2. Discontinued Operations
On December 17, 2013, the Company and its wholly-owned subsidiary Distribution Holdco, LLC (Holdco) completed the previously announced transactions contemplated by the Master Purchase Agreement, dated as of December 19, 2012 (as amended, the Master Purchase Agreement), by and among the Company, Holdco and PNG Companies LLC (PNG Companies), and the Asset Exchange Agreement, dated as of December 19, 2012 (as amended, the Asset Exchange Agreement), by and between the Company and PNG Companies. PNG Companies is the parent company of Peoples Natural Gas Company LLC. Pursuant to the Master Purchase Agreement and the Asset Exchange Agreement, the Company and Holdco transferred 100% of their ownership interests in Equitable Gas Company, LLC (Equitable Gas) and Equitable Homeworks, LLC (Homeworks) to PNG Companies (the Equitable Gas Transaction).
Equitable Gas and Homeworks comprised substantially all of the Company’s previously reported Distribution segment. The financial information of Equitable Gas and Homeworks is reflected as discontinued operations for all periods presented in these financial statements. Prior periods have been recast to reflect this presentation.
As consideration for the Equitable Gas Transaction, the Company received a $740.6 million cash payment, which is subject to certain post-closing adjustments, midstream assets with a preliminary estimated fair value of approximately $141.4 million and other contractual assets with a preliminary estimated fair value of $32.5 million. The contractual assets acquired included a lease of certain physical assets for which the Company will receive $2.5 million per year for 20 years. This lease is a capital lease under United States GAAP; therefore, the Company recorded a lease receivable, net of unearned interest, of $19.7 million as of December 31, 2013. Other contractual agreements resulted in intangible assets at the close of the transaction of $12.8 million. This balance included certain energy marketing contracts valued at $5.0 million which were sold on December 31, 2013 for this amount. The remaining contract-based intangible will be amortized over a 5 year period.
The Company recognized a gain on the sale of $43.8 million, subject to customary post-closing adjustments. The gain is net of tax expense of $122.5 million and is included in income from discontinued operations, net of tax, in the Statements of Consolidated Income.
The following table summarizes the components of discontinued operations activity:
|
|
|
Years Ended December 31, | |||||||
|
|
|
2013 |
|
2012 |
|
2011 | |||
|
|
|
(Thousands) | |||||||
|
|
|
|
|
|
|
| |||
|
Operating revenues |
|
$ |
332,947 |
|
$ |
314,821 |
|
$ |
420,563 |
|
|
|
|
|
|
|
| |||
|
Income from discontinued operations before income taxes |
|
251,378 |
|
81,328 |
|
101,010 | |||
|
Income taxes |
|
159,535 |
|
33,835 |
|
40,823 | |||
|
Income from discontinued operations, net of tax |
|
$ |
91,843 |
|
$ |
47,493 |
|
$ |
60,187 |
The Company incurred $8.1 million and $4.5 million of transaction costs related to the Equitable Gas Transaction for the years ended December 31, 2013 and 2012, respectively, which costs are included in the results of discontinued operations for those periods. The Company also recognized a $51.6 million write off of income tax related regulatory assets (net of related deferred taxes) through income tax expense in discontinued operations in 2013.
As part of the Equitable Gas Transaction, the Company entered into certain commercial arrangements with PNG Companies and its affiliates that will result in the continuation of transmission and storage service activities between Equitable Gas and Equitrans, L.P. (Equitrans, a subsidiary of the Partnership) for a period of 20 years. For the years ended December 31, 2013, 2012 and 2011, these intra-entity revenues were $37.6 million, $36.8 million and $37.9 million, respectively. The Company considered the significance of these amounts compared to total operating revenues of the disposed component and determined that they were not significant. These amounts are included in revenues for the EQT Midstream segment in continuing operations, and are an expense in arriving at the results of discontinued operations for the years ended December 31, 2013, 2012 and 2011. This presentation is consistent with how these contracts will be reflected in future periods.
The following table discloses the major classes of assets and liabilities of discontinued operations included in the Consolidated Balance Sheet:
|
|
|
As of | |
|
|
|
(Thousands) | |
|
Assets |
|
| |
|
Accounts receivable and unbilled receivables |
|
$ |
42,919 |
|
Inventory |
|
31,622 | |
|
Other current assets |
|
18,137 | |
|
Total current assets |
|
92,678 | |
|
|
|
| |
|
Property, plant and equipment, net |
|
655,886 | |
|
Regulatory assets |
|
93,599 | |
|
Other assets |
|
571 | |
|
Total noncurrent assets |
|
750,056 | |
|
Assets of discontinued operations |
|
$ |
842,734 |
|
|
|
| |
|
Liabilities |
|
| |
|
Accounts payable |
|
$ |
12,230 |
|
Accrued customer credits |
|
32,376 | |
|
Other current liabilities |
|
3,685 | |
|
Total current liabilities |
|
48,291 | |
|
|
|
| |
|
Deferred income taxes |
|
223,959 | |
|
Pension and other post-retirement benefits |
|
27,985 | |
|
Other liabilities |
|
5,671 | |
|
Total noncurrent liabilities |
|
257,615 | |
|
Liabilities of discontinued operations |
|
$ |
305,906 |