01—Abstract
Summary
Summary of the 40-F filed April 26, 2004. Cited figures are marked; the original filing is the authoritative source.
Enbridge Inc. (ENB) filed its Form 40-F annual report for fiscal 2003, covering results reported in Canadian dollars under Canadian GAAP.
Consolidated earnings applicable to common shareholders rose to C$667.2 milliona ($4.03 per share) in 2003, up from C$576.5 million ($3.60 per share) in 2002. Continuing-operations earnings improved sharply from C$334.2 million in 2002, though the comparison is distorted by the 2002 Energy Services gain and 2002 Midcoast writedown. The 2003 result includes a C$169.1 million after-tax gain on the sale of assets to Enbridge Income Fund, and colder-than-normal weather added roughly C$46.1 million after tax at Enbridge Gas Distribution.
Total revenue rose to C$4,855.3 millionb from C$4,547.5 million, and the common dividend increased to C$1.66 per share. The balance sheet strengthened during the year. Total assets grew to C$13.8 billion, and the debt-to-equity ratio (including short-term borrowings, excluding joint-venture non-recourse debt) fell to 61.4% from 64.4%, largely due to proceeds from the Enbridge Income Fund transaction.
Growth came from increased stakes in the Alliance and Vector gas pipelines, the Cushing-to-Chicago crude pipeline (Spearhead reversal expected in 2004), and the Hardisty cavern storage facility. Investors should note that the filing also discloses an informal SEC inquiry into the 2002 Midcoast sale and EEP unit offering, which management believes will not be material, and that the Venezuelan Jose Terminal earnings were no longer recognized from February 2003.
Key forward-looking items include the renewal of the Incentive Tolling Settlement on the Enbridge Liquids system expiring December 31, 2004, the OEB decision framework for Enbridge Gas Distribution, the pending Shell asset acquisition by EEP (about US$115 millionc), and the final US$65 million CCPS payment due by year-end 2004. Management expects continued volume growth from Alberta oil sands.
02—Key points
Key Highlights
- Net earnings applicable to common shareholders of C$667.2 million ($4.03/share) in 2003, up about 16% from C$576.5 million ($3.60/share) in 2002.
- Earnings were boosted by a C$169.1 million after-tax gain on the sale of Alliance Canada and Enbridge Pipelines (Saskatchewan) to Enbridge Income Fund, and by C$46.1 million of after-tax benefit from colder-than-normal weather.
- Total revenues increased to C$4,855.3 million from C$4,547.5 million, driven mainly by Gas Distribution and Services.
- Debt-to-equity ratio improved to 61.4% from 64.4%, reflecting proceeds from the Enbridge Income Fund sale and reduced leverage.
- Common dividend raised to C$1.66 per share in 2003 from C$1.52, with the quarterly rate at C$0.415; the policy targets 50-60% of normalized earnings.
- Growth investments included increased interests in Alliance (to 50%), Vector (to 60%), Aux Sable (to 42.7%), and the Cushing-to-Chicago pipeline (90%), with Spearhead reversal targeted for 2004.
- Risks disclosed include an informal SEC inquiry into the 2002 Midcoast sale and EEM IPO, the expiring Incentive Tolling Settlement at end-2004, and the loss of Jose Terminal earnings recognition from February 2003.
03—Questions
Frequently Asked Questions
How did Enbridge's earnings perform in 2003 compared with 2002?
Earnings applicable to common shareholders were C$667.2 million, or C$4.03 per share, versus C$576.5 million, or C$3.60 per share, in 2002. Continuing operations alone rose to C$4.03 per share from C$2.09, but 2002 included a large discontinued-operations gain, so the comparison should be read carefully. The 2003 figure also includes a one-time C$169.1 million after-tax gain on the Enbridge Income Fund transaction.
What drove the increase in revenue and earnings?
Gas Distribution and Services contributed most of the revenue, at C$3,785.4 million of the C$4,855.3 million total. Colder weather increased distribution volumes at Enbridge Gas Distribution. Liquids Pipelines benefited from Terrace Phase III and the Athabasca cavern storage, while Gas Pipelines earnings rose on higher stakes in Alliance and Vector.
Are there any significant legal or regulatory risks disclosed?
Yes. The SEC staff opened an informal inquiry in November 2002 into the US$820 million Midcoast sale and the EEM IPO, focusing on the financial forecast and price; Enbridge says it is cooperating and does not expect a material adverse effect. Other items include the CAPLA class action over pipeline crossing restrictions (no provision recorded), the GDAR billing rules under appeal, and the Garland late-payment penalty case, where the Supreme Court of Canada requires partial repayment but management expects no financial impact.
What are the key upcoming catalysts and obligations?
The Incentive Tolling Settlement for the Enbridge System expires December 31, 2004, and renewal negotiations were expected to conclude in 2004. The EEP acquisition of Shell assets (about US$115 million) was expected to close in Q1 2004. The final US$65 million payment for the Cushing-to-Chicago pipeline is due by December 31, 2004, and reversal of the line (Spearhead) is expected in 2004. Capital spending plans include about C$80 million for liquids pipelines and about C$287 million for gas distribution in 2004.
How is the company's debt and contractual obligation profile structured?
Consolidated long-term debt was C$5,243.1 million at year-end, with current maturities and short-term debt of C$674.9 million. Contractual long-term debt payments total C$4,693.1 million, of which C$450.0 million is due within one year and C$2,685.2 million after five years. Non-recourse joint-venture debt of C$725.4 million is serviced from project cash flows and is not a direct obligation of Enbridge.
04—Continue