UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2012March 31, 2013
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto
Commission file numbernumber: 1-7414
NORTHWEST PIPELINE GP
(Exact name of registrant as specified in its charter)
DELAWARE | 26-1157701 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
295 Chipeta Way | ||
Salt Lake City, Utah | 84108 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (801) 583-8800
NO CHANGE
(Former name, former address and former fiscal year, if changed since last report)
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 x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | x (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ Noþx
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (H)(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED DISCLOSURE FORMAT.
NORTHWEST PIPELINE GP
FORM 10-Q
Forward Looking Statements
Certain matters contained in this report include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relate to anticipated financial performance, management’s plans and objectives for future operations, business prospects, outcome of regulatory proceedings, market conditions, and other matters. We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995.
All statements, other than statements of historical facts, included in this report that address activities, events or developments that we expect, believe or anticipate will exist or may occur in the future are forward-looking statements. Forward-looking statements can be identified by various forms of words such as “anticipates,” “believes,” “seeks,” “could,” “may,” “should,” “continues,” “estimates,” “expects,” “assumes,” “forecasts,” “intends,” “might,” “goals,” “objectives,” “targets,” “planned,” “potential,” “projects,” “scheduled,” “will,” “guidance,” “outlook,” “in service date,” or other similar expressions. These statements are based on management’s beliefs and assumptions and on information currently available to management and include, among others, statements regarding:
Amounts and nature of future capital expenditures;
Expansion and growth of our business and operations;
i
Business strategy;
Cash flow from operations or results of operations;
Rate case filings;
Demand for our services.
Forward-looking statements are based on numerous assumptions, uncertainties, and risks that could cause future events or results to be materially different from those stated or implied in this report. Many of the factors that will determine these results are beyond our ability to control or predict. Specific factors that could cause actual results to differ from results contemplated by the forward-looking statements include, among others, the following:
Availability of supplies, market demand, and volatility of prices, and the availability and cost of capital;prices;
Inflation, interest rates and general economic conditions (including future disruptions and volatility in the global credit markets and the impact of these events on our customers and suppliers);
The strength and financial resources of our competitors;competitors and the effects of competition;
Development of alternative energy sources;
The impact of operational and development hazards;hazards and unforeseen interruptions;
Costs of, changes in, or the results of laws, government regulations (including safety and climate change regulation and changes in natural gas production from exploration and production areas that we serve)environmental regulations), environmental liabilities, litigation, and rate proceedings;
Our allocated costs for defined benefit pension plans and other postretirement benefit plans sponsored by our affiliates;
Changes in maintenance and construction costs;
Changes in the current geopolitical situation;
Our exposure to the credit risks of our customers and counterparties;
Risks related to strategy and financing, including restrictions stemming from our debt agreements, future changes in our credit ratings and the availability and cost of credit;capital;
Risks associated with future weather and natural phenomenon, including climate conditions;
Acts of terrorism, including cybersecurity threats and related disruptions; and
Additional risks described in our filings with the Securities and Exchange Commission (SEC).
Given the uncertainties and risk factors that could cause our actual results to differ materially from those contained in any forward-looking statement, we caution investors not to unduly rely on our forward-looking statements. We disclaim any obligations to and do not intend to update the above list or to announce publicly the result of any revisions to any of the forward-looking statements to reflect future events or developments.
ii
In addition to causing our actual results to differ, the factors listed above and referred to below may cause our intentions to change from those statements of intention set forth in this report. Such changes in our intentions may also cause our results to differ. We may change our intentions, at any time and without notice, based upon changes in such factors, our assumptions, or otherwise.
Because forward-looking statements involve risks and uncertainties, we caution that there are important factors, in addition to those listed above, that may cause actual results to differ materially from those contained in the forward-looking statements. For a detailed discussion of those factors, see Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2011.2012.
iiiii
PART I – FINANCIAL INFORMATION
STATEMENT OF COMPREHENSIVE INCOME
(Thousands of Dollars)
(Unaudited)
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
OPERATING REVENUES | $ | 107,643 | $ | 107,216 | $ | 325,326 | $ | 323,711 | ||||||||
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| |||||||||
OPERATING EXPENSES: | ||||||||||||||||
General and administrative | 17,250 | 13,647 | 51,138 | 42,150 | ||||||||||||
Operation and maintenance | 20,061 | 20,811 | 55,477 | 55,794 | ||||||||||||
Depreciation | 23,245 | 22,515 | 69,780 | 67,616 | ||||||||||||
Regulatory credits | (37 | ) | (266 | ) | (441 | ) | (800 | ) | ||||||||
Taxes, other than income taxes | 4,741 | 4,427 | 14,519 | 15,041 | ||||||||||||
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|
|
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|
|
| |||||||||
Total operating expenses | 65,260 | 61,134 | 190,473 | 179,801 | ||||||||||||
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| |||||||||
Operating Income | 42,383 | 46,082 | 134,853 | 143,910 | ||||||||||||
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| |||||||||
OTHER (INCOME) AND OTHER DEDUCTIONS: | ||||||||||||||||
Interest on long-term debt | 11,110 | 11,110 | 33,329 | 33,329 | ||||||||||||
Other interest | 563 | 492 | 1,524 | 1,506 | ||||||||||||
Allowance for equity and borrowed funds used during construction | (724 | ) | (874 | ) | (1,777 | ) | (1,468 | ) | ||||||||
Miscellaneous other (income) deductions, net | 220 | 113 | 369 | 240 | ||||||||||||
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|
|
| |||||||||
Total other (income) and other deductions | 11,169 | 10,841 | 33,445 | 33,607 | ||||||||||||
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| |||||||||
NET INCOME | 31,214 | 35,241 | 101,408 | 110,303 | ||||||||||||
CASH FLOW HEDGES: | ||||||||||||||||
Amortization of cash flow hedges | (15 | ) | (16 | ) | (46 | ) | (47 | ) | ||||||||
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|
| |||||||||
COMPREHENSIVE INCOME | $ | 31,199 | $ | 35,225 | $ | 101,362 | $ | 110,256 | ||||||||
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|
|
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Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
OPERATING REVENUES | $ | 118,734 | $ | 111,372 | ||||
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| |||||
OPERATING EXPENSES: | ||||||||
General and administrative | 16,210 | 16,814 | ||||||
Operation and maintenance | 16,795 | 17,416 | ||||||
Depreciation | 24,012 | 23,310 | ||||||
Regulatory debits (credits) | 185 | (289 | ) | |||||
Taxes, other than income taxes | 4,340 | 4,462 | ||||||
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|
| |||||
Total operating expenses | 61,542 | 61,713 | ||||||
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| |||||
OPERATING INCOME | 57,192 | 49,659 | ||||||
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| |||||
OTHER (INCOME) AND OTHER EXPENSES: | ||||||||
Interest on long-term debt | 11,110 | 11,110 | ||||||
Other interest | 444 | 483 | ||||||
Allowance for equity and borrowed funds used during construction | (276 | ) | (311 | ) | ||||
Miscellaneous other (income) expenses, net | 276 | 69 | ||||||
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| |||||
Total other (income) and other expenses | 11,554 | 11,351 | ||||||
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| |||||
NET INCOME | 45,638 | 38,308 | ||||||
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| |||||
CASH FLOW HEDGES: | ||||||||
Amortization of cash flow hedges into Other interest | (15 | ) | (16 | ) | ||||
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|
| |||||
COMPREHENSIVE INCOME | $ | 45,623 | $ | 38,292 | ||||
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|
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See accompanying notes.
1
(Thousands of Dollars)
(Unaudited)
September 30, | December 31, | |||||||
2012 | 2011 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash | $ | 100 | $ | 37 | ||||
Receivables: | ||||||||
Trade | 36,991 | 38,245 | ||||||
Affiliated companies | — | 2,250 | ||||||
Advances to affiliate | 53,301 | 52,024 | ||||||
Materials and supplies, less reserves of $52 at September 30, 2012 and $816 at December 31, 2011 | 9,995 | 10,488 | ||||||
Exchange gas due from others | 1,828 | 3,441 | ||||||
Exchange gas offset | 9 | — | ||||||
Prepayments and other | 4,173 | 3,469 | ||||||
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| |||||
Total current assets | 106,397 | 109,954 | ||||||
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| |||||
PROPERTY, PLANT AND EQUIPMENT, at cost | 3,139,995 | 3,068,915 | ||||||
Less-Accumulated depreciation | 1,143,715 | 1,076,943 | ||||||
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| |||||
Total property, plant and equipment, net | 1,996,280 | 1,991,972 | ||||||
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OTHER ASSETS: | ||||||||
Deferred charges | 9,341 | 10,250 | ||||||
Regulatory assets | 60,092 | 59,605 | ||||||
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Total other assets | 69,433 | 69,855 | ||||||
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Total assets | $ | 2,172,110 | $ | 2,171,781 | ||||
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March 31, 2013 | December 31, 2012 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash | $ | 100 | $ | 117 | ||||
Receivables: | ||||||||
Trade | 41,211 | 39,836 | ||||||
Affiliated companies | 2,315 | 1,683 | ||||||
Advances to affiliate | 98,706 | 29,322 | ||||||
Other | 8,748 | 6,700 | ||||||
Materials and supplies, less reserves of $19 at March 31, 2013 and $81 at December 31, 2012 | 10,224 | 10,137 | ||||||
Exchange gas due from others | 2,769 | 3,426 | ||||||
Exchange gas offset | 1,829 | 1,277 | ||||||
Prepayments and other | 2,555 | 3,353 | ||||||
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Total current assets | 168,457 | 95,851 | ||||||
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PROPERTY, PLANT AND EQUIPMENT, at cost | 3,155,843 | 3,163,489 | ||||||
Less-Accumulated depreciation | 1,172,238 | 1,159,944 | ||||||
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Total property, plant and equipment, net | 1,983,605 | 2,003,545 | ||||||
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OTHER ASSETS: | ||||||||
Deferred charges | 7,824 | 7,918 | ||||||
Regulatory assets | 58,649 | 60,298 | ||||||
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Total other assets | 66,473 | 68,216 | ||||||
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Total assets | $ | 2,218,535 | $ | 2,167,612 | ||||
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See accompanying notes.
2
NORTHWEST PIPELINE GP
BALANCE SHEET
(Thousands of Dollars)
(Unaudited)
September 30, | December 31, | |||||||
2012 | 2011 | |||||||
LIABILITIES AND OWNER’S EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Payables: | ||||||||
Trade | $ | 22,866 | $ | 13,634 | ||||
Affiliated companies | 9,316 | 8,812 | ||||||
Accrued liabilities: | ||||||||
Taxes, other than income taxes | 16,713 | 10,252 | ||||||
Interest | 15,155 | 4,045 | ||||||
Exchange gas due to others | 2,349 | 10,472 | ||||||
Exchange gas offset | — | 2,241 | ||||||
Other | 4,659 | 5,006 | ||||||
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Total current liabilities | 71,058 | 54,462 | ||||||
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LONG-TERM DEBT | 693,978 | 693,831 | ||||||
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES | 89,236 | 103,041 | ||||||
CONTINGENT LIABILITIES AND COMMITMENTS (Note 3) | — | — | ||||||
OWNER’S EQUITY: | ||||||||
Owner’s capital | 1,055,492 | 1,051,962 | ||||||
Retained earnings | 262,116 | 268,209 | ||||||
Accumulated other comprehensive income | 230 | 276 | ||||||
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Total owner’s equity | 1,317,838 | 1,320,447 | ||||||
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Total liabilities and owner’s equity | $ | 2,172,110 | $ | 2,171,781 | ||||
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March 31, 2013 | December 31, 2012 | |||||||
LIABILITIES AND OWNER’S EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Payables: | ||||||||
Trade | $ | 11,794 | $ | 18,383 | ||||
Affiliated companies | 10,264 | 10,912 | ||||||
Accrued liabilities: | ||||||||
Taxes, other than income taxes | 14,068 | 10,961 | ||||||
Interest | 15,155 | 4,045 | ||||||
Exchange gas due to others | 3,825 | 6,572 | ||||||
Other | 4,762 | 4,467 | ||||||
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Total current liabilities | 59,868 | 55,340 | ||||||
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LONG-TERM DEBT | 694,076 | 694,027 | ||||||
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES | 90,730 | 90,007 | ||||||
CONTINGENT LIABILITIES AND COMMITMENTS (Note 2) | ||||||||
OWNER’S EQUITY: | ||||||||
Owner’s capital | 1,060,592 | 1,060,592 | ||||||
Retained earnings | 313,070 | 267,432 | ||||||
Accumulated other comprehensive income | 199 | 214 | ||||||
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Total owner’s equity | 1,373,861 | 1,328,238 | ||||||
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Total liabilities and owner’s equity | $ | 2,218,535 | $ | 2,167,612 | ||||
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See accompanying notes.
3
(Thousands of Dollars)
(Unaudited)
Nine months ended September 30, | ||||||||
2012 | 2011 | |||||||
OPERATING ACTIVITIES: | ||||||||
Net income | $ | 101,408 | $ | 110,303 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
Depreciation | 69,780 | 67,616 | ||||||
Regulatory credits | (441 | ) | (800 | ) | ||||
Amortization of deferred charges and credits | 1,192 | 1,277 | ||||||
Allowance for equity funds used during construction | (1,213 | ) | (1,005 | ) | ||||
Changes in current assets and liabilities: | ||||||||
Trade accounts receivable | 1,254 | 3,235 | ||||||
Affiliated receivables | 2,250 | 6 | ||||||
Exchange gas due from others | 1,604 | 6,858 | ||||||
Materials and supplies | 493 | 539 | ||||||
Other current assets | (704 | ) | (887 | ) | ||||
Trade accounts payable | (765 | ) | (864 | ) | ||||
Affiliated payables | 504 | (1,944 | ) | |||||
Exchange gas due to others | (1,604 | ) | (6,858 | ) | ||||
Other accrued liabilities | 17,222 | 17,436 | ||||||
Changes in noncurrent assets and liabilities: | ||||||||
Deferred charges | (3,741 | ) | (1,757 | ) | ||||
Other deferred credits | 4,677 | 3,535 | ||||||
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Net cash provided by operating activities | 191,916 | 196,690 | ||||||
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FINANCING ACTIVITIES: | ||||||||
Capital contributions from parent | 3,530 | 4,400 | ||||||
Distributions paid | (107,500 | ) | (94,000 | ) | ||||
Other | (1,205 | ) | 1,450 | |||||
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Net cash used in financing activities | (105,175 | ) | (88,150 | ) | ||||
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INVESTING ACTIVITIES: | ||||||||
Property, plant and equipment: | ||||||||
Capital expenditures* | (90,798 | ) | (72,456 | ) | ||||
Proceeds from sales | 5,397 | (11 | ) | |||||
Advances to affiliates | (1,277 | ) | (36,072 | ) | ||||
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Net cash used in investing activities | (86,678 | ) | (108,539 | ) | ||||
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NET INCREASE IN CASH | 63 | 1 | ||||||
CASH AT BEGINNING OF PERIOD | 37 | 5 | ||||||
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CASH AT END OF PERIOD | $ | 100 | $ | 6 | ||||
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Three months ended March 31, | ||||||||||||||||
2013 | 2012 | |||||||||||||||
OPERATING ACTIVITIES: | ||||||||||||||||
Net income | $ | 45,638 | $ | 38,308 | ||||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||||||
Depreciation | 24,012 | 23,310 | ||||||||||||||
Regulatory debits (credits) | 185 | (289 | ) | |||||||||||||
Amortization of deferred charges and credits | 442 | 404 | ||||||||||||||
Allowance for equity funds used during construction | (187 | ) | (213 | ) | ||||||||||||
Changes in current assets and liabilities: | ||||||||||||||||
Trade and other accounts receivable | (3,423 | ) | (719 | ) | ||||||||||||
Affiliated receivables | (632 | ) | 2,241 | |||||||||||||
Exchange gas due from others | 2,747 | 1,832 | ||||||||||||||
Materials and supplies | (87 | ) | 277 | |||||||||||||
Other current assets | 798 | 487 | ||||||||||||||
Trade accounts payable | (4,262 | ) | (2,565 | ) | ||||||||||||
Affiliated payables | (648 | ) | 744 | |||||||||||||
Exchange gas due to others | (2,747 | ) | (1,833 | ) | ||||||||||||
Other accrued liabilities | 14,515 | 14,347 | ||||||||||||||
Changes in noncurrent assets and liabilities: | ||||||||||||||||
Deferred charges | (1,041 | ) | (340 | ) | ||||||||||||
Other deferred credits | 1,166 | 1,218 | ||||||||||||||
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Net cash provided by operating activities | 76,476 | 77,209 | ||||||||||||||
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FINANCING ACTIVITIES: | ||||||||||||||||
Capital contributions from parent | — | 1,230 | ||||||||||||||
Distributions paid | — | (28,000 | ) | |||||||||||||
Other | (660 | ) | (2,428 | ) | ||||||||||||
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Net cash used in financing activities | (660 | ) | (29,198 | ) | ||||||||||||
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INVESTING ACTIVITIES: | ||||||||||||||||
Property, plant and equipment: | ||||||||||||||||
Capital expenditures* | (8,171 | ) | (21,000 | ) | ||||||||||||
Proceeds from sales | 1,722 | 5,127 | ||||||||||||||
Advances to affiliates | (69,384 | ) | (32,170 | ) | ||||||||||||
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Net cash used in investing activities | (75,833 | ) | (48,043 | ) | ||||||||||||
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NET DECREASE IN CASH | (17 | ) | (32 | ) | ||||||||||||
CASH AT BEGINNING OF PERIOD | 117 | 37 | ||||||||||||||
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CASH AT END OF PERIOD | $ | 100 | $ | 5 | ||||||||||||
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* Increases to property, plant and equipment | $ | (102,000 | ) | $ | (85,168 | ) | $ | (6,504 | ) | $ | (17,463 | ) | ||||
Changes in related accounts payable and accrued liabilities | 11,202 | 12,712 | (1,667 | ) | (3,537 | ) | ||||||||||
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Capital expenditures | $ | (90,798 | ) | $ | (72,456 | ) | $ | (8,171 | ) | $ | (21,000 | ) | ||||
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See accompanying notes.
4
(Unaudited)
1. BASIS OF PRESENTATION
In this report, Northwest Pipeline GP (Northwest) is at times referred to in the first person as “we”, “us” or “our.”
Northwest is indirectly owned by Williams Partners L.P. (WPZ), a publicly traded Delaware limited partnership, which is consolidated by The Williams Companies, Inc. (Williams). As of September 30, 2012,At March 31, 2013, Williams holds an approximate 6668 percent interest in WPZ, comprised of an approximate 6466 percent limited partner interest and all of WPZ’s 2 percent general partner interest.
General
The accompanying interim financial statements do not include all the notes in our annual financial statements, and therefore, should be read in conjunction with the financial statements and notes thereto in our 20112012 Annual Report on Form 10-K. The accompanying unaudited financial statements include all adjustments both normal recurring and others which, in the opinion of our management, are necessary to present fairly our interim financial statements.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Certain reclassifications fromprior period amounts reported withinGeneral and administrativeTotal operating expenses toOperation and maintenance,related to certain employee related expensesin the Statement of $0.8 million and $2.3 million for the three and nine months ended September 30, 2011, respectively,Comprehensive Income have been madereclassified to conform to the presentation utilized incurrent presentation. The effect of the correction increasedOperation and maintenancecosts $1.3 million, decreasedGeneral and administrativeexpenses $0.5 million, and decreasedTaxes, other than income taxes$0.8 million, with no net impact onTotal operating expenses,Operating Income, orNet Incomefor 2012 Statement of Comprehensive Income..
2. RATE AND REGULATORY MATTERS
Rate Case Settlement Filing
On April 26, 2012, the Federal Energy Regulatory Commission (FERC) unconditionally approved Northwest’s Stipulation and Settlement Agreement (Settlement) filed on March 15, 2012. The supporting or non-opposing customers named in the Settlement represent approximately 99.5 percent of our long-term firm transportation and storage capacity. The Settlement specified an annual cost of service of $466.5 million and established a new general system firm transportation rate of $0.44 per dekatherm, a 7.4 percent increase over the current rate. New rates will become effective January 1, 2013, and will remain in effect for a minimum of 3 years and a maximum of 5 years.
3. CONTINGENT LIABILITIES AND COMMITMENTS
Legal Proceedings
We are a party to legal, administrative, and regulatory proceedings arising in the ordinary course of business.
Environmental Matters
We are subject to the National Environmental Policy Act and other federal and state legislation regulating the environmental aspects of our business. Except as discussed below, our management believes that we are in substantial compliance with existing environmental requirements. Environmental
5
NORTHWEST PIPELINE GP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
expenditures are expensed or capitalized depending on their future economic benefit and potential for rate recovery. We believe that, with respect to any expenditures required to meet applicable standards and regulations, the FERCFederal Energy Regulatory Commission (FERC) would grant the requisite rate relief so that substantially all of such expenditures would be permitted to be recovered through rates. We believe that compliance with applicable environmental requirements is not likely to have a material adverse effect upon our financial position or results of operations.
Beginning in the mid-1980s, we evaluated many of our facilities for the presence of toxic and hazardous substances to determine to what extent, if any, remediation might be necessary. We identified polychlorinated biphenyl (PCB) contamination in air compressor systems, soils and related properties at certain compressor station sites. Similarly, we identified hydrocarbon impacts at these facilities due to the former use of earthen pits and mercury contamination at certain natural gas metering sites. The PCBs were remediated pursuant to a Consent Decree with the U.S. Environmental Protection Agency (EPA) in the late 1980s, and we conducted a voluntary clean-up of the hydrocarbon and mercury impacts in the early 1990s. In 2005, the Washington Department of Ecology required us to re-evaluate our previous mercury clean-ups in Washington. Currently, we are conducting assessment and remediation activities for
NORTHWEST PIPELINE GP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
mercury and other constituents to bring the sites up to Washington’s current environmental standards. At September 30, 2012,March 31, 2013, we had accrued liabilities totaling approximately $6.8$6.3 million for these costs which are expected to be incurred through 2017. We are conducting environmental assessments and implementing a variety of remedial measures that may result in increases or decreases in the total estimated costs.
In March 2008, the EPA promulgated a new, lower National Ambient Air Quality Standard (NAAQS) for ground-level ozone. However, in September 2009, the EPA announced it would reconsider the 2008 NAAQS for ground-level ozone to ensure that the standards were clearly grounded in science, and were protective of both public health and the environment. As a result, the EPA delayed designation of new eight-hour ozone non-attainment areas under the 2008 standards until the reconsideration iswas complete. In January 2010, the EPA proposed to further reduce the ground-level ozone NAAQS from the March 2008 levels. In September 2011, the EPA announced that it was proceeding with required actions to implement the 2008 ozone standard and area designations. In May 2012, the EPA completed designation of new eight-hour ozone non-attainment areas. Based on the published designations, no Northwest facilities are located within the non-attainment areas. At this time, it is unknown whether future state regulatory actions associated with implementation of the 2008 ozone standard will impact our operations and increase the cost of additions to property, plant and equipment. Until any additional state regulatory actions are proposed, we are unable to estimate the cost of additions that may be required to meet thisany such new regulation.
Additionally, in August 2010, the EPA promulgated National Emission Standards for hazardous air pollutants (NESHAP) regulations that will impact our operations. The emission control additions required to comply with the hazardous air pollutant regulations are estimated to include capital costs in the range of $3 million$500 thousand to $4$1 million through 2013, the compliance date.
In FebruaryOn January 22, 2010, the EPA promulgated a final rule establishingset a new one-hour nitrogen dioxide (NO2) NAAQS. In FebruaryThe effective date of the new NO2 standard was April 12, 2010. This standard is subject to challenges in federal court. On January 20, 2012, the EPA determined pursuant to available information that no area in the country is violating the 2010 NO2 NAAQS, and thus, designated all areas of the country as “unclassifiable/attainment,attainment.” meaning that information available at that time did not indicate that air quality in these areas exceeded the NAAQS. Also, at that time, the EPA noted its plan to deploy an expanded NO2monitoring network beginning in 2013. However, on October 5, 2012, the EPA proposed a graduated implementation of the monitoring network between January 1, 2014 and January 1, 2017. Once three years of data is collected from the new monitoring network, the EPA will reassess attainment status with the one-hour NO2 NAAQS. Until that time, the EPA or states may require ambient air quality modeling on a case by case basis to demonstrate compliance with the NO2 standard. Because we are unable to predict the outcome of the EPA’s or states’ future assessment using the new monitoring network, we are unable to estimate the cost of additions that may be required.
6
NORTHWEST PIPELINE GP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Safety Matters
Pipeline Integrity RegulationsWe have developed an Integrity Management Program that we believe meets the United States Department of Transportation Pipeline and Hazardous Materials Safety Administration final rule that was issued pursuantrequired to the requirements of the Pipeline Safety Improvement Act of 2002. The rule requires gas pipeline operators to develop an integrity management program for transmission pipelines that could affect high consequence areas in the event of pipeline failure. The Integrity Management Program includes a baseline assessment plan to be completed in 2012 along with periodic reassessments to be completed within required timeframes. In meeting the integrity regulations, we have identified high consequence areas and developed our baseline assessment plan. We are on schedule to complete the required assessments within the required timeframes.meet this regulation.
Currently, we estimate the cost to complete the required initial assessments and associated remediation through 2012 will be primarily capital in nature and range between $8 million and $10 million. Ongoing periodic reassessments and initial assessments of any new high consequence areas will be completed within the timeframes required by the rule. Management considers the costs associated with compliance with the rule to be prudent costs incurred in the ordinary course of business and, therefore, recoverable through our rates.
Other Matters
Various other proceedings are pending against us and are considered incidental to our operations.
Summary
We estimate that for all matters for which we are able to reasonably estimate a range of loss, including those noted above and others that are not individually significant, our aggregate reasonably possible losses beyond amounts accrued for all of our contingent liabilities are immaterial to our expected future annual results of operations, liquidity and financial position. These calculations have been made without consideration of any potential recovery from third-parties. We have disclosed all significant matters for which we are unable to reasonably estimate a range of possible loss.
4.NORTHWEST PIPELINE GP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Other Commitments
We have commitments for construction and acquisition of property, plant, and equipment of approximately $33.3 million at March 31, 2013.
3. DEBT AND FINANCING ARRANGEMENT
Credit Facility
In September 2012, WPZ amended its existing $2 billion senior unsecured revolving credit facility agreement to increase its aggregate commitments by $400 million. This facility was also amended to provide an additional $400 million increase to be available under certain conditions in the future.
Total letter of credit capacity available to WPZ under the $2.4 billion credit facility is $1.3 billion. At September 30, 2012,March 31, 2013, WPZ had a total of $250 million outstanding under the credit facility and no letters of credit have been issued and no loans are outstanding under the credit facility.issued. We may borrow up to $400 million under the credit facility to the extent not otherwise utilized by WPZ and Transcontinental Gas Pipe Line Company, LLC. At September 30, 2012,March 31, 2013, the full $400 million under the credit facility was available to us.
5.4. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Cash and advances to affiliate— – The carrying amounts of these items approximates their fair value.
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NORTHWEST PIPELINE GP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Long-term debt— – The disclosed fair value of our long-term debt, which we consider as a level 2 measurement, is determined by a market approach using broker quoted indicative period-end bond prices. The quoted prices are based on observable transactions in less active markets for our debt or similar instruments. The carrying amount and estimated fair value of our long-term debt, including current maturities, were $694.1 million and $834.1 million, respectively, at March 31, 2013, and $694.0 million and $835.6 million, respectively, at September 30, 2012, and $693.8 million and $826.3$840.2 million, respectively, at December 31, 2011.2012.
6.5. TRANSACTIONS WITH AFFILIATES
We are a participant in WPZ’s cash management program, and we make advances to and receive advances from WPZ.program. At September 30, 2012March 31, 2013 and December 31, 2011, the2012, our advances due to us by WPZ totaled approximately $53.3$98.7 million and $52.0$29.3 million, respectively. These advances are represented by demand notes.notes and are classified as Current Assets in the accompanying Balance Sheet. The interest rate on these intercompany demand notes is based upon the daily overnight investment rate paid on WPZ’s excess cash at the end of each month, which was approximately 0.01 percent at September 30, 2012.March 31, 2013. The interest income from these advances was minimal during the ninethree months ended September 30, 2012March 31, 2013 and September 30, 2011.March 31, 2012. Such interest income is included in “Other (Income) and Other DeductionsExpenses – Miscellaneous other (income) deductions,expenses, net” on the accompanying Statement of Comprehensive Income.
The Williams Companies, Inc. (Williams) charges its subsidiary companies for management services provided by it and other affiliated companies. Such corporate expenses charged by Williams, WPZ, and other affiliated companies, for the ninethree months ended September 30,March 31, 2013 and 2012, and 2011, were $32.1$16.0 million and $26.8$10.3 million, respectively. These expenses are included in “General and administrative expense” on the accompanying Statement of Comprehensive Income. Management considers the cost of these services to be reasonable.
We have no employees. Services necessary to operate our business are provided to us by an affiliate, Northwest Pipeline Services LLC (NPS). Pursuant to an administrative services agreement, NPS provides personnel, facilities, goods,Williams and equipment not otherwise provided by us that are necessary to operate our business.certain affiliates of Williams. In return, we reimburse NPSWilliams for all direct and indirect expenses it incurs or payments it makes (including salary, bonus, incentive compensation, pension and other benefits) in connection with these services. For the ninethree months ended September 30,March 31, 2013 and 2012, and 2011, we were billed $51.8$15.4 million and $46.7$15.9 million, respectively. Such expenses are primarily included in “General and administrative” and “Operation and maintenance” expenses on the accompanying Statement of Comprehensive Income.
During the periods presented, our revenues include transportation transactions and rental of communication facilities with subsidiaries of Williams. Combined revenues for these activities, for the nine months ended September 30, 2012 were minimal. Combined revenues for the nine months ended 2011 were $18.4 million. The reduction in revenues from 2011 is a result of Williams’ spin-off of its former exploration and production business, which was completed on December 31, 2011. These revenues, associated with transportation transactions, are now reflected with the revenues from outside parties.
NORTHWEST PIPELINE GP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
During the ninethree months ended September 30,March 31, 2012, and 2011, we declared and paid equity distributions to our parent of $107.5 million and $94.0 million, respectively.$28.0 million. No equity distributions were paid to our parent during the three months ended March 31, 2013. During October 2012,May 2013, we declared and paid equity distributions of $30.0$27.0 million to our parent.
During the ninethree months ended September 30,March 31, 2012, and 2011, we received contributions of $3.5$1.2 million and $4.4 million, respectively, from our parent to fund a portion of our expansion related expenditures for additions to property, plant, and equipment. In October 2012,No contributions were received from our parent authorized an additional $5.1 million capital contribution to us to fund a portion of our expenditures for additions to property, plant and equipment.during the three months ended March 31, 2013.
We have entered into various other transactions with certain related parties, the amounts of which were not significant. These transactions and the above-described transactions are made on the basis of commercial relationships and prevailing market prices or general industry practices.
8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
GENERAL
The following discussion should be read in conjunction with the Financial Statements, Notes, and Management’s Discussion and Analysis contained in Items 7 and 8 of our 20112012 Annual Report on Form 10-K and with the Financial Statements and Notes contained in this Form 10-Q.
RESULTS OF OPERATIONS
ANALYSIS OF FINANCIAL RESULTS
This analysis discusses financial results of our operations for the nine-monththree-month periods ended September 30, 2012March 31, 2013 and 2011.2012. Variances due to changes in natural gas prices and transportation volumes have little impact on revenues, because under our rate design methodology, the majority of overall cost of service is recovered through firm capacity reservation charges in our transportation rates.
Our operating revenues increased $1.6 million.$7.4 million, or 7 percent, as compared to the first three months of 2012. This increase is primarily attributed to higher reservation charges and the timing effect of leap year in 2012.new rates, which became effective January 1, 2013.
Transportation service and gas storage service accounted for 98 percent and 2 percent, respectively, of our operating revenues for the period ended March 31, 2013, and 97 percent and 3 percent, respectively, of our operating revenues for both periods.the period ended March 31, 2012.
Operating expenses increased $10.7 million, or 6 percent,The increase in our net income for the first three months of 2013, as compared to the comparable period in 2012, is primarily due primarily to i) higher allocated overhead from affiliates of $5.3 million; ii) higher depreciation of $2.2 million, attributed to property additions; iii) higher employee incentive compensation expense of $1.4 million; and iv) higher pension costs of $1.3 million.the increase in operating revenues associated with our new rates.
CAPITAL EXPENDITURES
Our capital expenditures were $90.8$8.2 million and $72.5$21.0 million for the ninethree months ended September 30,March 31, 2013 and 2012, and 2011, respectively. We anticipate our total 2012Our capital expenditures will be between $130 million and $150 million. Of this total, $55 million to $65 millionestimate for 2013 is considered nondiscretionary due to legal, regulatory, and/or contractual requirements.discussed in our 2012 Annual Report on Form 10-K. This estimate includes the following new capital projectsproject proposed by us:
North and South Seattle Lateral Delivery ExpansionsExpansion
We have executed agreementsan agreement with Puget Sound Energy to expand the North and South Seattle laterals andLateral to provide an additional lateral capacity of approximately 84 MDth per day and 74 MDth per day respectively. We estimate the expansion of the two lateralscapacity. The project is on schedule for a November 2013 in-service date, and is estimated to cost between $28$23 million and $32$25 million. North Seattle is scheduled for a November 2012 in-service date and South Seattle is scheduled for a fall 2013 in-service date.
9
Item 4. Controls and Procedures
Our management, including our Senior Vice President – West and our Vice President and Treasurer,Chief Accounting Officer, does not expect that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act) (Disclosure Controls) or our internal controls over financial reporting (Internal Controls) will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Northwest have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. We monitor our Disclosure Controls and Internal Controls and make modifications as necessary; our intent in this regard is that the Disclosure Controls and Internal Controls will be modified as systems change and conditions warrant.
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our Disclosure Controls was performed as of the end of the period covered by this report. This evaluation was performed under the supervision and with the participation of our management, including our Senior Vice President – West and our Vice President and Treasurer.Chief Accounting Officer. Based upon that evaluation, our Senior Vice President – West and our Vice President and TreasurerChief Accounting Officer concluded that these Disclosure Controls are effective at a reasonable assurance level.
Third-Quarter 2012First-Quarter 2013 Changes in Internal Controls
There have been no changes during the thirdfirst quarter of 20122013 that have materially affected, or are reasonably likely to materially affect, our Internal Controls.
10
Item 1. | LEGAL PROCEEDINGS. |
The information called for by this item is provided in Note 3.2. Contingent Liabilities and Commitments, included in the Notes to Financial Statements included under Part 1, Item 1. Financial Statements of this Form 10-Q, which information is incorporated by reference into this item.
11
ITEM 6. | EXHIBITS |
The following instruments are included as exhibits to this report.
Exhibit | Description | |
3(a) | Statement of Partnership Existence of Northwest Pipeline GP (Exhibit 3.1 to our report on Form 8-K, filed October 2, | |
3(b) | Amended and Restated General Partnership Agreement of Northwest Pipeline GP (Exhibit 3.1 to our report on Form 8-K, filed January 30, | |
12
13
SIGNATURE
Pursuant to the requirements 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.
| ||
| ||
Date: October 31, 2012
EXHIBIT INDEX
|
| |
31(a)* | Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended and Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of The Sarbanes-Oxley Act of 2002. | |
31(b)* | Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, and Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of The Sarbanes-Oxley Act of 2002. | |
32(a)** | Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS** | XBRL Instance Document. | |
101.SCH** | XBRL Taxonomy Extension Schema. | |
101.CAL** | XBRL Taxonomy Extension Calculation Linkbase. | |
101.DEF** | XBRL Taxonomy Definition Linkbase. | |
101.LAB** | XBRL Taxonomy Extension Label Linkbase. | |
101.PRE** | XBRL Taxonomy Extension Presentation Linkbase. |
* | Filed herewith. |
** | Furnished herewith. |
SIGNATURE
Pursuant to the requirements 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.
NORTHWEST PIPELINE GP | ||
Registrant | ||
By: | /s/ Jeffrey P. Heinrichs | |
Jeffrey P. Heinrichs | ||
Controller | ||
(Duly Authorized Officer and Principal Accounting Officer) |
Date: May 8, 2013
EXHIBIT INDEX
Exhibit | Description | |
3(a) | Statement of Partnership Existence of Northwest Pipeline GP (Exhibit 3.1 to our report on Form 8-K, filed October 2, 2007 (File No. 001-07414)) and incorporated herein by reference. | |
3(b) | Amended and Restated General Partnership Agreement of Northwest Pipeline GP (Exhibit 3.1 to our report on Form 8-K, filed January 30, 2008 (File No. 001-07414)) and incorporated herein by reference. | |
31(a)* | Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended and Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of The Sarbanes-Oxley Act of 2002. | |
31(b)* | Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, and Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of The Sarbanes-Oxley Act of 2002. | |
32(a)** | Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS** | XBRL Instance Document. | |
101.SCH** | XBRL Taxonomy Extension Schema. | |
101.CAL** | XBRL Taxonomy Extension Calculation Linkbase. | |
101.DEF** | XBRL Taxonomy Definition Linkbase. | |
101.LAB** | XBRL Taxonomy Extension Label Linkbase. | |
101.PRE** | XBRL Taxonomy Extension Presentation Linkbase. |
* | Filed herewith. |
** | Furnished herewith. |