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BWP Boardwalk Pipeline Partners

Filed: 3 May 21, 7:34am

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

FORM 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
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)
Delaware20-3265614
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
9 Greenway Plaza, Suite 2800
Houston,Texas77046
(866)913-2122
(Address and Telephone Number of Registrant’s Principal Executive Office)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
NONENONENONE

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.

    Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer ý 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. 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

March 31, 2021

BOARDWALK PIPELINE PARTNERS, LP


2




PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

BOARDWALK PIPELINE PARTNERS, LP

CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions)
(Unaudited)


ASSETSMarch 31,
2021
December 31,
2020
Current Assets:  
Cash and cash equivalents$17.8 $2.9 
Receivables:  
Trade, net107.4 115.1 
Other23.7 23.4 
Gas transportation receivables6.1 6.6 
Prepayments18.7 18.5 
Other current assets9.4 7.0 
Total current assets183.1 173.5 
Property, Plant and Equipment:  
Natural gas transmission and other plant12,029.7 11,964.1 
Construction work in progress183.9 184.2 
Property, plant and equipment, gross12,213.6 12,148.3 
Less—accumulated depreciation and amortization3,685.7 3,598.5 
Property, plant and equipment, net8,527.9 8,549.8 
Other Assets:  
Goodwill237.4 237.4 
Gas stored underground114.6 101.9 
Other167.8 167.3 
Total other assets519.8 506.6 
Total Assets$9,230.8 $9,229.9 

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' CAPITALMarch 31,
2021
December 31,
2020
Current Liabilities:  
Payables:  
Trade$64.6 $43.6 
Affiliates9.8 9.9 
Other14.9 9.6 
Gas payables9.0 10.9 
Accrued taxes, other45.5 70.3 
Accrued interest43.3 33.1 
Accrued payroll and employee benefits19.6 34.5 
Regulatory liability12.9 14.1 
Customer deposits13.1 9.2 
Deferred income4.3 4.9 
Other current liabilities24.0 26.8 
Total current liabilities261.0 266.9 
Long-term debt and finance lease obligation3,341.7 3,460.7 
Other Liabilities and Deferred Credits:  
Pension liability16.5 18.0 
Asset retirement obligations58.1 54.9 
Provision for other asset retirement83.3 81.6 
Other103.1 98.7 
Total other liabilities and deferred credits261.0 253.2 
Commitments and Contingencies00
Partners’ Capital: 
Partners' capital5,446.4 5,328.9 
Accumulated other comprehensive loss(79.3)(79.8)
Total partners’ capital5,367.1 5,249.1 
Total Liabilities and Partners' Capital$9,230.8 $9,229.9 

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
March 31,
 20212020
Operating Revenues:  
Transportation$317.2 $298.9 
Storage, parking and lending27.9 24.0 
Other24.9 16.9 
Total operating revenues370.0 339.8 
Operating Costs and Expenses:  
Fuel and transportation9.4 6.5 
Operation and maintenance48.4 45.7 
Administrative and general34.8 36.1 
Depreciation and amortization91.0 87.7 
Gain on sale of assets(0.1)
Taxes other than income taxes30.7 31.6 
Total operating costs and expenses214.2 207.6 
Operating income155.8 132.2 
Other Deductions (Income):  
Interest expense40.7 42.3 
Miscellaneous other income, net(2.6)(1.2)
Total other deductions38.1 41.1 
Income before income taxes117.7 91.1 
Income taxes0.2 0.1 
Net income$117.5 $91.0 

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
March 31,
 20212020
Net income$117.5 $91.0 
Other comprehensive income:  
Reclassification adjustment transferred to Net income from cash flow hedges0.2 0.2 
Pension and other postretirement benefit costs, net of tax0.3 0.8 
Total Comprehensive Income$118.0 $92.0 

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
Three Months Ended
March 31,
20212020
OPERATING ACTIVITIES:
Net income$117.5 $91.0 
Adjustments to reconcile net income to cash provided by operations:  
Depreciation and amortization91.0 87.7 
Amortization of deferred costs and other2.5 5.4 
Gain on sale of assets(0.1)
Changes in operating assets and liabilities:  
Trade and other receivables7.4 (0.2)
Gas receivables and storage assets(13.2)(6.0)
Other assets(0.7)(0.3)
Trade and other payables12.4 (12.2)
Gas payables(1.6)(2.9)
Accrued liabilities(29.3)(26.6)
Regulatory assets and liabilities(3.4)7.6 
Other liabilities5.4 4.9 
Net cash provided by operating activities187.9 148.4 
INVESTING ACTIVITIES:  
Capital expenditures(52.9)(100.8)
Proceeds from sale of operating assets0.2 0.3 
Net cash used in investing activities(52.7)(100.5)
FINANCING ACTIVITIES:  
Proceeds from borrowings on revolving credit agreement110.0 200.0 
Repayment of borrowings on revolving credit agreement(230.0)(220.0)
Principal payment of finance lease obligation(0.2)(0.2)
Advances from affiliates(0.1)
Net cash used in financing activities(120.3)(20.2)
Increase in cash and cash equivalents14.9 27.7 
Cash and cash equivalents at beginning of period2.9 3.7 
Cash and cash equivalents at end of period$17.8 $31.4 

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)




Three Months Ended March 31, 2020
 Partners'
Capital
Accumulated
Other Comprehensive
(Loss) Income
Total
 Partners' Capital
Balance December 31, 2019$5,140.6 $(81.1)$5,059.5 
Add:  
Net income91.0 — 91.0 
Other comprehensive income, net of tax— 1.0 1.0 
Balance March 31, 2020$5,231.6 $(80.1)$5,151.5 
Three Months Ended March 31, 2021
 Partners'
Capital
Accumulated
Other Comprehensive
(Loss) Income
Total
 Partners' Capital
Balance December 31, 2020$5,328.9 $(79.8)$5,249.1 
Add:  
Net income117.5  117.5 
Other comprehensive income, net of tax 0.5 0.5 
Balance March 31, 2021$5,446.4 $(79.3)$5,367.1 



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 Company) is a Delaware limited partnership formed in 2005 to own and operate the business conducted by its primary subsidiary Boardwalk Pipelines, LP (Boardwalk Pipelines) and its operating subsidiaries, which consists of integrated natural gas and natural gas liquids and other hydrocarbons (herein referred to together as NGLs) pipeline and storage systems. As of March 31, 2021, Boardwalk Pipelines Holding Corp. (BPHC), a wholly-owned subsidiary of Loews Corporation (Loews), owned directly or indirectly, 100% of the Company’s capital.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company's financial position as of March 31, 2021, and December 31, 2020, and its results of operations, comprehensive income, changes in cash flows and changes in partners' capital for the three months ended March 31, 2021 and 2020. Reference is made to the Notes to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 (2020 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 Company's 2020 Annual Report on Form 10-K are the same policies that were used in preparing the accompanying unaudited condensed consolidated financial statements. Net income for interim periods may not necessarily be indicative of results for the full year.

    
Note 2: Revenues

The Company operates in 1 reportable segment and contracts directly with end-use customers, including local distribution companies, electric power generators, exporters of liquefied natural gas and industrial users, with producers and marketers of natural gas, and with interstate and intrastate pipelines, who, in turn, provide transportation and storage services for end-users. The following table presents the Company's revenues disaggregated by type of service for the three months ended March 31, 2021 and 2020 (in millions):
For the
Three Months Ended
March 31,
20212020
Revenues from Contracts with Customers
Firm Service (1)
$338.2 $322.4 
Interruptible Service11.4 6.4 
Other revenues11.7 3.1 
Total Revenues from Contracts with Customers361.3 331.9 
Other operating revenues (2)
8.7 7.9 
Total Operating Revenues$370.0 $339.8 

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

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

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Contract Balances

As of March 31, 2021, and December 31, 2020, the Company had receivables recorded in Trade Receivables from contracts with customers of $107.4 million and $115.1 million, contract assets recorded in Other Assets from contracts with a customer of $3.5 million and $2.9 million and contract liabilities recorded in Deferred income (current portion) and Other Liabilities (noncurrent portion) from contracts with customers of $17.4 million and $17.2 million.

As of March 31, 2021, contract liabilities are expected to be recognized through 2040. Significant changes in the contract liabilities balances during the three months ended March 31, 2021, are as follows (in millions):

Contract Liabilities
Balance as of December 31, 2020(1)
$17.2 
Revenues recognized that were included in the contract liability
    balance at the beginning of the period
(1.3)
Increases due to cash received, excluding amounts recognized as
    revenues during the period
1.5 
Balance as of March 31, 2021(1)
$17.4 
(1) As of March 31, 2021, and December 31, 2020, $4.3 million and $4.9 million were recorded in Deferred income (current portion) and $13.1 million and $12.3 million were recorded in Other Liabilities (noncurrent portion).

Significant changes in the contract liabilities balances during the three months ended March 31, 2020, are as follows (in millions):
Contract Liabilities
Balance as of December 31, 2019(1)
$11.8 
Revenues recognized that were included in the contract liability
    balance at the beginning of the period
(0.6)
Increases due to cash received, excluding amounts recognized as
    revenues during the period
4.7 
Balance as of March 31, 2020(1)
$15.9 
(1) As of March 31, 2020, and December 31, 2019, $6.0 million and $2.2 million were recorded in Deferred income (current portion) and $9.9 million and $9.6 million were recorded in Other Liabilities (noncurrent portion).

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 March 31, 2021. The amounts presented primarily consist of fixed fees or MVCs which are typically recognized over time as the performance obligation is satisfied, as in accordance with firm service contracts. Additionally, for the Company’s customers that are charged maximum tariff rates related to its Federal Energy Regulatory Commission regulated operating subsidiaries, the amounts below reflect the current tariff rate for such services for the term of the agreements; however, the tariff rates may be subject to future adjustment. The Company has elected to exclude the following from the table: (a) unsatisfied performance obligations from usage fees associated with its firm services because of the stand-ready nature of such services; (b) consideration in contracts that are recognized in revenue as invoiced, such as for interruptible services; and (c) consideration that was received prior to March 31, 2021, that will be recognized in future periods, such as recorded in contract liabilities. The estimated revenues reflected in the table may include estimated revenues that are anticipated under executed precedent transportation agreements for projects that are subject to regulatory approvals.
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In millions
2021 (1)
2022ThereafterTotal
Estimated revenues from contracts with customers
    from unsatisfied performance obligations as of
    March 31, 2021
$825.5 $1,055.0 $7,113.5 $8,994.0 
Operating revenues which are fixed and
    determinable (operating leases)
17.5 23.0 196.5 237.0 
Total projected operating revenues under committed
    firm agreements as of March 31, 2021
$843.0 $1,078.0 $7,310.0 $9,231.0 
(1) The 2021 period is for the nine months ending December 31, 2021. For the three months ended March 31, 2021, the Company recognized $316.6 million of fixed fee revenues for the fulfillment of performance obligations.


Note 3:  Gas and Liquids Stored Underground and Gas and NGLs Receivables and Payables

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

The operating subsidiaries of the Company also periodically lend gas to customers under PAL and certain firm services, and gas or NGLs may be owed to the operating subsidiaries as a result of transportation imbalances. As of March 31, 2021, the amount of gas owed to the Company's operating subsidiaries due to gas imbalances and gas loaned under PAL and certain firm service agreements was approximately 23.5 trillion British thermal units (TBtu). Assuming an average market price during March 2021 of $2.47 per million British thermal unit (MMBtu), the market value of that gas was approximately $58.1 million. As of December 31, 2020, the amount of gas owed to the Company's operating subsidiaries due to gas imbalances and gas loaned under PAL and certain firm service agreements was approximately 11.2 TBtu. Assuming an average market price during December 2020 of $2.45 per MMBtu, the market value of that gas was approximately $27.4 million. As of March 31, 2021, and December 31, 2020, there were 0 outstanding NGL imbalances owed to the Company's operating subsidiaries. If any significant customer should have credit or financial problems resulting in a delay or failure to repay the gas owed to the operating subsidiaries, it could have a material adverse effect on the Company’s financial condition, results of operations or cash flows.


Note 4: Fair Value Measurements

Financial Assets and Liabilities

The methods and assumptions used in estimating the fair value amounts included in the disclosures for financial assets and liabilities are consistent with those disclosed in the 2020 Annual Report on Form 10-K.
    
The carrying amounts and estimated fair values of the Company's financial assets and liabilities which were not recorded at fair value on the Condensed Consolidated Balance Sheets as of March 31, 2021, and December 31, 2020, were as follows (in millions):

As of March 31, 2021 Estimated Fair Value
Financial AssetsCarrying AmountLevel 1Level 2Level 3Total
Cash and cash equivalents$17.8 $17.8 $0 $0 $17.8 
Financial Liabilities     
Long-term debt$3,341.3 (1)$0 $3,658.6 $0 $3,658.6 

(1) The carrying amount of long-term debt excludes a $5.9 million long-term finance lease obligation and
$5.5 million of unamortized debt issuance costs.

11


As of December 31, 2020Estimated Fair Value
Financial AssetsCarrying AmountLevel 1Level 2Level 3Total
Cash and cash equivalents$2.9 $2.9 $$$2.9 
Financial Liabilities 
Long-term debt$3,460.4 (1)$$3,847.6 $$3,847.6 

(1) The carrying amount of long-term debt excludes a $6.1 million long-term finance lease obligation and
$5.8 million of unamortized debt issuance costs.


Note 5:  Commitments and Contingencies

Legal Proceedings and Settlements

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

Mishal and Berger Litigation

On May 25, 2018, plaintiffs Tsemach Mishal and Paul Berger (on behalf of themselves and the purported class, Plaintiffs) initiated a purported class action in the Court of Chancery of the State of Delaware (the Court) against the following defendants: the Company, Boardwalk GP, LP (Boardwalk GP), Boardwalk GP, LLC and BPHC (together, Defendants), regarding the potential exercise by Boardwalk GP of its right to purchase the issued and outstanding common units of the Company not already owned by Boardwalk GP or its affiliates (Purchase Right).

On June 25, 2018, Plaintiffs and Defendants entered into a Stipulation and Agreement of Compromise and Settlement, subject to the approval of the Court (the Proposed Settlement). Under the terms of the Proposed Settlement, the lawsuit would be dismissed, and related claims against the Defendants would be released by the Plaintiffs, if BPHC, the sole member of the general partner of Boardwalk GP, elected to cause Boardwalk GP to exercise its Purchase Right for a cash purchase price, as determined by the Company's Third Amended and Restated Agreement of Limited Partnership, as amended (the Limited Partnership Agreement), and gave notice of such election as provided in the Limited Partnership Agreement within a period specified by the Proposed Settlement. On June 29, 2018, Boardwalk GP elected to exercise the Purchase Right and gave notice within the period specified by the Proposed Settlement. On July 18, 2018, Boardwalk GP completed the purchase of the Company's common units pursuant to the Purchase Right.

On September 28, 2018, the Court denied approval of the Proposed Settlement. On February 11, 2019, a substitute verified class action complaint was filed in this proceeding. The Defendants filed a motion to dismiss, which was heard by the Court in July 2019. In October 2019, the Court ruled on the motion and granted a partial dismissal, with certain aspects of the case proceeding to trial. A trial was held the week of February 22, 2021, and post-trial oral arguments are scheduled for July 14, 2021.

City of New Orleans Litigation

Gulf South Pipeline Company, LLC, along with several other energy companies operating in Southern Louisiana, has been named as a defendant in a petition for damages and injunctive relief in state district court for Orleans Parish, Louisiana, (Case No. 19-3466) by the City of New Orleans. The case was filed on March 29, 2019. The lawsuit claims include, among other things, negligence, strict liability, nuisance and breach of contract, alleging that the defendants’ drilling, dredging, pipeline and industrial operations since the 1930s have caused increased storm surge risk, increased flood protection costs and unspecified damages to the City of New Orleans. In October 2020, this case was stayed pending the outcome of an appeal to the 5th Circuit Court of Appeals in a similar case.


12


Commitments for Construction

The Company’s future capital commitments are comprised of binding commitments under purchase orders for materials ordered but not received and firm commitments under binding construction service agreements. The commitments as of March 31, 2021, were approximately $168.1 million, all of which are expected to be settled within the next twelve months.

There were no substantial changes to the Company’s commitments under pipeline capacity agreements disclosed in Note 5 of Part II, Item 8. of the Company’s 2020 Annual Report on Form 10-K.


Note 6:  Financing

Notes and Debentures

As of March 31, 2021, and December 31, 2020, the Company had principal amounts of notes and debentures outstanding of $3.4 billion, with a weighted-average interest rate of 4.84%. The indentures governing the notes and debentures have restrictive covenants which provide that, with certain exceptions, neither the Company nor any of its subsidiaries may create, assume or suffer to exist any lien upon any property to secure any indebtedness unless the debentures and notes shall be equally and ratably secured. All of the Company's debt obligations are unsecured. As of March 31, 2021, Boardwalk Pipelines and its operating subsidiaries were in compliance with their debt covenants.

Revolving Credit Facility

Outstanding borrowings under the Company's revolving credit facility as of March 31, 2021, and December 31, 2020, were $10.0 million and $130.0 million, with weighted-average borrowing rates of 1.36% and 1.39%. The Company and its subsidiaries were in compliance with all covenant requirements under the revolving credit facility as of March 31, 2021. The revolving credit facility has a borrowing capacity of $1.475 billion and expires on May 26, 2022. As of April 30, 2021, the Company had 0 outstanding borrowings and had the full borrowing capacity available under the revolving credit facility.


Note 7: Employee Benefits

Defined Benefit Retirement Plans (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 March 31, 2021 and 2020, were as follows (in millions):
Retirement PlansPBOP
For the
Three Months Ended
March 31,
For the
Three Months Ended
March 31,
2021202020212020
Service cost$0.7 $0.7 $0 $
Interest cost0.5 0.8 0.2 0.3 
Expected return on plan assets(1.6)(1.6)(0.6)(0.8)
Amortization of unrecognized net loss0.3 0.4 0 
Settlement charge0.4 0.9 0 
Net periodic benefit cost$0.3 $1.2 $(0.4)$(0.5)

During the three months ended March 31, 2021, the Company made $1.1 million in contributions to the defined benefit pension plan and expects to fund an additional $3.4 million in the remainder of 2021.

13


Defined Contribution Plan

Texas Gas Transmission, LLC employees hired on or after November 1, 2006, and all other employees of the Company are provided retirement benefits under a defined contribution plan, which also provides 401(k) plan benefits to its participants. Costs related to the Company’s defined contribution plan were $3.1 million and $2.9 million for the three months ended March 31, 2021 and 2020.


Note 8:  Related Party Transactions

Loews provides a variety of corporate services to the Company under service agreements, including information technology, tax, risk management, internal audit and corporate development services and also charges the Company for allocated overheads. The Company incurred charges related to these services of $1.4 million for the three months ended March 31, 2021 and 2020.


Note 9:  Supplemental Disclosure of Cash Flow Information (in millions):
 For the
Three Months Ended
March 31,
 20212020
Cash paid during the period for:  
Interest (net of amount capitalized)$28.3 $30.1 
Non-cash adjustments:
Accounts payable and property, plant and equipment42.9 47.3 


14


Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our accompanying interim condensed consolidated financial statements and related notes, included elsewhere in this report, and prepared in accordance with accounting principles generally accepted in the United States of America, and our consolidated financial statements, related notes, Management's Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2020 (2020 Annual Report on Form 10-K).

We operate in the midstream portion of the natural gas and natural gas liquids and other hydrocarbons industry, providing transportation and storage for those commodities.

Results of Operations

Note 2 in Part II, Item 8. of our Annual Report on Form 10-K contains a summary of our revenues and the related revenue recognition policies. A significant portion of our revenues are fee-based, being derived from capacity reservation charges under firm agreements with customers, which do not vary significantly period to period, but are impacted by longer-term trends in our business such as lower pricing on contract renewals and other factors discussed. Our operating costs and expenses do not vary significantly based upon the amount of products transported, with the exception of costs recorded in Fuel and transportation expense, which are netted with fuel retained on our Condensed Consolidated Statements of Income.
    
For the Three Months Ended March 31, 2021 and 2020

Our net income for the three months ended March 31, 2021, increased $26.5 million, or 29%, to $117.5 million compared to $91.0 million for the three months ended March 31, 2020, primarily due to the factors discussed below.

Operating revenues for the three months ended March 31, 2021, increased $30.2 million, or 9%, to $370.0 million, compared to $339.8 million for the three months ended March 31, 2020. Including the effect of the items in fuel and transportation expense, operating revenues increased $27.3 million, or 8%. The increase was driven primarily by our recently completed growth projects and higher system utilization from colder winter weather experienced during the first quarter of 2021, partially offset by higher fuel and transportation expense.

Operating costs and expenses for the three months ended March 31, 2021, increased $6.6 million, or 3%, to $214.2 million, compared to $207.6 million for the three months ended March 31, 2020. Excluding items offset with operating revenues, operating costs and expenses increased $3.7 million or 2% when compared to 2020 primarily due to an increased asset base and the colder winter weather experienced during the first quarter of 2021.

Total other deductions for the three months ended March 31, 2021, decreased $3.0 million, or 7%, to $38.1 million compared to $41.1 million for the three months ended March 31, 2020, primarily due to lower average interest rates, lower average outstanding long-term debt and decreased settlement charges related to the Texas Gas Transmission, LLC (Texas Gas) pension plan.

Liquidity and Capital Resources

We anticipate that our existing capital resources, including our revolving credit facility and our cash flows from operating activities, will be adequate to fund our operations and capital expenditures for 2021. We have an effective shelf registration statement, which was filed and declared effective in the first quarter 2021, under which we may publicly issue debt securities, warrants or rights from time to time.

Guarantee of Securities of Subsidiaries

Our debt is primarily issued at Boardwalk Pipelines, LP (Boardwalk Pipelines), our wholly owned subsidiary, although we have historically also issued debt at our operating subsidiaries. As of March 31, 2021, all of the outstanding notes issued by Boardwalk Pipelines (Subsidiary Issuer) and the full amount of the revolving credit facility, are guaranteed by us (Parent Guarantor). The purpose of the guarantees is to help simplify our reporting and capital structure.

We guarantee the amounts borrowed under the revolving credit facility, but those amounts are not subject to the reporting requirements of Rule 13-01 of Regulation S-X. The below table identifies our principal amounts outstanding for the debt that is subject to the disclosure rules of Rule 13-01 of Regulation S-X (in millions):
15



As of March 31, 2021
Principal amounts guaranteed by Boardwalk Pipeline Partners (1)
$2,950.0 
Principal amounts not guaranteed (2)
400.0 
Other (3)
(8.3)
Long-term debt and finance lease obligation$3,341.7 

(1) This represents principal amounts of all outstanding debt at Boardwalk Pipelines subject to the disclosure rules of Rule 13-01 of Regulation S-X (the Guaranteed Notes).
(2) This represents principal amounts of outstanding debt at Gulf South Pipeline Company, LLC and Texas Gas excluding any borrowings under the revolving credit facility.
(3) As of March 31, 2021, this represents the amounts related to a finance lease, unamortized debt discount and issuance costs and outstanding borrowings under the revolving credit facility guaranteed by Boardwalk Pipeline Partners.

The Guaranteed Notes are fully and unconditionally guaranteed by the Parent Guarantor on a senior unsecured basis. The guarantees of the Guaranteed Notes rank equally with all of our existing and future senior debt, including our guarantee of indebtedness under our revolving credit facility. The guarantees will be effectively subordinated in right of payment to all of our future secured debt to the extent of the value of the assets securing such debt. There are no restrictions on the Subsidiary Issuer’s ability to pay dividends or make loans to the Parent Guarantor. The guarantee obligations will be terminated with respect to any series of notes if that series has been discharged or defeased.

Our operating assets, operating liabilities, operating revenues, expenses and other comprehensive income either exist at or are generated by our operating subsidiaries. The Parent Guarantor and the Subsidiary Issuer have no material assets, liabilities or operations independent of their respective financing activities, including the Guaranteed Notes and advances to and from each other and the operating subsidiaries as a result of the cash management program described in Note 2 of Part II, Item 8. of our 2020 Annual Report on Form 10-K, and their investments in the operating subsidiaries. For these reasons, we meet the criteria in Rule 13-01 of Regulation S-X to omit the summarized financial information from our disclosures.

Capital Expenditures
    
Maintenance capital expenditures for the three months ended March 31, 2021 and 2020, were $18.7 million and $39.2 million. Growth capital expenditures were $34.2 million and $61.6 million for the three months ended March 31, 2021 and 2020.

Contractual Obligations
 
Our principal payments associated with our outstanding debt obligations as of March 31, 2021, and December 31, 2020, were $3.4 billion and $3.5 billion. Refer to Note 6 in Part I, Item 1. of this Quarterly Report on Form 10-Q and Note 11 in Part II, Item 8. of our 2020 Annual Report on Form 10-K for more information on our financing activities and debt obligations.

Changes in cash flow from operating activities

Net cash provided by operating activities increased $39.5 million to $187.9 million for the three months ended March 31, 2021, compared to $148.4 million for the comparable 2020 period primarily due to the change in net income.

Changes in cash flow from investing activities

Net cash used in investing activities decreased $47.8 million to $52.7 million for the three months ended March 31, 2021, compared to $100.5 million for the comparable 2020 period. The decrease was primarily driven by a decrease of $47.9 million in capital spending.

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Changes in cash flow from financing activities
 
Net cash used in financing activities increased $100.1 million to $120.3 million for the three months ended March 31, 2021, compared to $20.2 million for the comparable 2020 period primarily due to lower borrowings under the revolving credit facility from lower capital expenditures in 2021 compared to 2020.

Off-Balance Sheet Arrangements
 
At March 31, 2021, we had no guarantees of off-balance sheet debt to third parties, no debt obligations that contain provisions requiring accelerated payment of the related obligations in the event of specified levels of declines in credit ratings and no other off-balance sheet arrangements.

Critical Accounting Policies

Certain amounts included in or affecting our unaudited condensed consolidated financial statements and related disclosures must be estimated, requiring us to make certain judgments and assumptions with respect to values or conditions that cannot be known with certainty at the time the financial statements are prepared. These estimates and judgments affect the reported amounts for assets, liabilities, revenues, expenses and our disclosure of contingent assets and liabilities in our financial statements. We evaluate these estimates and judgments on an ongoing basis, utilizing historical experience, consultation with third parties and other methods we consider reasonable. Nevertheless, actual results may differ significantly from our estimates. Any effects on our business, financial position or results of operations resulting from revisions to these estimates are recorded in the periods in which the facts that give rise to the revisions become known.
    
During 2021, there have been no significant changes to our critical accounting policies, judgments or estimates disclosed in our 2020 Annual Report on Form 10-K.

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q, as well as some statements in periodic press releases and some oral statements made by our officials and our subsidiaries during presentations about us, are “forward-looking.” Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, events, performance, intentions or achievements, and may contain the words “expect,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “will likely result” and similar expressions. In addition, any statement made by our management concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects and possible actions by us or our subsidiaries, are also forward-looking statements.

Forward-looking statements are based on current expectations and projections about future events and their potential impact on us. While management believes that these forward-looking statements are reasonable as and when made, there is no assurance that future events affecting us will be those that we anticipate. All forward-looking statements are inherently subject to a variety of risks and uncertainties, many of which are beyond our control which could cause actual results to differ materially from those anticipated or projected. These include, among others, risks and uncertainties related to the impacts of recent volatility in energy prices and the coronavirus disease 2019 pandemic, the impacts of changes to laws and regulations or the implementation thereof, the costs of maintaining and ensuring the integrity and reliability of our pipeline systems, our ability to maintain or replace expiring gas transportation and storage contracts, our ability to complete projects that we have commenced or will commence, successful negotiation, consummation and completion of contemplated transactions, projects and agreements, and our ability to contract and sell short-term capacity on our pipelines. Developments in any of these areas could cause our results to differ materially from results that have been or may be anticipated or projected. Forward-looking statements speak only as of the date they are made and we expressly disclaim any obligation or undertaking to update these statements to reflect any change in our expectations or beliefs or any change in events, conditions or circumstances on which any forward-looking statement is based.

Refer to Part I, Item 1A. and Part II, Item 7. of our 2020 Annual Report on Form 10-K for additional risks and uncertainties regarding our forward-looking statements.
    
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Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Refer to Part II, Item 7A. of our 2020 Annual Report on Form 10-K, for discussion of our market risk.
    

Item 4.  Controls and Procedures
 
Disclosure Controls and Procedures
 
As required by Rule 13a-15(b) of the Securities Exchange Act of 1934 (Exchange Act), we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Our disclosure controls and procedures are designed to allow timely decisions regarding required disclosure and to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon the evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of March 31, 2021, at the reasonable assurance level.
 
Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2021, that have materially affected or that are reasonably likely to materially affect our internal control over financial reporting. 
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PART II – OTHER INFORMATION

Item 1.  Legal Proceedings

For a discussion of certain of our current legal proceedings, please see Note 5 in Part I, Item 1. of this Quarterly Report on Form 10-Q.


Item 1A. Risk Factors

There have been no material changes from the risk factors previously discussed in Part I, Item 1A. of our 2020 Annual Report on Form 10-K.


Item 6.  Exhibits

The following documents are filed or furnished as exhibits to this report:
Exhibit
Number
Description
3.1
3.2
*22.1
*31.1
*31.2
**32.1
**32.2
*101.INSXBRL 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.SCHInline XBRL Taxonomy Extension Schema Document
*101.CALInline XBRL Taxonomy Calculation Linkbase Document
*101.DEFInline XBRL Taxonomy Extension Definitions Document
*101.LABInline XBRL Taxonomy Label Linkbase Document
*101.PREInline XBRL Taxonomy Presentation Linkbase Document
*104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Filed herewith
** Furnished herewith

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SIGNATURE

    Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 Boardwalk Pipeline Partners, LP
 By: Boardwalk GP, LP
its general partner
 By: Boardwalk GP, LLC
its general partner
May 3, 2021By:/s/  Jamie L. Buskill
  Jamie L. Buskill
Senior Vice President, Chief Financial and Administrative Officer and Treasurer
(Duly authorized officer and principal financial officer)
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