay our existing indebtedness under our Term Loan Facility and for general corporate purposes.
In May 2023, NEXUS closed on the sale of $750 million of senior unsecured notes with a weighted-average coupon rate of 5.52%. We received a distribution from NEXUS of $371 million, net of fees and expenses, which reduced our investment balance. We used the proceeds from the distribution to repay borrowings outstanding under our Revolving Credit Facility.
The following table presents summarized financial information of our non-consolidated equity method investees. The amounts included below represent 100% of the results of continuing operations of such entities, including the portion owned by other parties.
Summarized income statement data is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2024 2023 2024 2023
(millions)
Operating revenues $ 201 $ 201 $ 613 $ 611
Operating expenses 95 94 283 282
Net Income $ 86 $ 91 $ 280 $ 292
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, which are stated at net realizable value.
We regularly monitor the credit quality of our financing receivables by reviewing counterparty credit quality indicators and monitoring for triggering events, such as a credit rating downgrade or bankruptcy. We have three internal grades of credit quality, with internal grade 1 as the lowest risk and internal grade 3 as the highest risk. The related credit quality indicators and risk ratings utilized to develop the internal grades have been updated through September 30, 2024. As of September 30, 2024, the Notes receivable - related party of $4 million, which originated prior to 2021, was classified as internal grade 1. There are no notes receivable on nonaccrual status and no past due financing receivables as of September 30, 2024.
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 particular circumstances of the associated receivable. Uncollectible expense (recovery) was zero for each of the three and nine months ended September 30, 2024 and 2023.
Our collections on accounts receivable from customers are current, and no material rate of historical loss was noted, which resulted in no allowance for expected credit loss as of September 30, 2024 or December 31, 2023. Any balance would be shown as a deduction from the respective financing receivable's balance in the Consolidated Statements of Financial Position.
Operation and Maintenance
Operation and maintenance is primarily comprised of costs for labor and employee benefits, outside services, materials, compression, purchased natural gas, operating lease costs, office costs, and other operating and maintenance costs.
14
DT Midstream, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS
Recently Issued Pronouncements
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures. The amendments improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and interim disclosure requirements. The amendments are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We continue to evaluate the impact of this standard's adoption on our Consolidated Financial Statements.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures.The amendments improve transparency of income tax disclosure requirements, primarily through enhanced disclosures of rate reconciliation and income taxes paid. The amendments are effective for annual periods beginning after December 15, 2024. Early adoption is permitted. We continue to evaluate the impact of this standard's adoption on our Consolidated Financial Statements.
NOTE 4 - GOODWILL
We have goodwill that resulted from business combinations. The carrying value of goodwill is evaluated for impairment on an annual basis or whenever events or circumstances indicate that the value of goodwill may be impaired. We performed our prior year annual impairment test as of October 1, 2023 and determined that the estimated fair value of each reporting unit exceeded its carrying value, and no impairment existed. No additions, impairments or other changes occurred during the three and nine months ended September 30, 2024.
The following is the summary of the carrying value of goodwill:
September 30, December 31,
2024 2023
(millions)
Pipeline $ 53 $ 53
Gathering 420 420
Total goodwill $ 473 $ 473
While we believe the estimates and assumptions in the estimated fair value are reasonable, the actual results may differ from projections. To the extent projected results or cash flows are revised downward, the reporting unit may be required to write down all or a portion of its goodwill, which would adversely impact our earnings. If current expectations of future long-term growth are not met or market factors outside of our control change, such as U.S. Treasury Rates or declines in midstream industry transaction multiples, this may lead to a goodwill impairment in the future.
15
DT Midstream, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 5 - REVENUE
Disaggregation of Revenue
The following is a summary of revenues disaggregated by segment:
Three Months Ended Nine Months Ended
September 30, September 30,
2024 2023 2024 2023
(millions)
Pipeline (a)
$ 112 $ 96 $ 328 $ 271
Gathering 136 138 404 407
Total operating revenues $ 248 $ 234 $ 732 $ 678
__________________________________
(a)Includes revenues outside the scope of ASC 606 primarily related to contracts accounted for as leases of $2 million for both the three months ended September 30, 2024 and 2023, and $6 million and $5 million for the nine months ended September 30, 2024 and 2023, respectively.
Nature of Services
We primarily provide two types of revenue services: firm service and interruptible service. Firm service revenue contracts provide for fixed revenue commitments regardless of actual volumes of natural gas that flow, which leads to more stable operating performance, revenues and cash flows and limits our exposure to natural gas price fluctuations. Firm service revenue contracts are typically long-term and structured using fixed demand charges or MVCs with fixed deficiency fee rates. Contracts structured using fixed demand charges contain a performance obligation of a stand-ready series of distinct services that are substantially the same with the same pattern of transfer to the customer, therefore revenue is recognized ratably over time. Contracts structured using MVCs with fixed deficiency fee rates require customers to transport or store a minimum volume of natural gas over a specified time period. If a customer fails to meet its MVCs for the specified time period, the contract consideration includes a fixed rate for the actual volumes gathered, transported or stored, and a deficiency fee for the shortfall between the MVCs and the actual volumes gathered, transported, or stored. If a customer exceeds its MVC for the specified time period, the contract consideration is based on fixed rates for the actual volumes gathered, transported, or stored. The contract consideration is allocated to each distinct monthly performance obligation, consistent with the allocation objective and based upon the level of effort required to satisfy the service obligation. Revenues are generally recognized over time based on the output measure of natural gas volumes gathered, transported, or stored, with the recognition of the deficiency fee revenue in the period when it is known the customer cannot make up the deficient volumes in the specified time period. Interruptible service revenue contracts typically contain fixed rates, with total consideration dependent on actual natural gas volumes that flow. Interruptible service revenues are recognized over time based on the output measure of natural gas volumes gathered, transported, or stored. Certain of our gathering contracts allow for the recovery of production-related operating expenses, which are offsetting in revenue and operating expense.
Contract Liabilities
The following is a summary of contract liability activity:
2024
(millions)
Balance as of January 1 $ 129
Increases due to cash received or receivable, excluding amounts recognized as revenue during the period 36
Revenue recognized that was included in the balance at the beginning of the period (19)
Balance as of September 30
$ 146
Contract liabilities generally represent amounts paid by or receivable from customers for which the associated performance obligation has not yet been satisfied. Contract liabilities associated with these services are recognized upon delivery of the service to the customer.
16
DT Midstream, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
The following table presents contract liability amounts as of September 30, 2024 that are expected to be recognized as revenue in future periods:
(millions)
Remainder of 2024 $ 4
2025 17
2026 17
2027 17
2028 15
2029 and thereafter 76
Total $ 146
Transaction Price Allocated to the Remaining Performance Obligations
In accordance with optional exemptions available under ASC 606, we do 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 our invoices for actual volumes gathered, transported, or stored, and (3) contracts for which variable consideration relates entirely to an unsatisfied performance obligation.
Such contracts consist of various types of performance obligations, including providing 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 contract consideration is variable at the contract inception. Contract lengths vary from cancellable to multi-year.
The following table presents revenue amounts related to fixed consideration associated with unsatisfied performance obligations as of September 30, 2024 that are expected to be recognized as revenue in future periods:
(millions)
Remainder of 2024 $ 35
2025 150
2026 128
2027 97
2028 65
2029 and thereafter 229
Total $ 704
Costs to Obtain or Fulfill a Contract
We recognize an asset from the costs incurred to obtain a revenue contract only if we expect to recover those costs. In addition, the costs to fulfill a revenue contract are capitalized if the costs are specifically identifiable to a revenue contract, would result in enhancing resources that will be used in satisfying performance obligations in the future, and are expected to be recovered. These capitalized costs are amortized on a systematic basis consistent with the pattern of transfer of the services to which such costs relate.
As of both September 30, 2024 and December 31, 2023, we had capitalized costs to obtain or fulfill a contract of $18 million, which are included in other current assets and other noncurrent assets in the accompanying Consolidated Statements of Financial Position. During the three and nine months ended September 30, 2024 and 2023 we recognized less than $1 million of amortization expense related to such capitalized costs.
17
DT Midstream, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 6 - 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, using the treasury stock method. Restricted stock units and performance share awards, including dividend equivalents on those grants, are potentially dilutive and, if dilutive, are included in the determination of weighted-average shares outstanding. Restricted stock units and performance share awards do not receive cash dividends, as such, these awards are not considered participating securities.
The following is a reconciliation of basic and diluted earnings per share:
Three Months Ended Nine Months Ended
September 30, September 30,
2024 2023 2024 2023
(millions, except per share amounts)
Basic and Diluted Earnings per Common Share
Net Income Attributable to DT Midstream $ 88 $ 91 $ 281 $ 263
Average number of common shares outstanding - basic 97.1 97.0 97.1 96.9
Incremental shares attributable to:
Average dilutive restricted stock units and performance share awards 0.9 0.5 0.7 0.5
Average number of common shares outstanding - diluted 98.0 97.5 97.8 97.4
Basic Earnings per Common Share $ 0.91 $ 0.94 $ 2.90 $ 2.72
Diluted Earnings per Common Share $ 0.90 $ 0.94 $ 2.87 $ 2.70
We declared the following cash dividends:
Dividends Declared Dividend Amount
Dividend Payment Date
(quarter ended) (per-share) (millions)
2023
March 31 $ 0.69 $ 67 April 2023
June 30 $ 0.69 $ 67 July 2023
September 30 $ 0.69 $ 67 October 2023
December 31 $ 0.69 $ 67 January 2024
2024
March 31 $ 0.735 $ 71 April 2024
June 30 $ 0.735 $ 71 July 2024
September 30 $ 0.735 $ 71 October 2024
NOTE 7 - INCOME TAXES
Effective Tax Rates
We record income taxes during the interim period using an estimated annual ETR and recognize specific events discretely as they occur.
The interim period ETRs of DT Midstream were 24% and 26% for the three months ended September 30, 2024 and 2023, respectively, and 24% and 27% for the nine months ended September 30, 2024 and 2023, respectively.
The difference between the interim period ETRs and federal statutory rate of 21% is primarily related to state income taxes. The decrease in the interim period ETR for the comparative nine-month period is driven by the remeasurement of state deferred taxes recognized in 2023 due to changes in tax status and apportionment rates, resulting in a lower ETR in 2024.
18
DT Midstream, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 8 - 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. We make certain assumptions we believe that market participants would use in pricing assets or liabilities, including assumptions about risk, and the risks inherent in the inputs to valuation techniques. We believe we use 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. We classify 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 we have 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.
Fair Value of Financial Instruments
The following table presents the carrying amount and fair value of financial instruments:
September 30, 2024 December 31, 2023
Carrying Fair Value Carrying Fair Value
Amount Level 1 Level 2 Level 3 Amount Level 1 Level 2 Level 3
(millions)
Cash equivalents(a)
$ 34 $ - $ 34 $ - $ 36 $ - $ 36 $ -
Long-term notes receivable - related party 4 - - 4 4 - - 4
Short-term borrowings (a)
- - - - 165 - 165 -
Long-term debt (b)
$ 2,674 $ - $ 2,548 $ - $ 3,065 $ - $ 2,850 $ -
______________________________________
(a)Short-term borrowings and money market cash equivalents are stated at cost, which approximates fair value.
(b)Carrying value as of September 30, 2024 represents principal of $2.7 billion, net of unamortized debt discounts and issuance costs.
19
DT Midstream, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 9 - DEBT
Debt Redemptions
In September 2024, we repaid the remaining indebtedness under the Term Loan Facility of $399 million. The early redemption resulted in a loss on extinguishment of debt of $4 million relating to the write-off of unamortized discount and issuance costs, which was recorded as a loss from financing activities on our Consolidated Statements of Operations for the three and nine months ended September 30, 2024. There were no prepayment costs in conjunction with the early redemption of the Term Loan Facility.
Long-Term Debt
The following is a summary of long-term debt:
Maturity September 30, December 31,
Title Type Interest Rate Date 2024 2023
(millions)
2029 Notes
Senior Notes (a)
4.125% 2029 $ 1,100 $ 1,100
2031 Notes
Senior Notes(a)
4.375% 2031 1,000 1,000
2032 Notes
Senior Secured Notes(b)
4.300% 2032 600 600
Term Loan Facility Term Loan Facility Variable 2028 - 399
Long-term debt principal 2,700 3,099
Unamortized debt discount (1) (2)
Unamortized debt issuance costs (25) (32)
Long-term debt, net $ 2,674 $ 3,065
______________________________
(a) Interest payable semi-annually in arrears each June 15 and December 15.
(b) Interest payable semi-annually in arrears each April 15 and October 15.
Short-Term Credit Arrangements and Borrowings
The following table presents the availability under the Revolving Credit Facility:
September 30,
2024
(millions)
Total availability
Revolving Credit Facility, expiring October 2027
$ 1,000
Amounts outstanding
Revolving Credit Facility borrowings
-
Letters of credit 16
16
Net availability $ 984
Borrowings under the Revolving Credit Facility, if any, are used for general corporate purposes, acquisitions, and letter of credit issuances to support our operations and liquidity. Revolving Credit Facility related issuance and amendment costs, net of amortization, were $5 million and $6 million as of September 30, 2024 and December 31, 2023, respectively. These costs are included in other noncurrent assets in our Consolidated Statements of Financial Position and are being amortized over the remaining term of the Revolving Credit Facility.
20
DT Midstream, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
The Credit Agreement covering the Revolving Credit Facility includes financial covenants that we must maintain. These covenants restrict the ability of DT Midstream and our 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 our restricted subsidiaries to incur liens on assets and enter into certain transactions with affiliates. 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 consolidated net leverage ratio means the ratio of net debt determined in accordance with GAAP to annual consolidated EBITDA, as defined in the Credit Agreement. The interest coverage ratio means the ratio of annual consolidated EBITDA to annual interest expense, as defined in the Credit Agreement. The Credit Agreement definition of annual consolidated EBITDA excludes EBITDA from equity method investees, but includes dividends and distributions from equity method investees. As of September 30, 2024, the consolidated net leverage ratio and the interest coverage ratio were 1.9 to 1 and 8.4 to 1, respectively, and we were in compliance with these financial covenants.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
From time to time, we are 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. We cannot predict the final disposition of such proceedings. We regularly review legal matters and record 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 our business, financial condition and results of operations.
Guarantees
In certain limited circumstances, we enter into contractual guarantees. We may guarantee another entity's obligation in the event it fails to perform and may provide guarantees in certain indemnification agreements. We did not have any guarantees of other parties' obligations as of September 30, 2024.
Surety Bonds
In certain limited circumstances, we enter into contracts that require us to obtain external surety bonds to secure our payment and performance. We agree to indemnify the issuers of these surety bonds for amounts, if any, paid by them under these agreements. In the event that any surety bonds are called for non-performance, we would be obligated to reimburse the issuer of the surety bond. The maximum potential indemnification under our surety bond agreements as of September 30, 2024 is $29 million.
Vector Line of Credit
We are the lender under a revolving term credit facility to Vector, the borrower, in the amount of CAD $70 million. The credit facility was 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 may only draw upon the facility if the funds are required to respond to a catastrophic event. The maximum potential payout as of September 30, 2024 is USD $52 million. The funding of a loan under the terms of the revolving term credit facility is considered remote.
Contingent Liability
In order to comply with certain state environmental regulations, we have an obligation to restore pipeline right-of-way slope failures that may arise in the ordinary course of business in the Utica and Marcellus formations. We completed evaluations of all locations, which were prioritized based on the severity and proximity of the slope failures, and used updated cost information to assess the adequacy of the estimate for the contingent liability accrual. Based on these evaluations, we recorded a reduction to the contingent liability accrual and decrease to operation and maintenance expense of $9 million during the three months ended June 30, 2024. As of September 30, 2024 and December 31, 2023, we had accrued contingent liabilities of $4 million and $13 million, respectively, for future slope restoration expenditures. The accrual is included in other current liabilities and other liabilities in the Consolidated Statements of Financial Position. While restoration is ongoing, we believe the accrued amounts are sufficient to cover estimated future expenditures.
21
DT Midstream, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 11 - SEGMENT AND RELATED INFORMATION
We set strategic goals, allocate resources, and evaluate performance based on the following structure:
The 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 Pipeline segment is also engaged in the transportation and storage of natural gas for intermediate and end user customers.
The 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 treating, 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 transportation, water disposal, 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 and nine months ended September 30, 2024 and 2023.
The following tables present financial data by business segment:
Three Months Ended Nine Months Ended
September 30, September 30,
2024 2023 2024 2023
(millions)
Operating Revenues
Pipeline $ 112 $ 96 $ 328 $ 271
Gathering 136 138 404 407
Total $ 248 $ 234 $ 732 $ 678
Three Months Ended Nine Months Ended
September 30, September 30,
2024 2023 2024 2023
(millions)
Net Income Attributable to DT Midstream
Pipeline $ 71 $ 64 $ 216 $ 185
Gathering 17 27 65 78
Total $ 88 $ 91 $ 281 $ 263
NOTE 12 - ACQUISITION
Clean Fuels Gathering Asset Acquisition
On July 1, 2024, DT Midstream closed on the purchase of a clean fuels gathering project from a privately held coal mine methane producer for purchase consideration of $12 million, which was accounted for as an asset acquisition (the "Acquisition"). The Acquisition was comprised of gathering and treating assets that process coal mine methane into pipeline quality natural gas which was capitalized as property, plant and equipment. The Acquisition aligns with our strategy to pursue economically attractive opportunities and deploy GHG reducing technologies and is expected to generate carbon offsets and federal income tax credits for clean fuel production. A concurrent gas supply agreement was executed which requires contingent payments from DT Midstream of up to $34 million upon the completion of certain milestones, including cumulative production and income tax credits, and variable payments under a sharing mechanism that could be material. As of September 30, 2024, one milestone had been achieved and $10 million was recorded as accounts payable.
22
DT Midstream, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 13 - SUBSEQUENT EVENT
Dividend Declaration
On October 29, 2024, we announced that our Board of Directors declared a quarterly dividend of $0.735 per share of common stock. The dividend is payable to our stockholders of record as of December 16, 2024 and is expected to be paid on January 15, 2025.
23
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 unaudited 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 2023 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 Pipeline segment, which includes interstate pipelines, intrastate pipelines, storage systems, and gathering lateral pipelines, and through our Gathering segment. We also own joint venture interests in equity method investees which own and operate interstate pipelines that connect to our wholly owned assets.
Our core assets strategically connect key demand centers in the Midwestern U.S., Eastern Canada and Northeastern U.S. regions to the premium production areas of the Marcellus/Utica natural gas formation in the Appalachian Basin and connect key demand centers and LNG export terminals in the Gulf Coast region to premium production areas of the Haynesville natural gas formation.
We have an established history of stable, long-term growth with contractual cash flows from customers that include natural gas producers, local distribution companies, electric power generators, industrials, and national marketers.
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 GHG reducing technologies as part of our goal of being leading environmental stewards in the midstream industry. We are executing on our goal to achieve net zero carbon emissions by 2050.
Our strategy is premised on the following principles:
•operate our assets in a sustainable and responsible manner;
•provide exceptional service to our customers;
•disciplined capital deployment in assets supported by strong fundamentals;
•capitalize on asset integration and utilization opportunities;
•pursue economically attractive opportunities; and
•grow cash flows supported by long-term firm revenue contracts.
24
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 discuss the operating performance and future outlook of our segments. Segment information includes intercompany revenues and expenses, as well as other income and deductions that are eliminated in the Consolidated Financial Statements.
For purposes of the following discussion, any increases or decreases refer to the comparison of the three months ended September 30, 2024 to the three months ended June 30, 2024, and the nine months ended September 30, 2024 to the nine months ended September 30, 2023, as applicable. The following table summarizes our consolidated financial results:
Three Months Ended Nine Months Ended
September 30, June 30, September 30, September 30,
2024 2024 2024 2023
(millions, except per share amounts)
Operating revenues $ 248 $ 244 $ 732 $ 678
Net Income Attributable to DT Midstream 88 96 281 263
Diluted Earnings per Common Share $ 0.90 $ 0.98 $ 2.87 $ 2.70
Three Months Ended Nine Months Ended
September 30, June 30, September 30, September 30,
2024 2024 2024 2023
(millions)
Net Income Attributable to DT Midstream
Pipeline $ 71 $ 71 $ 216 $ 185
Gathering 17 25 65 78
Total $ 88 $ 96 $ 281 $ 263
25
Pipeline
The Pipeline segment consists of our interstate pipelines, intrastate pipelines, storage systems, gathering lateral pipelines including 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 Nine Months Ended
September 30, June 30, September 30, September 30,
2024 2024 2024 2023
(millions)
Operating revenues $ 112 $ 109 $ 328 $ 271
Operation and maintenance 17 15 48 38
Depreciation and amortization 18 19 55 50
Taxes other than income 5 5 16 12
Asset (gains) losses and impairments, net - - - (4)
Operating Income 72 70 209 175
Interest expense 12 12 37 42
Interest income - - (1) (1)
Earnings from equity method investees (40) (39) (125) (132)
Loss from financing activities 2 - 2 -
Other (income) and expense - (2) (2) -
Income tax expense 24 24 72 72
Net Income 74 75 226 194
Less: Net Income Attributable to Noncontrolling Interests 3 4 10 9
Net Income Attributable to DT Midstream $ 71 $ 71 $ 216 $ 185
Operating revenuesincreased $3 million for the three months ended September 30, 2024 primarily due to new contracts and expansion of the Haynesville System (LEAP) of $4 million, partially offset by lower volumes on Stonewall. Operating revenuesincreased $57 million for the nine months ended September 30, 2024 primarily due to new contracts and expansion of LEAP of $46 million, higher Stonewall volumes of $7 million, and higher long-term and short-term storage contracting rates at Washington 10 Storage Complex of $7 million, partially offset by lower Bluestone volumes of $4 million.
Operation and maintenance expense increased $10 million for the nine months ended September 30, 2024 primarily due to higher production-related operating expenses from the expansion of LEAP, operational flow order fee activity in the prior period and higher compressor maintenance at the Michigan System.
Depreciation and amortizationexpense increased $5 million for the nine months ended September 30, 2024 primarily due to new LEAP assets placed into service.
Taxes other than incomeincreased $4 million for the nine months ended September 30, 2024 primarily due to new LEAP assets placed into service.
Asset (gains) losses and impairments, netdecreased $4 million for the nine months ended September 30, 2024 due to a one-time gain realized from an insurance settlement that occurred in the prior period.
Interest expense decreased $5 million for the nine months ended September 30, 2024 primarily due to lower outstanding borrowings under the Revolving Credit Facility, partially offset by lower capitalized interest driven by lower construction in progress during 2024.
Earnings from equity method investeesdecreased $7 million for the nine months ended September 30, 2024 primarily due to higher interest expense driven by timing of prior year senior unsecured notes at NEXUS of $5 million and lower contracted volumes at Millennium of $3 million.
26
Loss from financing activitiesincreased $2 million for the three and nine months ended September 30, 2024 due to the repayment of our Term Loan Facility that occurred during the current year. See Note 9, "Debt" to the Consolidated Financial Statements under Part I, Item 1. of this Form 10-Q.
Income tax expensewas unchanged for the nine months ended September 30, 2024 due to an increase in Income before income taxes, fully offset by the remeasurement of state deferred taxes recognized in 2023. See Note 7, "Income Taxes" to the Consolidated Financial Statements under Part I, Item 1. of this Form 10-Q.
Pipeline 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 further expansion at the Haynesville System (LEAP) and Stonewall, new contracts at the Washington 10 Storage Complex, and additional growth related to our equity method investments.
Gathering
The Gathering segment includes gathering systems, related treatment plants and compression and surface facilities. Gathering results and outlook are discussed below:
Three Months Ended Nine Months Ended
September 30, June 30, September 30, September 30,
2024 2024 2024 2023
(millions)
Operating revenues $ 136 $ 135 $ 404 $ 407
Operation and maintenance 46 37 121 138
Depreciation and amortization 35 34 101 83
Taxes other than income 5 4 15 10
Operating Income 50 60 167 176
Interest expense 26 27 80 69
Interest income (1) - (1) -
Loss from financing activities 2 - 2 -
Other (income) and expense - (1) (1) (1)
Income tax expense 6 9 22 30
Net Income Attributable to DT Midstream $ 17 $ 25 $ 65 $ 78
Operating revenuesincreased $1 million for the three months ended September 30, 2024 primarily due to higher recovery of production-related operating expenses on Blue Union Gathering of $3 million, partially offset by lower volumes at Appalachia Gathering of $2 million. Operating revenuesdecreased $3 million for the nine months ended September 30, 2024 primarily due to lower volumes and recovery of production-related operating expenses on Blue Union Gathering of $19 million and lower Susquehanna Gathering volumes of $9 million. The decrease was partially offset by higher Appalachia Gathering rates and volumes of $13 million (net of lower MVC deficiency fee revenues) and new assets placed into service at Ohio Utica Gathering of $12 million.
Operation and maintenanceexpense increased $9 million for the three months ended September 30, 2024 primarily due to a reduction in Appalachia Gathering environmental contingent liabilities of $9 million which occurred in the prior quarter. Operation and maintenanceexpense decreased $17 million for the nine months ended September 30, 2024 primarily due to lower planned maintenance and production-related operating expenses on Blue Union Gathering of $15 million and a higher reduction in environmental contingent liabilities at Appalachia Gathering.
Depreciation and amortizationexpense increased $18 million for the nine months ended September 30, 2024 primarily due to assets placed into service at Ohio Utica Gathering and Blue Union Gathering.
Taxes other than incomeincreased $5 million for the nine months ended September 30, 2024 primarily due to new Ohio Utica Gathering and Blue Union Gathering assets placed into service.
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Interest expenseincreased $11 million for the nine months ended September 30, 2024 primarily due to lower capitalized interest driven by lower construction in progress during 2024, partially offset by lower outstanding borrowings under the Revolving Credit Facility.
Loss from financing activitiesincreased $2 million for the three and nine months ended September 30, 2024 due to the repayment of our Term Loan Facility that occurred during the current year. See Note 9, "Debt" to the Consolidated Financial Statements under Part I, Item 1. of this Form 10-Q.
Income tax expense decreased $8 million for the nine months ended September 30, 2024 primarily due to lower Income before income taxes and the remeasurement of state deferred taxes recognized in 2023. See Note 7, "Income Taxes" to the Consolidated Financial Statements under Part I, Item 1. of this Form 10-Q.
Gathering Outlook
We believe our long-term agreements with producers and the quality of the natural gas reserves in the Marcellus/Utica and Haynesville formations 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 further expansion at the Haynesville System (Blue Union Gathering), Appalachia Gathering, Ohio Utica Gathering, Tioga Gathering and Clean Fuels Gathering.
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 unplanned expenditures for environmental equipment, such as pollution control equipment, 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 10, "Commitments and Contingencies" to the Consolidated Financial Statements under Part I, Item 1. of this Form 10-Q.
CAPITAL RESOURCES AND LIQUIDITY
Cash Requirements
Our principal liquidity requirements are to finance our operations, fund capital expenditures, satisfy our indebtedness obligations, and pay approved dividends. We believe we will have sufficient internal and external capital resources to fund anticipated capital and operating requirements.
Nine Months Ended
September 30,
2024 2023
(millions)
Cash and Cash Equivalents at Beginning of Period $ 56 $ 61
Net cash and cash equivalents from operating activities 611 614
Net cash and cash equivalents from (used for) investing activities 203 (223)
Net cash and cash equivalents from (used for) financing activities (793) (422)
Net Increase (Decrease) in Cash and Cash Equivalents 21 (31)
Cash and Cash Equivalents at End of Period $ 77 $ 30
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For purposes of the following discussion, any increases or decreases refer to the comparison of the nine months ended September 30, 2024 to the nine months ended September 30, 2023.
Operating Activities
Cash flows from our operating activities can be impacted in the short term by the natural gas volumes gathered or transported through our systems under interruptible service revenue contracts, changing natural gas prices, seasonality, weather fluctuations, dividends received from equity method investees and the financial condition of our customers. Our preference to enter into firm service revenue contracts leads to more stable operating performance, revenues and cash flows and limits our exposure to natural gas price fluctuations.
Net cash and cash equivalents from operating activitiesdecreased $3 million for the nine months ended September 30, 2024 primarily due to a decrease in dividends received from equity method investees, a decrease in working capital changes, and a decrease in interest expense and income tax expense, partially offset by an increase in operating income after adjustment for non-cash items including depreciation and amortization expense, stock-based compensation, and amortization of operating lease right-of-use assets.
Investing Activities
Cash outflows associated with our investing activities are primarily the result of plant and equipment expenditures, acquisitions, and contributions to equity method investees. Cash inflows from our investing activities are generated from proceeds from sale or collection of notes receivable, distributions received from equity method investees, and proceeds from asset sales. As a result of the sales of senior unsecured notes at our equity method investees, we received net distributions from Millennium of $416 million and NEXUS of $371 million during the nine months ended September 30, 2024 and 2023, respectively. For additional detail, see Note 1, "Description of the Business and Basis of Presentation" to the Consolidated Financial Statements under Part I, Item 1. of this Form 10-Q.
Net cash and cash equivalents from investing activitiesof $203 million for the nine months ended September 30, 2024 increased as compared to net cash and cash equivalents used for investing activities of $223 million for the nine months ended September 30, 2023. The change was primarily due to a decrease in cash used for plant and equipment expenditures and higher distributions received from equity method investees including the Millennium distribution in 2024.
Financing Activities
In September 2024, we repaid the remaining indebtedness under the Term Loan Facility of $399 million. See Note 9, "Debt" to the Consolidated Financial Statements under Part I, Item 1. of this Form 10-Q. DT Midstream paid cash dividends on common stock of $209 million and $196 million during the nine months ended September 30, 2024 and 2023, respectively. See Note 6, "Earnings Per Share and Dividends" to the Consolidated Financial Statements under Part I, Item 1. of this Form 10-Q.
Net cash and cash equivalents used for financing activities increased $371 million for the nine months ended September 30, 2024 primarily due to the repayment of the Term Loan Facility and higher dividends paid on common stock, partially offset by lower net repayments of borrowings under the Revolving Credit Facility.
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, other demands, commitments, events or uncertainties that are reasonably likely to materially impact our liquidity position.
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 long-term firm service revenue contracts from customers.
Our sources of liquidity include cash and cash equivalents generated from operating activities and available borrowings under our Revolving Credit Facility. As of September 30, 2024, we had $16 million of letters of credit outstanding and no borrowings outstanding under our Revolving Credit Facility. We had approximately $1.1 billion of available liquidity as of September 30, 2024, consisting of cash and cash equivalents and available borrowings under our Revolving Credit Facility.
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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 5% to 7% annually.
During the three months ended September 30, 2024, we acquired the Clean Fuels Gathering assets and executed a concurrent gas supply agreement which requires contingent payments from DT Midstream of up to $34 million upon the completion of certain milestones and variable payments under a sharing mechanism that could be material. See Note 12, "Acquisition" to the Consolidated Financial Statements under Part I, Item 1. of this Form 10-Q.
We believe we will have sufficient operating flexibility, cash resources and funding sources to maintain adequate liquidity amounts and to meet future operating cash, capital expenditure and debt servicing requirements. However, our business is capital intensive, and the inability to access adequate capital could adversely impact future earnings and cash flows.
The Credit Agreement covering the Revolving Credit Facility includes financial covenants that DT Midstream must maintain. See Note 9, "Debt" to the Consolidated Financial Statements under Part I, Item 1. of this Form 10-Q.
See also Note 10, "Commitments and Contingencies" to the Consolidated Financial Statements under Part I, Item 1. of this Form 10-Q.
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. Our total capital expenditures, inclusive of $4 million in contributions to equity method investees, were $264 million for the nine months ended September 30, 2024 primarily for expansions on Ohio Utica Gathering, Blue Union Gathering, LEAP and Appalachia Gathering. We anticipate total capital expenditures, inclusive of contributions to equity method investees, for the year ended December 31, 2024 of approximately $380 million to $410 million.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our Consolidated Financial Statements in conformity with GAAP requires that management applies accounting policies and makes estimates and assumptions that affect results of operations and the amounts of assets and liabilities reported in the Consolidated Financial Statements. Management believes that the area described below requires significant judgment in the application of the accounting policy or in making estimates and assumptions in matters that are inherently uncertain and that may change in subsequent periods.
Goodwill
We have goodwill that resulted from business combinations. Annually as of October 1st, an impairment test for goodwill is performed which compares the fair value of each reporting unit to its carrying value including goodwill. In between annual impairment tests, we monitor our estimates and assumptions regarding estimated future cash flows, including the impact of movements in market indicators. An interim impairment test is performed whenever a triggering event occurs or circumstances indicate that the value of goodwill may be impaired.
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The estimated fair value in our annual goodwill impairment analysis utilizes significant assumptions that require judgment by management. One such significant assumption is the weighted average cost of capital (WACC) which is used to discount estimates of projected future results and cash flows to be generated by each reporting unit. The WACC is based on our cost of debt, which includes U.S. industrial bond spreads, and cost of equity, which consists of U.S. Treasury Rates plus an equity risk premium. We have noted that U.S. Treasury risk-free rates have decreased slightly since our last annual goodwill impairment test.
Our annual goodwill impairment analysis includes a comparison of the estimated fair value of the Company as a whole to our market capitalization. Management also compares the implied market multiple of the estimated fair value of each reporting unit to midstream industry transaction multiples and considers other market indicators to support the appropriateness of the fair value estimates. Our consolidated market capitalization has increased since our last annual goodwill impairment test. We have noted a slight decline in gathering-related midstream industry transaction multiples since our last annual goodwill impairment test. After assessing all relevant facts and circumstances, we have concluded that no triggering event has occurred that indicates it is more likely than not that the goodwill is impaired for either reporting unit and determined that an interim impairment test is not required. We will continue to monitor our estimates and assumptions on a quarterly basis as market conditions continue to evolve.
While we believe the estimates and assumptions in the fair value are reasonable, the actual results may differ from projections. To the extent projected results or cash flows are revised downward, the reporting unit may be required to write down all or a portion of its goodwill, which would adversely impact our earnings. If current expectations of future long-term growth are not met or market factors outside of our control change, such as U.S. Treasury Rates, a decline in our market capitalization, or a further decline in midstream industry transaction multiples, this may lead to a goodwill impairment in the future.
See Part I, Item 3., "Quantitative and Qualitative Disclosures About Market Risk", in this Form 10-Q for more information on our exposure to market risk. See also "Critical Accounting Estimates" included in DT Midstream's 2023 Annual Report on Form 10-K.
OFF-BALANCE SHEET ARRANGEMENTS
We are party to off-balance sheet arrangements, which include our equity method investments. See Note 1, "Description of the Business and Basis of Presentation-Principles of Consolidation" 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 line of credit and our surety bonds, which are discussed further in Note 10, "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 geographical areas of operation. Low prices for natural gas, including those resulting from regional basis differentials, could adversely affect development of additional reserves and future natural gas production that is accessible by our pipeline and storage assets. We manage our exposure through the use of short, medium, and long-term transportation, gathering, and storage contracts. Consequently, our existing operations and cash flows have limited direct exposure to natural gas price risk.
Credit Risk
We are exposed to credit risk, which is the risk of loss resulting from nonpayment or nonperformance 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 long-term contracts associated with gathering system construction or expansion, we have entered into negotiated credit agreements that provide for enhanced forms of credit support if certain customer credit standards are not met.
We depend on a key customer, Expand Energy, in the Haynesville formation in the Gulf Coast and in the Marcellus formation in the Northeastern U.S. for a significant portion of our revenues. The loss of, or reduction in volumes from, this key customer could result in a decline in demand for our services and materially adversely affect our business, financial condition and results of operations.
Our key customer, Expand Energy, is investment grade. We engage with other customers that are sub-investment grade. 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 customers and had no bankruptcy proceedings during the nine months ended September 30, 2024.
Interest Rate Risk
We are subject to interest rate risk in connection with floating rate debt borrowings under our Revolving Credit Facility. Our exposure to interest rate risk arises primarily from changes in SOFR. As of September 30, 2024, we had no floating rate debt borrowings outstanding under our Revolving Credit Facility. See Note 9, "Debt" to the Consolidated Financial Statements under Part I, Item 1. of this Form 10-Q.
We are subject to interest rate risk in connection with our goodwill impairment assessment. See "Critical Accounting Estimates" under Part I, Item 2. 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 interest rates as of September 30, 2024 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 are as follows:
Assuming a 10% Increase in Rates
Assuming a 10% Decrease in Rates
Change in the Fair Value of
Activity As of September 30, 2024
(millions)
Interest rate risk $ (70) $ 73 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 September 30, 2024, 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 our 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 our disclosure controls and procedures will be attained.
(b) Changes in internal control over financial reporting
There have been no changes in DT Midstream's internal control over financial reporting during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, DT Midstream's internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For information on legal proceedings and matters related to DT Midstream, see Note 10, "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 I, Item 1A. "Risk Factors" in DT Midstream's 2023 Annual Report on Form 10-K. Although DT Midstream has identified and disclosed key risk factors, others could emerge in the future.
Item 4. Mine Safety Disclosure
Our sand mining facility in Louisiana is subject to regulation by the Federal Mine Safety and Health Administration under the Federal Mine Safety and Health Act of 1977. Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is filed as Exhibit 95.1 to this Form 10-Q.
Item 5. Other Information
During the three months ended September 30, 2024, none of the Company's directors or executive officers adopted, modified or terminated any contract, instruction or written plan for the purchase or sale of the Company's common stock that was intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c) or any "non-Rule 10b5-1 trading arrangement."
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Item 6. Exhibits
Exhibit Number Description
(i) Exhibits incorporated by reference:
3.1
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)
3.2
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)
4.1
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)
4.2
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)
4.3
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:
4.4
First Supplemental Indenture, dated as of August 12, 2024, among DT Midstream, Inc., the Guarantors and U.S. Bank Trust Company, National Association, as trustee and Notes Collateral Agent
31.1
Chief Executive Officer Section 302 Form 10-Q Certification of Periodic Report
31.2
Chief Financial Officer Section 302 Form 10-Q Certification of Periodic Report
95.1
Mine Safety Disclosure
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:
32.1
Chief Executive Officer Section 906 Form 10-Q Certification of Periodic Report
32.2
Chief Financial Officer Section 906 Form 10-Q Certification of Periodic Report
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Signature
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:
October 29, 2024
DT MIDSTREAM, INC.
By: /S/ JEFFREY A. JEWELL
Jeffrey A. Jewell
Chief Financial and Accounting Officer
(Duly Authorized Officer)
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