01—Abstract
Summary
Summary of the 40-F filed March 28, 2003. Cited figures are marked; the original filing is the authoritative source.
Enbridge Inc. (NYSE/TSX: ENB) reported 2002 Earnings Applicable to Common Shareholders of C$576.5 milliona, or C$3.60 per share, up from C$458.5 million (C$2.91) in 2001.
However, that headline figure is flattered by a one-time after-tax gain of C$240.0 millionb on the sale of its Energy Services business. Earnings from continuing operations were C$334.2 million (C$2.09 per share), down from C$413.2 million (C$2.63). Management's adjusted earnings, which strip out one-time items and weather effects, rose to C$428.4 million (C$2.67 per share) from C$387.8 million (C$2.47), a more representative view of underlying growth.
All figures are in Canadian dollars and the filing is a Form 40-F, prepared under Canadian GAAP with a U.S. GAAP reconciliation in Note 19. The year was largely about portfolio reshaping and balance-sheet repair. Enbridge sold its retail Energy Services business for C$1 billionc and sold the U.S. assets of Enbridge Midcoast Energy to Enbridge Energy Partners for US$820 million, which generated an after-tax loss of C$82.2 million.
The Midcoast sale was paired with the IPO of Enbridge Energy Management, and Enbridge's effective interest in the Partnership rose to 14.1%. The company also reduced its debt-to-equity ratio to 64.4% from 72.9%. Growth investments included a 25% stake in Spain's CLH for about C$431 milliond, a step-up in Alliance Pipeline to 37.1%, and continued Terrace expansion work.
Enbridge Gas earnings fell on warmer weather, and the company faces an informal SEC inquiry into the Midcoast transaction, which management says will not be material. For investors, the key forward items are growth in liquids pipelines tied to oil sands volumes (Terrace Phase III adding roughly 140,000 bpd in 2003), the regulatory outcome of Enbridge Gas's 2003 rate case, and the quarterly dividend, which was raised to C$0.415 from C$0.38 in January 2003. The SEC inquiry and the Venezuelan Jose Terminal force majeure situation are the main risks flagged in the filing.
02—Key points
Key Highlights
- Reported EPS rose to C$3.60 from C$2.91, but the increase is driven by a C$240.0M after-tax gain on the Energy Services sale; continuing-operations EPS fell to C$2.09 from C$2.63.
- Management's adjusted earnings (excluding one-time items and weather) grew to C$428.4M (C$2.67/share) from C$387.8M (C$2.47/share), about 10% higher.
- Sold the Energy Services business for C$1 billion in May 2002 and the U.S. Midcoast assets to EEP for US$820M in October 2002, cutting debt-to-equity to 64.4% from 72.9%.
- Expanded international and gas transmission footprint: acquired 25% of Spain's CLH (about C$431M) and raised its Alliance Pipeline stake to 37.1% for about C$300M.
- Enbridge Gas Distribution earnings fell C$70.8M on warmer weather; a 2003 rate application seeks a C$101.7M revenue increase, with a decision expected in Q3 2003.
- Liquids pipeline growth is underway, with Terrace Phase II (40,000 bpd) completed and Phase III (140,000 bpd) due in 2003 on oil sands volume growth.
- Quarterly dividend raised to C$0.415 from C$0.38 (announced January 29, 2003), and 2002 dividends of C$1.52 per share were paid.
03—Questions
Frequently Asked Questions
Why did reported earnings per share rise while continuing-operations earnings fell?
Reported EPS of C$3.60 includes C$1.51 per share from discontinued operations, mainly the C$240.0M after-tax gain on selling the Energy Services business. Continuing-operations EPS fell to C$2.09 from C$2.63, reflecting the C$82.2M after-tax loss on the Midcoast sale, warmer weather hurting Enbridge Gas, and lower 2001 tax-rate benefits. Management's adjusted EPS of C$2.67 is the better guide to underlying performance.
What is the status of the SEC inquiry into the Midcoast sale?
In November 2002 the SEC staff opened an informal inquiry into the US$820M sale of Midcoast assets to EEP and EEM's IPO, focused on the financial forecast and asset price. The SEC has not alleged wrongdoing or indicated it will seek a formal order. Enbridge says it is cooperating fully and believes the inquiry will not have a material adverse effect on its financial condition.
What drives growth in the liquids pipeline business going forward?
Growing oil sands production in Alberta is the main driver. The Athabasca System is expanding with the MacKay River and Christina Lake laterals, and Terrace Phase III (about 140,000 bpd) is expected in service in 2003. Under the Incentive Tolling Settlement, the Enbridge System's earnings are largely insulated from volume swings, so growth comes mainly through expansions and cost savings shared with shippers.
What are the main risks to Enbridge's results flagged in the filing?
Key risks include weather-driven volume swings at Enbridge Gas, the outcome of the OEB rate case and its Alliance-related decision (Enbridge has appealed), the Jose Terminal in Venezuela being under force majeure since December 2002 amid political uncertainty, potential Kyoto Protocol impacts that are not yet quantifiable, and a class action (CAPLA) over the 30-metre pipeline control zone. Management believes none is material at this time.
04—Continue