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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q
 
(Mark One)
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________

Commission file number: 01-32665
 
BOARDWALK PIPELINE PARTNERS, LP
(Exact name of registrant as specified in its charter)
 
DELAWARE
(State or other jurisdiction of incorporation or organization)
 
20-3265614
(I.R.S. Employer Identification No.)
 
9 Greenway Plaza, Suite 2800
Houston, Texas  77046
(866) 913-2122
(Address and Telephone Number of Registrant’s Principal Executive Office)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:  NONE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ý    No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer ý Accelerated filer o Non-accelerated filer o Smaller reporting company o
Emerging growth company o

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.
Yes o No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No ý

Boardwalk Pipeline Partners, LP meets the conditions set forth in General Instructions H(1) (a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format.
 




TABLE OF CONTENTS

FORM 10-Q

September 30, 2018

BOARDWALK PIPELINE PARTNERS, LP



2



PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

BOARDWALK PIPELINE PARTNERS, LP

CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions)
(Unaudited)


ASSETS
September 30,
2018
 
December 31,
 2017
Current Assets:
 
 
 
Cash and cash equivalents
$
27.0

 
$
17.6

Receivables:
 

 
 

Trade, net
89.4

 
116.8

Other
32.9

 
16.6

Gas transportation receivables
8.3

 
4.6

Costs recoverable from customers
11.1

 

Prepayments
25.9

 
17.9

Other current assets
0.9

 
7.1

Total current assets
195.5

 
180.6

 
 
 
 
Property, Plant and Equipment:
 

 
 

Natural gas transmission and other plant
10,952.6

 
10,467.1

Construction work in progress
258.9

 
416.5

Property, plant and equipment, gross
11,211.5

 
10,883.6

Less—accumulated depreciation and amortization
2,863.3

 
2,621.1

Property, plant and equipment, net
8,348.2

 
8,262.5

 
 
 
 
Other Assets:
 

 
 

Goodwill
237.4

 
237.4

Gas stored underground
81.7

 
86.3

Other
138.5

 
139.8

Total other assets
457.6

 
463.5

 
 
 
 
Total Assets
$
9,001.3

 
$
8,906.6


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

3



BOARDWALK PIPELINE PARTNERS, LP

CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions)
(Unaudited)


LIABILITIES AND PARTNERS' CAPITAL
September 30,
2018
 
December 31,
 2017
Current Liabilities:
 
 
 
Payables:
 
 
 
Trade
$
65.4

 
$
76.0

Affiliates
1.6

 
1.5

Other
18.3

 
11.9

Gas payables
8.2

 
5.7

Accrued taxes, other
76.4

 
57.1

Accrued interest
36.6

 
37.9

Accrued payroll and employee benefits
27.9

 
33.7

Construction retainage
17.6

 
32.4

Deferred income
0.9

 
1.9

Other current liabilities
19.9

 
22.3

Total current liabilities
272.8

 
280.4

 
 
 
 
Long-term debt and capital lease obligation
3,675.2

 
3,686.8

 
 
 
 
Other Liabilities and Deferred Credits:
 

 
 

Pension liability
19.0

 
21.8

Asset retirement obligation
57.1

 
46.0

Provision for other asset retirement
70.2

 
65.8

Payable to affiliate

 
16.0

Other
76.0

 
65.0

Total other liabilities and deferred credits
222.3

 
214.6

 
 
 
 
Commitments and Contingencies


 


 
 
 
 
Partners’ Capital:
 

 


Common units - 250.3 million units issued and outstanding
    December 31, 2017

 
4,713.1

General partner

 
92.7

Partners' capital
4,909.6

 

Accumulated other comprehensive loss
(78.6
)
 
(81.0
)
Total partners’ capital
4,831.0

 
4,724.8

Total Liabilities and Partners' Capital
$
9,001.3

 
$
8,906.6


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

4





BOARDWALK PIPELINE PARTNERS, LP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Millions)
(Unaudited)
 
 
 
For the
Three Months Ended
September 30,
 
For the
Nine Months Ended
September 30,
 
 
 
2018
 
2017
 
2018
 
2017
Operating Revenues:
 
 
 
 
 
 
 
 
 
Transportation
 
 
$
245.8

 
$
266.4

 
$
792.8

 
$
852.0

Storage, parking and lending
 
 
21.1

 
23.2

 
67.8

 
79.8

Other
 
 
11.0

 
10.9

 
38.0

 
53.3

Total operating revenues
 
 
277.9

 
300.5

 
898.6

 
985.1

 
 
 
 
 
 
 
 
 
 
Operating Costs and Expenses:
 
 
 
 
 
 
 

 
 

Fuel and transportation
 
 
3.5

 
9.0

 
12.0

 
42.7

Operation and maintenance
 
 
46.9

 
49.0

 
144.2

 
141.0

Administrative and general
 
 
32.8

 
27.1

 
100.6

 
96.9

Depreciation and amortization
 
 
88.9

 
80.6

 
256.6

 
241.4

(Gain) loss on sale of assets and impairments
 
 
(0.2
)
 

 
(0.7
)
 
47.1

Taxes other than income taxes
 
 
25.2

 
24.8

 
78.7

 
75.0

Total operating costs and expenses
 
 
197.1

 
190.5

 
591.4

 
644.1

 
 
 
 
 
 
 
 
 
 
Operating income
 
 
80.8

 
110.0

 
307.2

 
341.0

 
 
 
 
 
 
 
 
 
 
Other Deductions (Income):
 
 
 
 
 
 
 

 
 

Interest expense
 
 
43.5

 
41.0

 
130.9

 
131.1

Interest income
 
 

 

 
(0.1
)
 
(0.3
)
Miscellaneous other income, net
 
 
(0.7
)
 
(1.1
)
 
(1.3
)
 
(3.5
)
Total other deductions
 
 
42.8

 
39.9

 
129.5

 
127.3

 
 
 
 
 
 
 
 
 
 
Income before income taxes
 
 
38.0

 
70.1

 
177.7

 
213.7

 
 
 
 
 
 
 
 
 
 
Income taxes
 
 
0.1

 
0.3

 
0.4

 
0.9

 
 
 
 
 
 
 
 
 
 
Net income
 
 
$
37.9

 
$
69.8

 
$
177.3

 
$
212.8

 
 
 
 
 
 
 
 
 
 

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

5





BOARDWALK PIPELINE PARTNERS, LP

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Millions)
(Unaudited)

 
 
For the
Three Months Ended
September 30,
 
For the
Nine Months Ended
September 30,
 
 
 
2018
 
2017
 
2018
 
2017
 
Net income
 
$
37.9

 
$
69.8

 
$
177.3

 
$
212.8

 
Other comprehensive income (loss):
 
 
 
 
 
 

 
 

 
Loss on cash flow hedge
 

 

 

 
(1.5
)
 
Reclassification adjustment transferred to Net income from cash flow hedges
 
0.2

 
0.6

 
1.0

 
1.9

 
Pension and other postretirement benefit costs
 
(0.1
)
 
0.1

 
1.4

 
0.8

 
Total Comprehensive Income
 
$
38.0

 
$
70.5

 
$
179.7

 
$
214.0

 

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

6




BOARDWALK PIPELINE PARTNERS, LP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions)
(Unaudited)
 
For the
Nine Months Ended
September 30,
OPERATING ACTIVITIES:
2018
 
2017
Net income
$
177.3

 
$
212.8

Adjustments to reconcile net income to cash provided by operations:
 

 
 

Depreciation and amortization
256.6

 
241.4

Amortization of deferred costs and other
8.8

 
4.9

(Gain) loss on sale of assets and impairments
(0.7
)
 
47.1

Changes in operating assets and liabilities:
 

 
 

Trade and other receivables
10.9

 
31.2

Gas receivables and storage assets
0.6

 
(1.3
)
Costs recoverable from customers
(11.1
)
 
3.0

Other assets
(7.9
)
 
(4.4
)
Trade and other payables
2.6

 
(22.0
)
Gas payables
1.2

 
(5.4
)
Accrued liabilities
16.0

 
9.5

Other liabilities
1.0

 
(13.6
)
Net cash provided by operating activities
455.3

 
503.2

 
 
 
 
INVESTING ACTIVITIES:
 

 
 

Capital expenditures
(354.8
)
 
(496.0
)
Proceeds from sale of operating assets
0.9

 
63.7

Net cash used in investing activities
(353.9
)
 
(432.3
)
 
 
 
 
FINANCING ACTIVITIES:
 

 
 

Proceeds from long-term debt, net of issuance cost

 
494.0

Repayment of borrowings from long-term debt
(185.0
)
 
(575.0
)
Proceeds from borrowings on revolving credit agreement
525.0

 
505.0

Repayment of borrowings on revolving credit agreement
(355.0
)
 
(400.0
)
Principal payment of capital lease obligation
(0.4
)
 
(0.3
)
Advances from affiliates
0.1

 
0.1

Distributions paid
(76.7
)
 
(76.7
)
Net cash used in financing activities
(92.0
)
 
(52.9
)
Increase in cash and cash equivalents
9.4

 
18.0

Cash and cash equivalents at beginning of period
17.6

 
4.6

Cash and cash equivalents at end of period
$
27.0

 
$
22.6


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

7





BOARDWALK PIPELINE PARTNERS, LP

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(Millions)
(Unaudited)

 
Common
Units
 
General
Partner
 
Partners'
Capital
 
Accumulated
Other Comp
Income (Loss)
 
Total
 Partners' Capital
Balance December 31, 2016
$
4,522.2

 
$
88.8

 
$

 
$
(80.1
)
 
$
4,530.9

Add (deduct):
 
 
 

 
 
 
 

 
 

Net income
208.6

 
4.2

 

 

 
212.8

Distributions paid
(75.2
)
 
(1.5
)
 

 

 
(76.7
)
Other comprehensive
   income, net of tax

 

 

 
1.2

 
1.2

Balance September 30, 2017
$
4,655.6

 
$
91.5


$

 
$
(78.9
)
 
$
4,668.2

 
 
 
 
 
 
 
 
 
 
Balance December 31, 2017
$
4,713.1

 
$
92.7

 
$

 
$
(81.0
)
 
$
4,724.8

Add (deduct):
 

 
 

 
 
 
 

 
 

Cumulative effect adjustment from the implementation of ASC 606
(12.6
)
 
(0.2
)
 

 

 
(12.8
)
Adjustment related to registration rights agreement
16.0

 

 

 

 
16.0

Net income
136.6

 
2.8

 
37.9

 

 
177.3

Distributions paid
(50.1
)
 
(1.0
)
 
(25.6
)
 

 
(76.7
)
Other comprehensive
   income, net of tax

 

 

 
2.4

 
2.4

General Partner purchase of common units and conversion to partnership interests
(4,803.0
)
 
(94.3
)
 
4,897.3

 

 

Balance September 30, 2018
$

 
$


$
4,909.6

 
$
(78.6
)
 
$
4,831.0


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

8



BOARDWALK PIPELINE PARTNERS, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1:  Basis of Presentation
    
Boardwalk Pipeline Partners, LP (the Partnership) is a Delaware limited partnership formed in 2005 to own and operate the business conducted by its primary subsidiary Boardwalk Pipelines, LP (Boardwalk Pipelines) and its operating subsidiaries, which consists of integrated natural gas and natural gas liquids and other hydrocarbons (herein referred to together as NGLs) pipeline and storage systems.

On June 29, 2018, Boardwalk GP, LP (Boardwalk GP) announced that it elected to exercise its right pursuant to Section 15.1(b) of the Partnership’s Third Amended and Restated Agreement of Limited Partnership, as amended (the Limited Partnership Agreement) to purchase all of the issued and outstanding common units representing limited partner interests in the Partnership (Common Units) not already owned by Boardwalk GP or its affiliates (Transaction Units) for a cash purchase price, determined in accordance with the Limited Partnership Agreement, of $12.06 per unit, or approximately $1.5 billion in the aggregate (Purchase Right). On July 18, 2018, Boardwalk GP purchased the Transaction Units. As a result of this transaction, the Partnership filed a Form 25 with the Securities and Exchange Commission (SEC) to voluntarily withdraw the Common Units from listing on the New York Stock Exchange (NYSE) and from registration under Section 12(b) of the Securities Exchange Act of 1934 and also deregistered all of its Common Units and related equity-like securities which were authorized for sale under its effective registration statements. Subsequently, the Limited Partnership Agreement was amended which converted the Partnership's Common Units to common unit equivalents in the form of partnership interests. The Partnership’s Common Units were traded on the NYSE through July 17, 2018, under the symbol “BWP”. As of September 30, 2018, Boardwalk Pipelines Holding Corp. (BPHC), a wholly-owned subsidiary of Loews Corporation (Loews), owned directly or indirectly, 100% of the Partnership’s capital.

The accompanying unaudited condensed consolidated financial statements of the Partnership were prepared pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Partnership's financial position as of September 30, 2018, and December 31, 2017, and its results of operations and comprehensive income for the three and nine months ended September 30, 2018 and 2017, and changes in cash flows and changes in partners' capital for the nine months ended September 30, 2018 and 2017. Reference is made to the Notes to the Consolidated Financial Statements in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2017 (2017 Annual Report on Form 10-K), which should be read in conjunction with these unaudited condensed consolidated financial statements. The accounting policies described in Note 2 of Part II, Item 8 of the Partnership's 2017 Annual Report on Form 10-K are the same used in preparing the accompanying unaudited condensed consolidated financial statements, except for the changes described in Note 2 below.

Certain amounts reported within Total operating revenues for the 2017 period have been reclassified to conform to the current presentation as a result of changes in accounting policies from the implementation of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, which was codified in Accounting Standards Codification (ASC) Topic 606 (ASC 606) further described below. The effect of the reclassification decreased Transportation revenues and increased Other revenues by $6.5 million and $18.2 million for the three and nine months ended September 30, 2017. Additionally, Storage, parking and lending (PAL) revenues are now reported combined. These reclassifications and combinations had no impact on Total operating revenues, Operating income or Net income. Net income for interim periods may not necessarily be indicative of results for the full year.


Note 2: Accounting Policies

Accounting Pronouncements Adopted in 2018 - Revenue Recognition

In May 2014, the Financial Accounting Standards Board (FASB) issued ASC 606. ASC 606 supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition (ASC 605), and requires the recognition of revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services.

9




Effective January 1, 2018, the Partnership implemented ASC 606 using the modified retrospective method, without adjustment to the comparative period information, which remains reported under ASC 605. Upon implementation, the Partnership recorded a cumulative reduction to partners’ capital of $12.8 million resulting from two items: (i) contracts which had changes to rates during the service period without corresponding changes in service levels provided by the Partnership, with an offsetting increase to other liabilities of $6.4 million, and (ii) the de-recognition of excess fuel received from customers which elected to have fuel retained in-kind, with an offsetting decrease to current gas stored underground of $6.4 million. Upon the implementation of ASC 606, most retained fuel was not considered additional consideration included in the transaction price. As a result, retained fuel is recorded as a reduction to fuel and transportation expense and will be recognized as Other revenue upon the physical sale of natural gas, when under ASC 605, fuel retained was recognized as part of Transportation revenue. The Partnership elected to apply ASC 606 to contracts with customers, and applicable amendments, which were not completed prior to the implementation date.

The following table summarizes the effect on the Partnership’s condensed consolidated financial statements as of September 30, 2018, and for the three and nine months ended September 30, 2018, (in millions) had ASC 606 not been implemented on January 1, 2018:
 
 
As Reported
September 30, 2018
 
Adjustments
 
Balance as if ASC
 605 was in effect
Condensed Consolidated Balance Sheet:
 
 
 
 
 
 
Other current assets (gas stored underground)
 
$
0.4

 
$
4.0

 
$
4.4

Gas stored underground
 
81.7

 
0.3

 
82.0

Other assets
 
138.5

 
(0.1
)
 
138.4

Other liabilities
 
76.0

 
(8.1
)
 
67.9

Partners' Capital
 
4,831.0

 
12.2

 
4,843.2


 
 
As Reported
For the
Three Months Ended
September 30, 2018
 
Adjustments
 
Balance as if ASC
 605 was in effect
Condensed Consolidated Income Statement:
 
 
 
 
 
 
Transportation
 
$
245.8


$
5.5


$
251.3

Storage, parking and lending
 
21.1


0.1


21.2

Other
 
11.0


0.1


11.1

Total operating revenues
 
277.9

 
5.7

 
283.6

Fuel and transportation expense
 
3.5

 
4.6

 
8.1

Operating income
 
80.8

 
1.0

 
81.8

Net income
 
37.9

 
1.0

 
38.9


 
 
As Reported
For the
Nine Months Ended
September 30, 2018
 
Adjustments
 
Balance as if ASC
 605 was in effect
Condensed Consolidated Income Statement:
 
 
 
 
 
 
Transportation
 
$
792.8

 
$
17.5

 
$
810.3

Storage, parking and lending
 
67.8

 
0.3

 
68.1

Other
 
38.0

 
(4.5
)
 
33.5

Total operating revenues
 
898.6

 
13.3

 
911.9

Fuel and transportation expense
 
12.0

 
13.8

 
25.8

Operating income
 
307.2

 
(0.6
)
 
306.6

Net income
 
177.3

 
(0.6
)
 
176.7



10




The implementation of ASC 606 had no impact on the total operating, financing or investing activities of the Partnership’s Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2018.

Revenue Recognition

Nature of Contracts

The Partnership primarily earns revenues from contracts with customers by providing transportation and storage services for natural gas and NGLs on a firm and interruptible basis. The Partnership also provides interruptible natural gas PAL services. The Partnership’s customers choose, based upon their particular needs, the applicable mix of services depending upon availability of pipeline and storage capacity, the price of services and the volume and timing of customer requirements. The maximum rates that may be charged by the majority of the Partnership’s operating subsidiaries are established through the Federal Energy Regulatory Commission's (FERC) cost-based rate-making process; however, rates actually charged by those operating subsidiaries may be less than those allowed by the FERC. Under the FERC regulations, certain revenues that the Partnership's subsidiaries collect may be subject to possible refunds to customers. Accordingly, during a rate case, estimated refund liabilities are recorded considering regulatory proceedings, advice of counsel and estimated risk-adjusted total exposure, as well as other factors. The Partnership's service contracts can range from one to twenty years although the Partnership may enter into shorter- or longer-term contracts, and services are invoiced monthly with payment from the customer generally expected within ten to thirty days, depending on the terms of the contract.
    
Firm Service Contracts: The Partnership offers firm services to its customers. The Partnership’s customers can reserve a specific amount of pipeline capacity at specified receipt and delivery points on the Partnership’s pipeline system (transportation service) or can reserve a specific amount of storage capacity at specified injection and withdrawal points at the Partnership’s storage facilities (storage service). The Partnership accounts for firm services as a single promise to stand ready each month of the contract term to provide the committed capacity for either transportation or storage services when needed by the customer, which represents a series of distinct monthly services that are substantially the same with the same pattern of transfer to the customer. Although several activities may be required to provide the firm service, the individual activities do not represent distinct performance obligations because all of the activities must be performed in combination in order for the Partnership to provide the firm service.

The transaction price for firm service contracts is comprised of a fixed fee based on the quantity of capacity reserved, regardless of use (capacity reservation fee), plus variable fees in the form of a usage fee paid on the volume of commodity actually transported or injected and withdrawn from storage. Both the fixed and usage fees are allocated to the single performance obligation of providing transportation or storage service and recognized over time based upon the output measure of time as the Partnership completes its stand-ready obligation to provide contracted capacity and the customer receives and consumes the benefit of the reserved capacity, which corresponds with the transfer of control to the customer. The fixed fee is recognized ratably over the contract term, representative of the proportion of the committed stand-ready capacity obligation that has been fulfilled to date, and the usage fee is recognized upon satisfaction of each distinct monthly performance obligation, consistent with the allocation objective and based upon the level of effort required to satisfy the stand-ready obligation in a given month. Capacity reservation revenues derived from a firm service contract are generally consistent during the contract term, but can be higher in winter periods than the rest of the year based upon seasonal rates.

Interruptible Service Contracts: In providing interruptible services to customers, the Partnership agrees to transport natural gas or NGLs for a customer when capacity is available. The Partnership does not account for interruptible services with a customer as a contract until the customer nominates for service and the Partnership accepts the nomination based upon available pipeline or storage capacity because there are no enforceable rights and obligations until that time. The nomination and acceptance process is a daily activity and acceptance is granted based upon priority of service and availability of capacity. Upon acceptance, the Partnership accounts for interruptible services similarly to its firm services.

The transaction price for interruptible service contracts is comprised of a variable fee in the form of a usage fee paid on the volume of commodity actually transported or injected and withdrawn from storage. The usage fee is allocated to the single performance obligation of providing interruptible service. Interruptible service revenues are generally recognized over time based on the output measure of volume transported or stored when services are rendered upon the successful allocation of the services provided to the customer’s account, which best depicts the transfer of control to the customer and satisfaction of the promised service. Interruptible services are recognized in the month services are provided because the Partnership has a right to consideration from customers in amounts that correspond directly to the value that the customer receives from the Partnership's performance. The rates charged may vary on a daily, monthly or seasonal basis.


11



Minimum Volume Commitment (MVC) Contracts: Certain of the Partnership’s transportation or storage contracts require customers to transport or store a minimum volume of commodity over a specified time period. If a customer fails to meet its MVC for the specified time period, the customer is obligated to pay a contractually-determined deficiency fee based upon the shortfall between the actual volumes transported or stored and the MVC for that period. MVC contracts are similar in nature to a firm service contract where the performance obligation is a stand-ready obligation that is a series of distinct services that are substantially the same with the same pattern of transfer to the customer. The transaction price for an MVC is a fee for the volume of commodity actually transported or stored, which is allocated to each distinct monthly performance obligation, consistent with the allocation objective and based upon the level of effort required to satisfy the obligation of the transacted service in a given month. Revenues are generally recognized over time based on the output measure of volume transported or stored, with the recognition of the deficiency fee in the period when it is known the customer cannot make up the deficient volume in the specified period.
    
Other: Periodically, the Partnership may enter into contracts with customers for the sale of natural gas or NGLs. The Partnership recognizes revenues for these transactions at the point in time of the physical sale of the commodity, which corresponds with the transfer of control of the commodity to the customer and the consideration is measured as the stated sales price in the contract.

Contract Balances

The Partnership records contract assets primarily related to performance obligations completed but not billed as of the reporting date. The Partnership records contract liabilities, or deferred income, when payment is received in advance of satisfying its performance obligations.

Accounting Pronouncements Adopted in 2018 - Retirement Benefits

In March 2017, the FASB issued ASU 2017-07, Retirement Benefits - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07), which required entities to retroactively present the service cost component of net periodic postretirement benefit cost with other employee compensation costs in the income statement and present all other net periodic pension costs as a component of non-operating income. Effective January 1, 2018, the Partnership implemented ASU 2017-07 and reclassified $0.8 million and $1.8 million of other components of net periodic benefit cost for the three and nine months ended September 30, 2017, which resulted in an increase to Miscellaneous other income, net and Administrative and general expense in the Condensed Consolidated Statements of Income, with no impact on Net income.

Other Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (ASU 2016-02), which will require, among other things, the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under current GAAP. The amendments are to be applied at the beginning of the earliest period presented using a modified retrospective approach, but include an elective transition method that allows entities to initially apply the updated guidance as of the adoption date. The Partnership has elected to apply this elective transition method. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018. The Partnership is progressing with its project to evaluate the impact that ASU 2016-02 will have on its financial statements when implemented. ASU 2016-02 contains a practical expedient package, under which all criteria must be applied to all of its leases. The practical expedient package allows an entity to (i) not reassess whether expired or existing contracts are or contain leases; (ii) not reassess the lease classification for any expired or existing leases; and (iii) not reassess initial direct costs for any existing leases. The Partnership has elected to apply the practical expedient package to all of its leases.


Note 3: Revenues

The Partnership operates in one reportable segment and contracts directly with producers of natural gas and with end-use customers, including local distribution companies, marketers, electric power generators, industrial users and interstate and intrastate pipelines, who, in turn, provide transportation and storage services for end-users. The following table presents the Partnership's revenues disaggregated by type of service for the three and nine months ended September 30, 2018 (in millions):

12



 
For the
Three Months Ended
September 30, 2018
 
For the
Nine Months Ended
September 30, 2018
Revenues from Contracts with Customers
 
 
 
Firm Service (1)
$
264.5

 
$
850.9

Interruptible Service
7.7

 
25.0

Other revenues
1.2

 
9.7

Total revenues from contracts with customers
273.4

 
885.6

 
 
 
 
Other operating revenues(2)
4.5

 
13.0

Total Operating Revenues
$
277.9

 
$
898.6


(1) Revenues earned from contracts with MVCs are included in firm service given the stand-ready nature of the performance obligation and the guaranteed nature of the fees over the contract term.

(2) Other operating revenues include certain revenues earned from operating leases, pipeline management fees and other activities that are not considered central and ongoing major business operations of the Partnership and do not represent revenues earned from contracts with customers.

Contract Balances

As of September 30, 2018, the Partnership had receivables recorded in Trade Receivables, contract assets recorded in Other current assets, and contract liabilities recorded in Other liabilities, from contracts with customers of $89.4 million, $17.1 million and $9.1 million. The contract asset is a result of the Partnership recognizing revenue related to a stand-ready performance obligation for transportation and storage services which will be invoiced per the contractual terms of the agreement, but within the next nine months.

Contract liabilities are expected to be recognized through 2026. Significant changes in the contract liabilities balances during the nine months ended September 30, 2018, are as follows (in millions):
 
 
Contract Liabilities
Balance as of December 31, 2017
 
$
1.9

Cumulative effect adjustment from the implementation of
    ASC 606
 
6.4

Revenues recognized that were included in the contract liability
    balance at the beginning of the period
 
(2.3
)
Increases due to cash received, excluding amounts recognized as
    revenues during the period
 
3.1

Balance as of September 30, 2018
 
$
9.1





13



Performance Obligations

The following table includes estimated operating revenues expected to be recognized in the future related to agreements that contain performance obligations that were unsatisfied as of September 30, 2018, as well as actual fixed fee revenues recognized for the fulfillment of performance obligations for the 2018 period for those same agreements. The amounts presented primarily consist of fixed fees or MVCs which are typically recognized over time as the performance obligation is satisfied, as in accordance with firm service contracts. Additionally, for the Partnership’s customers that are charged maximum tariff rates related to its FERC-regulated operating subsidiaries, the amounts below reflect the current tariff rate for such services for the term of the agreements; however, the tariff rates may be subject to future adjustment. The Partnership has elected to exclude the following from the table: (a) unsatisfied performance obligations from usage fees associated with its firm services because of the stand-ready nature of such services; (b) consideration in contracts that are recognized in revenue as invoiced, such as for interruptible services; and (c) consideration that was received prior to September 30, 2018, that will be recognized in future periods, such as recorded in contract liabilities.    
 
 
As of September 30, 2018 (in millions)
 
 
2018 (1)
 
2019
 
Thereafter
 
Total
 
 
 
 
 
 
 
 
 
Estimated revenues from contracts with customers
   from unsatisfied performance obligations as of
   September 30, 2018
 
$
1,065.0

 
$
1,038.0

 
$
7,630.0

 
$
9,733.0

Operating revenues which are fixed and
    determinable (operating leases)
 
13.5

 
18.0

 
230.5

 
262.0

Total projected operating revenues under committed
    firm agreements
 
$
1,078.5

 
$
1,056.0

 
$
7,860.5

 
$
9,995.0


(1)
For the 2018 period, $797.0 million represents actual fixed fee revenues recognized for the fulfillment of performance obligations during the nine months ended September 30, 2018.


Note 4: Asset Disposition and Impairments

In May 2017, the Partnership sold its Flag City Processing Partners, LLC subsidiary, which owned the Flag City processing plant and related assets, to a third party for $63.6 million, including customary adjustments. The Partnership recognized losses and impairment charges, reported within Total operating costs and expenses, of $47.1 million on the sale.

 
Note 5:  Gas and Liquids Stored Underground and Gas and NGLs Receivables and Payables

The operating subsidiaries of the Partnership provide storage services whereby they store natural gas or NGLs on behalf of customers and also periodically hold customer gas under PAL services. Since the customers retain title to the gas held by the Partnership in providing these services, the Partnership does not record the related gas on its balance sheet.

The operating subsidiaries of the Partnership also periodically lend gas to customers under PAL and certain firm services, and gas or NGLs may be owed to the operating subsidiaries as a result of transportation imbalances. As of September 30, 2018, the amount of gas owed to the operating subsidiaries of the Partnership due to gas imbalances and gas loaned under PAL and certain firm service agreements was approximately 7.9 trillion British thermal units (TBtu). Assuming an average market price during September 2018 of $2.83 per million British thermal unit, the market value of that gas was approximately $22.4 million. As of September 30, 2018, the amount of NGLs owed to the Partnership's operating subsidiaries due to imbalances was less than 0.1 million barrels, which had a market value of approximately $1.1 million dollars. As of December 31, 2017, the amount of gas owed to the operating subsidiaries of the Partnership due to gas imbalances and gas loaned under PAL and certain firm service agreements was approximately 12.3 TBtu. As of December 31, 2017, there were no outstanding NGL imbalances owed to the operating subsidiaries. If any significant customer should have credit or financial problems resulting in a delay or failure to repay the gas owed to the operating subsidiaries, it could have a material adverse effect on the Partnership’s financial condition, results of operations or cash flows.



14



Note 6: Accumulated Other Comprehensive Income (AOCI) and Fair Value Measurements

AOCI
    
The Partnership had no outstanding derivatives at September 30, 2018, and December 31, 2017, but had $4.0 million and $5.0 million of AOCI related to cash flow hedges as of September 30, 2018, and December 31, 2017, which relate to settled treasury rate locks that are being amortized to earnings over the terms of the related interest payments, generally the terms of the related debt. The Partnership estimates that approximately $0.9 million of net losses from cash flow hedges reported in AOCI as of September 30, 2018, are expected to be reclassified into earnings within the next twelve months.
    
Financial Assets and Liabilities

The following methods and assumptions were used in estimating the fair value amounts included in the disclosures for financial assets and liabilities, which are consistent with those disclosed in the 2017 Annual Report on Form 10-K:

Cash and Cash Equivalents: For cash and short-term financial assets, the carrying amount is a reasonable estimate of fair value due to the short maturity of those instruments.

Long-Term Debt: The estimated fair value of the Partnership's publicly traded debt is based on quoted market prices at September 30, 2018, and December 31, 2017. The fair market value of the debt that is not publicly traded is based on market prices of similar debt at September 30, 2018, and December 31, 2017. The carrying amount of the Partnership's variable-rate debt at September 30, 2018, and December 31, 2017, approximated fair value.
    
The carrying amounts and estimated fair values of the Partnership's financial assets and liabilities which were not recorded at fair value on the Condensed Consolidated Balance Sheets as of September 30, 2018, and December 31, 2017, were as follows (in millions):
As of September 30, 2018
 
 
 
 
Estimated Fair Value
Financial Assets
 
Carrying Amount
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash and cash equivalents
 
$
27.0

 
 
$
27.0

 
$

 
$

 
$
27.0

 
 
 
 
 
 
 
 
 
 
 
 
Financial Liabilities
 
 

 
 
 

 
 

 
 

 
 

Long-term debt
 
$
3,675.1

(1) 
 
$

 
$
3,731.1

 
$

 
$
3,731.1


(1) The carrying amount of long-term debt excludes a $7.6 million long-term capital lease obligation and
$7.5 million of unamortized debt issuance costs.

As of December 31, 2017
 
 
 
 
Estimated Fair Value
Financial Assets
 
Carrying Amount
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash and cash equivalents
 
$
17.6

 
 
$
17.6

 
$

 
$

 
$
17.6

 
 
 
 
 
 
 
 
 
 
 
 
Financial Liabilities
 
 

 
 
 
 
 
 
 
 
 
Long-term debt
 
$
3,687.5

(1) 
 
$

 
$
3,889.4

 
$

 
$
3,889.4


(1) The carrying amount of long-term debt excludes an $8.1 million long-term capital lease obligation and
$8.8 million of unamortized debt issuance costs.



15



Note 7:  Commitments and Contingencies

Legal Proceedings and Settlements

The Partnership's subsidiaries are parties to various legal actions arising in the normal course of business. Management believes the disposition of these outstanding legal actions will not have a material impact on the Partnership's financial condition, results of operations or cash flows.

Mishal and Berger Litigation

On May 25, 2018, plaintiffs Tsemach Mishal and Paul Berger (on behalf of themselves and the purported class, Plaintiffs) initiated a purported class action in the Court of Chancery of the State of Delaware (the Court) against the following defendants: the Partnership, Boardwalk GP, Boardwalk GP, LLC and BPHC (together, Defendants), regarding the potential exercise by Boardwalk GP of its Purchase Right.
On June 25, 2018, Plaintiffs and Defendants entered into a Stipulation and Agreement of Compromise and Settlement, subject to the approval of the Court (the Proposed Settlement). Under the terms of the Proposed Settlement, the lawsuit would be dismissed, and related claims against the Defendants would be released by the Plaintiffs, if BPHC, the sole member of the general partner of Boardwalk GP, elected to cause Boardwalk GP to exercise the Purchase Right and gave notice of such election as provided in the Limited Partnership Agreement within a period specified by the Proposed Settlement. On June 29, 2018, Boardwalk GP elected to exercise the Purchase Right and gave notice within the period specified by the Proposed Settlement. On July 18, 2018, Boardwalk GP completed the purchase of the Common Units pursuant to the Purchase Right as further described in Note 1.

On September 27, 2018, the Court denied approval of the Proposed Settlement. The Court has not set a schedule for further proceedings in the case.

Commitments for Construction

The Partnership’s future capital commitments are comprised of binding commitments under purchase orders for materials ordered but not received and firm commitments under binding construction service agreements. The commitments as of September 30, 2018, were approximately $162.5 million, all of which are expected to be settled within the next twelve months.

There were no substantial changes to the Partnership’s operating lease commitments, pipeline capacity agreements or capital lease obligation disclosed in Notes 4 and 10 of Part II, Item 8 of the Partnership’s 2017 Annual Report on Form 10-K.


Note 8:  Financing

Notes and Debentures

As of September 30, 2018, and December 31, 2017, the Partnership had notes and debentures outstanding of $3.1 billion and $3.3 billion with weighted-average interest rates of 5.17% and 5.18%. The indentures governing the notes and debentures have restrictive covenants which provide that, with certain exceptions, neither the Partnership nor any of its subsidiaries may create, assume or suffer to exist any lien upon any property to secure any indebtedness unless the debentures and notes shall be equally and ratably secured. All of the Partnership's debt obligations are unsecured. At September 30, 2018, Boardwalk Pipelines and its operating subsidiaries were in compliance with their debt covenants.
    
The Partnership has included $350.0 million of notes which mature in less than one year as long-term debt on its Condensed Consolidated Balance Sheet as of September 30, 2018. The Partnership has the intent and the ability to refinance the notes through the available borrowing capacity under its revolving credit facility as of September 30, 2018. The Partnership expects to retire these notes at their maturity.


16



Issuance of Notes
                                                                                                                                                                                                                                  
The Partnership had no debt issuances for the nine months ended September 30, 2018. During the nine months ended September 30, 2017, the Partnership completed the following debt issuance (in millions, except interest rates):
Date of
Issuance
 
Issuing Subsidiary
 
Amount of
 Issuance
 
Purchaser
Discounts
and
Expenses
 
Net
Proceeds
 
Interest
Rate
 
Maturity Date
 
Interest Payable
January 2017
 
Boardwalk Pipelines
 
$
500.0
 
 
$
6.0

 
 
 
$
494.0

 
 
(1) 
4.45%
 
July 15, 2027
 
January 15 and July 15

(1) The net proceeds of this offering were used to retire the outstanding $275.0 million aggregate principal amount of Gulf South Pipeline Company, LP's 6.30% notes due 2017 and to fund growth capital expenditures.

Redemption of Notes

On June 1, 2018, the Partnership retired the Boardwalk Pipelines $185.0 million 5.20% notes at maturity with borrowings under its revolving credit facility.

Revolving Credit Facility

Outstanding borrowings under the Partnership’s revolving credit facility as of September 30, 2018, and December 31, 2017, were $555.0 million and $385.0 million, with weighted-average borrowing rates of 3.42% and 2.72%. The Partnership and its subsidiaries were in compliance with all covenant requirements under the revolving credit facility as of September 30, 2018. The revolving credit facility has a borrowing capacity of $1.5 billion through May 26, 2020, and a borrowing capacity of $1.475 billion from May 27, 2020, to May 26, 2022.

Subordinated Loan Agreement with Affiliate

The Partnership has in place a Subordinated Loan Agreement with BPHC (Subordinated Loan) under which the Partnership can borrow up to $300.0 million through December 31, 2018. Through the date of this Quarterly Report on Form 10-Q, the Partnership had no outstanding borrowings under the Subordinated Loan.

Registration Rights Agreement

The Partnership had previously entered into an Amended and Restated Registration Rights Agreement with BPHC under which the Partnership agreed to register the resale of up to 27.9 million Common Units by BPHC and to reimburse BPHC up to a maximum amount of $0.914 per Common Unit for underwriting discounts and commissions. As of December 31, 2017, the Partnership had a $16.0 million accrued liability for future underwriting discounts and commissions that would be reimbursed to BPHC. However, due to the purchase of the Transaction Units by Boardwalk GP described in Note 1, the $16.0 million liability was reversed in the second quarter 2018, with an offsetting adjustment to partners' capital.



17



Note 9 Employee Benefits

Defined Benefit Retirement Plans and Postretirement Benefits Other Than Pension (PBOP)

Components of net periodic benefit cost for both the Retirement Plans and PBOP for the three months ended September 30, 2018 and 2017, were as follows (in millions):
 
Retirement Plans
 
PBOP
 
For the
Three Months Ended
September 30,
 
For the
Three Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Service cost
$
0.7

 
$
0.8

 
$

 
$

Interest cost
1.2

 
1.2

 
0.4

 
0.4

Expected return on plan assets
(1.7
)
 
(2.0
)
 
(1.2
)
 
(1.1
)
Amortization of unrecognized net loss
0.3

 
0.4

 

 

Settlement charge
0.4

 
0.4

 

 

Net periodic benefit cost
$
0.9

 
$
0.8

 
$
(0.8
)
 
$
(0.7
)


Components of net periodic benefit cost for both the Retirement Plans and PBOP for the nine months ended September 30, 2018 and 2017, were as follows (in millions):
 
Retirement Plans
 
PBOP
 
For the
Nine Months Ended
September 30,
 
For the
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Service cost
$
2.5

 
$
2.6

 
$
0.1

 
$
0.1

Interest cost
3.4

 
3.5

 
1.1

 
1.2

Expected return on plan assets
(5.7
)
 
(5.9
)
 
(3.5
)
 
(3.3
)
Amortization of unrecognized net loss
1.1

 
1.3

 

 

Settlement charge
2.6

 
1.5

 

 

Net periodic benefit cost
$
3.9

 
$
3.0

 
$
(2.3
)
 
$
(2.0
)

The components of net periodic benefit cost, other than the service cost component, are included in Miscellaneous other income, net and the service cost component is included in Administrative and general on the Condensed Consolidated Statements of Income.    

The Partnership contributed $3.0 million to the defined benefit pension plan in the third quarter 2018.
 
Defined Contribution Plans

Texas Gas Transmission, LLC employees hired on or after November 1, 2006, and all other employees of the Partnership are provided retirement benefits under a defined contribution money purchase plan. The Partnership also provides 401(k) plan benefits to its employees. Costs related to the Partnership’s defined contribution plans were $2.7 million for the three months ended September 30, 2018 and 2017, and $8.0 million and $8.1 million for the nine months ended September 30, 2018 and 2017.



18



Note 10:  Related Party Transactions

Loews provides a variety of corporate services to the Partnership under service agreements, including but not limited to, information technology, tax, risk management, internal audit and corporate development services and also charges the Partnership for allocated overheads. The Partnership incurred charges related to these services of $1.6 million and $1.7 million for the three months ended September 30, 2018 and 2017, and $4.6 million and $5.0 million for the nine months ended September 30, 2018 and 2017.

As described in Note 1, Boardwalk GP purchased the Partnership’s outstanding Common Units not already owned by Boardwalk GP or its affiliates on July 18, 2018. As a result of this transaction, the Partnership became an indirect and direct wholly-owned subsidiary of BPHC as of July 18, 2018.

Distributions paid to BPHC and Boardwalk GP were $25.6 million and $13.1 million for the three months ended September 30, 2018 and 2017, and $51.7 million and $39.2 million for the nine months ended September 30, 2018 and 2017. The distribution was impacted by the increase in ownership by Boardwalk GP in the third quarter 2018 as described above and in Note 1.


Note 11:  Supplemental Disclosure of Cash Flow Information (in millions):
 
For the
Nine Months Ended
September 30,
 
2018
 
2017
Cash paid during the period for:
 
 
 
Interest (net of amount capitalized)
$
124.9

 
$
125.8

Non-cash adjustments:
 
 
 
Accounts payable and property, plant and equipment
51.9

 
66.6




Note 12: Guarantee of Securities of Subsidiaries

Boardwalk Pipelines (Subsidiary Issuer) has issued securities which have been fully and unconditionally guaranteed by the Partnership (Parent Guarantor). The Subsidiary Issuer is 100% owned by the Parent Guarantor. The Partnership's subsidiaries had no significant restrictions on their ability to pay distributions or make loans to the Partnership except as noted in the debt covenants and had no restricted assets at September 30, 2018, and December 31, 2017. Note 8 contains additional information regarding the Partnership's debt and related covenants.

The Partnership has provided the following condensed consolidating financial information in accordance with Regulation S-X Rule 3-10, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.

19




Condensed Consolidating Balance Sheets as of September 30, 2018
(Millions)

Assets
 
Parent
Guarantor
 
Subsidiary
Issuer
 
Non-guarantor Subsidiaries
 
Eliminations
 
Consolidated Boardwalk Pipeline Partners, LP
Cash and cash equivalents
 
$
0.2

 
$
15.6

 
$
11.2

 
$

 
$
27.0

Receivables
 

 

 
122.3

 

 
122.3

Receivables - affiliate
 

 

 
6.7

 
(6.7
)
 

Costs recoverable from customers
 

 

 
11.1

 

 
11.1

Prepayments
 
0.1

 

 
25.8

 

 
25.9

Advances to affiliates
 

 
15.3

 
2.1

 
(17.4
)
 

Other current assets
 

 

 
12.4

 
(3.2
)
 
9.2

Total current assets
 
0.3

 
30.9

 
191.6

 
(27.3
)
 
195.5

Investment in consolidated subsidiaries
 
2,790.0

 
6,653.9

 

 
(9,443.9
)
 

Property, plant and equipment, gross
 
0.6

 

 
11,210.9

 

 
11,211.5

Less–accumulated depreciation
   and amortization
 
0.6

 

 
2,862.7

 

 
2,863.3

Property, plant and equipment, net
 

 

 
8,348.2

 

 
8,348.2

Advances to affiliates – noncurrent
 
2,042.4

 
864.1

 
410.7

 
(3,317.2
)
 

Other noncurrent assets
 
0.1

 
2.6

 
454.4

 
0.5

 
457.6

Total other assets
 
2,042.5


866.7


865.1


(3,316.7
)

457.6

 
 
 
 
 
 
 
 
 
 
 
Total Assets
 
$
4,832.8

 
$
7,551.5

 
$
9,404.9

 
$
(12,787.9
)
 
$
9,001.3


Liabilities and Partners' Capital
 
Parent
Guarantor
 
Subsidiary
Issuer
 
Non-guarantor Subsidiaries
 
Eliminations
 
Consolidated Boardwalk Pipeline Partners, LP
Payables
 
$
0.2

 
$
0.1

 
$
83.4

 
$

 
$
83.7

Payable to affiliates
 
1.6

 

 
6.7

 
(6.7
)
 
1.6

Advances from affiliates
 

 
2.1

 
15.3

 
(17.4
)
 

Other current liabilities
 

 
26.7

 
163.5

 
(2.7
)
 
187.5

Total current liabilities
 
1.8

 
28.9

 
268.9

 
(26.8
)
 
272.8

Long-term debt and capital lease
    obligation
 

 
2,279.3

 
1,395.9

 

 
3,675.2

Advances from affiliates - noncurrent
 

 
2,453.1

 
864.1

 
(3,317.2
)
 

Other noncurrent liabilities
 

 
0.2

 
222.1

 

 
222.3

Total other liabilities and deferred
    credits
 

 
2,453.3