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- Consolidated Statements of Shareholders’ Equity
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- Consolidated Statements of Financial Position
- Notes to Consolidated Financial Statements (Note 1 - 8)
- Notes to Consolidated Financial Statements (Note 9 - 16)
- Notes to Consolidated Financial Statements (Note 17 - 24)
- Notes to Consolidated Financial Statements (Note 25 - 32)
- Financial Position
- New Accounting Standards
Content
Notes to Consolidated Financial Statements
9. JOINT VENTURES
Enbridge has joint venture interests in the following entities:
| Ownership | Net Assets |
|||||||
| December 31, | Interest | 2008 | 2007 | |||||
(millions of Canadian dollars) |
||||||||
| Liquids Pipelines | ||||||||
| Olympic Pipeline | 65% | 125.3 | 97.8 | |||||
| Chicap Pipeline (Note 10) | 43.8% | 53.8 | – | |||||
| Other | 30%-50% | 59.5 | 54.8 | |||||
| Gas Pipelines | ||||||||
| Alliance Pipeline US | 50% | 452.9 | 364.3 | |||||
| Vector Pipeline | 60% | 486.3 | 408.4 | |||||
| Enbridge Offshore Pipelines – various joint ventures | 22%-75% | 521.1 | 441.3 | |||||
| Sponsored Investments | ||||||||
| Alliance Pipeline Canada | 50% | 344.4 | 354.8 | |||||
| Other | 33%-50% | 47.7 | 69.2 | |||||
| Gas Distribution and Services | ||||||||
| Aux Sable | 42.7% | 173.6 | 150.6 | |||||
| Other | 42.7%-70% | 44.6 | 49.7 | |||||
| 2,309.2 | 1,990.9 | |||||||
The following summarizes the impact of proportionately consolidating the joint ventures on the consolidated financial statements of Enbridge:
| Year ended December 31, | 2008 | 2007 | 2006 | ||||||
(millions of Canadian dollars) |
|||||||||
| Earnings | |||||||||
| Revenues | 891.0 | 844.5 | 939.4 | ||||||
| Commodity costs | (173.6 | ) | (132.9 | ) | (184.8 | ) | |||
| Operating and administrative | (235.4 | ) | (207.6 | ) | (257.2 | ) | |||
| Depreciation and amortization | (167.7 | ) | (152.9 | ) | (164.8 | ) | |||
| Interest expense | (102.1 | ) | (106.4 | ) | (110.8 | ) | |||
| Other investment income | 12.7 | 6.6 | 7.3 | ||||||
| Proportionate share of earnings | 224.9 | 251.3 | 229.1 | ||||||
| Cash Flows | |||||||||
| Cash provided by operating activities | 407.7 | 312.0 | 318.3 | ||||||
| Cash used in investing activities | (61.2 | ) | (131.9 | ) | (59.5 | ) | |||
| Cash used in financing activities | (350.6 | ) | (183.9 | ) | (258.9 | ) | |||
| Proportionate share of decrease in cash and cash equivalents | (4.1 | ) | (3.8 | ) | (0.1 | ) | |||
| December 31, | 2008 | 2007 | |||||
(millions of Canadian dollars) |
|||||||
| Financial Position | |||||||
| Current assets | 179.2 | 146.0 | |||||
| Property, plant and equipment, net | 3,268.9 | 2,913.1 | |||||
| Deferred amounts and other assets | 335.6 | 277.6 | |||||
| Current liabilities | (176.9 | ) | (139.8 | ) | |||
| Non-recourse long-term debt | (1,271.2 | ) | (1,181.6 | ) | |||
| Other long-term liabilities | (26.4 | ) | (24.4 | ) | |||
| Proportionate share of net assets | 2,309.2 | 1,990.9 | |||||
During the year the Company purchased additional equity interest in Chicap Pipeline, increasing its ownership percentage to 43.8%. As the Company now has joint control over the entity, it has been proportionally consolidated as a joint venture in 2008. The entity was previously classified as a long-term investment (Note 10).
10. LONG-TERM INVESTMENTS
| December 31, | Ownership Interest |
2008 | 2007 | ||||||
(millions of Canadian dollars) |
|||||||||
| Equity Investments | |||||||||
| Liquids Pipelines | |||||||||
| Chicap Pipeline | – | – | 17.2 | ||||||
| Sponsored Investments | |||||||||
| The Partnership | 27.0% | 2,013.2 | 944.8 | ||||||
| Gas Distribution and Services | |||||||||
| Noverco Common Shares | 32.1% | 10.8 | 11.6 | ||||||
| Other | – | 1.5 | |||||||
| International | |||||||||
| Compañía Logística de Hidrocarburos CLH, S.A. | – | – | 626.4 | ||||||
| Corporate | 10%-35% | 9.1 | 16.1 | ||||||
Other Investments |
|||||||||
| Gas Distribution and Services | |||||||||
| Noverco Preferred Shares | 181.4 | 181.4 | |||||||
| Fuel Cell Energy | 25.0 | 25.0 | |||||||
| International | |||||||||
| Oleoducto Central S.A. | 223.3 | 223.3 | |||||||
| Corporate | |||||||||
| Value Creation | 29.0 | 29.0 | |||||||
| 2,491.8 | 2,076.3 | ||||||||
Equity investments include the unamortized excess of the purchase price over the underlying net book value of the investee's assets at the purchase date of $129.8 million at December 31, 2008 (2007 – $581.1 million). The excess is attributable to the value of property, plant and equipment within the investees based on estimated fair values and is amortized over the economic life of the assets. Consolidated retained earnings at December 31, 2008 include undistributed earnings from equity investments of $9.5 million (2007 – $5.0 million).
THE PARTNERSHIP
The Company has a combined 27.0% ownership in EEP, through a 2.0% general partner interest, a 13.9% interest in Class A units, a 3.4% interest in Class B units, a 5.5% interest in Class C units and a 2.2% interest in EEP via a 17.2% investment in EEM, which owns 14.7% of EEP via its 100% interest in EEP's i-units. The Company recorded investment income from EEP of $161.6 million (2007 – $130.4 million; 2006 – $111.5 million) including dilution gains.
Although 82.8% of EEM is widely held, the Company has voting control and; therefore, consolidates EEM, including its investment in EEP of $691.0 million (2007 – $456.4 million). Net of non-controlling interest in EEM, the book value of the Company's investment in EEP is $1,440.9 million (2007 – $566.7 million.)
In the second quarter of 2007, EEP issued Class A and Class C partnership units. As Enbridge did not fully participate in these offerings, dilution gains net of tax and non-controlling interest of $11.8 million resulted and Enbridge's ownership interest in the Partnership decreased from 16.6% to 15.1%.
In March 2008, EEP issued Class A units and, because Enbridge did not fully participate, a dilution gain of $4.5 million resulted and Enbridge's ownership interest in EEP decreased from 15.1% to 14.6%.
In November 2008, the Company subscribed for 16.3 million Class A common units of EEP for US$500.0 million increasing its ownership interest from 14.6% to 27.0%. The units were acquired by the Company's subsidiary EEC which also contributed approximately US$10.0 million to maintain its 2.0% general partner interest.
In 2006, the Company acquired 5.4 million Class C units of EEP for $280.2 million. The Class C units have the same voting rights as Class A and B units and are entitled to quarterly distributions equal to those paid to Class A and B unitholders. Prior to August 15, 2009, distributions are paid in additional Class C units, where Class C units are valued at the market value of Class A units. After August 15, 2009, distributions will be paid in cash and, subject to the approval of existing Class A and Class B unitholders, Class C units will convert into Class A units on a one-to-one basis. If approval of the conversion is not received, the Class C units will receive cash distributions equal to 115% of those paid to Class A unitholders.
NOVERCO
The Company owns a preferred share investment in Noverco of $181.4 million (2007 – $181.4 million), which is entitled to a cumulative preferred dividend based on the average yield of Government of Canada bonds maturing in greater than 10 years plus 4.34%.
The Company also owns an equity investment in the common shares of Noverco of $10.8 million (2007 – $11.6 million). Noverco owns an approximate 9.3% (2007 – 9.5%) reciprocal shareholding in the shares of the Company. As a result, the Company has an indirect pro-rata interest of 3.0% (2007 – 3.1%) in its own shares. Both the equity investment in Noverco and shareholders' equity have been reduced by the reciprocal shareholding of $154.3 million (2007 – $154.3 million). Noverco records dividends paid by the Company as dividend income and the Company eliminates these dividends from the earnings of Noverco. The Company records its pro-rata share of dividends paid by the Company to Noverco as a reduction of dividends paid and an increase in the Company's investment in Noverco. In 2008, the Company recorded equity investment earnings of $4.4 million (2007 – $8.5 million; 2006 – $16.8 million) related to its interest in Noverco.
CORPORATE
The Company reviews the carrying value of its long-term investments on a regular basis as events or changes in circumstances warrant. During 2008, one of the Company's equity investments, N-Solv, a developer of in-situ oil sands extraction technology, failed a key milestone when its planned demonstration pilot plant was terminated. A writedown of $7.2 million was taken to adjust the carrying value of the investment to its fair value of $6.8 million.
CLH
On June 17, 2008, the Company sold its 25% equity interest in CLH (Note 5).
OCENSA
The Company owns an investment in OCENSA, a crude oil export pipeline in Colombia of $223.3 million (US$160.2 million) (2007 – $223.3 million; US$160.2 million), which earns a fixed rate of return.
11. DEFERRED AMOUNTS AND OTHER ASSETS
| December 31, | 2008 | 2007 | |||
(millions of Canadian dollars) |
|||||
| Regulatory deferrals | 510.2 | 428.2 | |||
| Contractual receivables | 158.7 | 152.0 | |||
| Long-term portion of derivative assets (Note 22) | 316.9 | 329.0 | |||
| Pension asset | 78.3 | 72.3 | |||
| Affiliate long-term note receivable (US$130.0 million) (Note 28) | 159.2 | 128.5 | |||
| Other | 95.1 | 72.0 | |||
| 1,318.4 | 1,182.0 |
At December 31, 2008, deferred amounts of $42.4 million (2007 – $42.3 million) were subject to amortization and are presented net of accumulated amortization of $23.5 million (2007 – $23.2 million). Amortization expense in 2008 was $3.0 million (2007 – $3.6 million; 2006 – $10.1 million).
12. INTANGIBLE ASSETS
| December 31, 2008 | Weighted Average Amortization Rate |
Cost | Accumulated Amortization |
Net | ||||
(millions of Canadian dollars) |
||||||||
| Transportation agreements | 4.2% | 268.1 | 50.1 | 218.0 | ||||
| Customer lists | 7.1% | 10.3 | 3.0 | 7.3 | ||||
| 278.4 | 53.1 | 225.3 |
| December 31, 2007 | Weighted Average Amortization Rate |
Cost | Accumulated Amortization |
Net | ||||
(millions of Canadian dollars) |
||||||||
| Transportation agreements | 4.2% | 241.8 | 36.3 | 205.5 | ||||
| Customer lists | 7.1% | 8.3 | 1.8 | 6.5 | ||||
| 250.1 | 38.1 | 212.0 |
Total amortization expense for intangible assets was $10.6 million for the year ended December 31, 2008 (2007 – $10.4 million; 2006 – $11.0 million). In the next five years, the Company expects the following aggregate amortization expense.
(millions of Canadian dollars) |
|||
| 2009 | 9.7 | ||
| 2010 | 9.3 | ||
| 2011 | 8.9 | ||
| 2012 | 8.5 | ||
| 2013 | 8.1 |
13. GOODWILL
| Liquids Pipelines |
Gas Pipelines |
Sponsored Investments |
Gas Distribution and Services |
Corporate | Consolidated | |||||||||
(millions of Canadian dollars) |
||||||||||||||
| Balance at January 1, 2007 | 24.5 | 29.9 | 308.1 | 19.3 | 13.1 | 394.9 | ||||||||
| Foreign exchange and other | (6.2 | ) | (4.6 | ) | – | 3.9 | – | (6.9 | ) | |||||
| Balance at December 31, 2007 | 18.3 | 25.3 | 308.1 | 23.2 | 13.1 | 388.0 | ||||||||
| Goodwill impairment | – | – | – | – | (13.1 | ) | (13.1 | ) | ||||||
| Foreign exchange and other | 4.4 | 6.1 | – | 3.8 | – | 14.3 | ||||||||
| Balance at December 31, 2008 | 22.7 | 31.4 | 308.1 | 27.0 | – | 389.2 |
In the fourth quarter of 2008, the Company concluded that the goodwill of Ontario Wind Power, within the Corporate business segment, was impaired. Accordingly an impairment loss of $13.1 million was recorded.
14. ACCOUNTS PAYABLE AND OTHER
| December 31, | 2008 | 2007 | |||
(millions of Canadian dollars) |
|||||
| Trade payables | 548.0 | 904.7 | |||
| Operating accrued liabilities | 1,013.7 | 860.0 | |||
| Construction payables | 273.5 | 166.9 | |||
| Taxes payable | 272.9 | 53.8 | |||
| Security deposits | 122.8 | 120.4 | |||
| Other | 112.8 | 79.5 | |||
| Contractor holdbacks | 67.8 | 28.5 | |||
| 2,411.5 | 2,213.8 |
15. DEBT
| December 31, | Weighted Average Interest Rate |
Maturity | 2008 | 2007 | ||||||
(millions of Canadian dollars) |
||||||||||
| Liquids Pipelines | ||||||||||
| Debentures | 8.20% | 2024 | 200.0 | 200.0 | ||||||
| Medium-term notes | 5.88% | 2009-2036 | 1,124.6 | 824.6 | ||||||
| Southern Lights project financing (US$850.0 million; 2007 – nil) |
1,358.9 | – | ||||||||
| Commercial paper and credit facility draws, net (2008 – nil; 2007 – US$365.0 million) |
524.7 | 500.6 | ||||||||
| Other 1 | 15.3 | 15.9 | ||||||||
| Gas Distribution and Services | ||||||||||
| Debentures | 11.06% | 2009-2024 | 485.0 | 485.0 | ||||||
| Medium-term notes | 5.77% | 2014-2036 | 1,795.0 | 1,865.0 | ||||||
| Commercial paper and credit facility draws, net | 883.2 | 555.0 | ||||||||
| Corporate | ||||||||||
| U.S. dollar term notes (US$1,372.0 million; 2007 – US$1,354.3 million) |
5.50% | 2014-2022 | 1,680.2 | 1,341.2 | ||||||
| Medium-term notes | 5.69% | 2010-2035 | 1,568.0 | 1,900.0 | ||||||
| Commercial paper and credit facility draws, net (US$690.0 million; 2007 – US$317.0 million) |
2,034.1 | 1,353.5 | ||||||||
| Deferred debt issue costs and other | (105.7 | ) | (161.0 | ) | ||||||
| Total Debt | 11,563.3 | 8,879.8 | ||||||||
| Current Maturities | (533.8 | ) | (605.2 | ) | ||||||
| Short-Term Borrowings | 2.89% | (874.6 | ) | (545.6 | ) | |||||
| Long-Term Debt | 10,154.9 | 7,729.0 | ||||||||
- Primarily capital leases.
Debenture and term note maturities for the years ending December 31, 2009 through 2013 are $533.8 million, $600.7 million, $150.8 million, $250.9 million and $200.9 million, respectively. The Company's debentures and term notes bear interest at fixed rates and the interest obligations for the years ending December 31, 2009 through 2013 are $438.7 million, $379.8 million, $342.4 million, $333.9 million and $318.0 million, respectively.
INTEREST EXPENSE
| Year ended December 31, | 2008 | 2007 | 2006 | |||||
(millions of Canadian dollars) |
||||||||
| Debentures and term notes | 403.9 | 417.7 | 395.3 | |||||
| Southern Lights project financing | 27.6 | – | – | |||||
| Non-recourse long-term debt | 100.0 | 102.0 | 104.9 | |||||
| Commercial paper and credit facility draws | 100.3 | 91.5 | 87.5 | |||||
| Capitalized | (81.0 | ) | (61.2 | ) | (20.6 | ) | ||
| 550.8 | 550.0 | 567.1 |
In 2008, total interest paid was $606.8 million (2007 – $607.3 million; 2006 – $563.3 million).
CREDIT FACILITIES
| December 31, 2008 | Expiry Dates | Total Facilities |
Credit Facility Draws |
Commercial Paper Backstop |
Available | ||||||
(millions of Canadian dollars) |
|||||||||||
| Liquids Pipelines | 2010-2011 | 1,300.0 | 525.5 | – | 774.5 | ||||||
| Gas Distribution and Services | 2009-2010 | 1,014.7 | 11.1 | 874.5 | 129.1 | ||||||
| Corporate 1 | 2010-2013 | 4,185.8 | 962.3 | 1,075.1 | 2,148.4 | ||||||
| 6,500.5 | 1,498.9 | 1,949.6 | 3,052.0 | ||||||||
| Southern Lights project financing 2 | 2014 | 2,028.1 | 1,358.9 | – | 669.2 | ||||||
| Credit facilities | 8,528.6 | 2,857.8 | 1,949.6 | 3,721.2 | |||||||
- Total facilities exclusive of $49.0 million commitment of Lehman Brothers Bank given the bankruptcy filing of its parent in September 2008.
- Total facilities inclusive of $140.2 million which is available if certain conditions related to the project are met.
Credit facilities carry a weighted average standby fee of 0.252% per annum on the unused portion and draws bear interest at market rates. Certain credit facilities serve as a backstop to the commercial paper programs and the Company has the option to extend the facilities, which are currently set to mature from 2009 to 2014. See Note 31.
Commercial paper and credit facility draws, net of short-term borrowings, of $2,567.4 million (2007 – $1,863.5 million) are supported by the availability of long-term committed credit facilities and therefore has been classified as long-term debt.
16. NON-RECOURSE DEBT
| December 31, | Weighted Average Interest Rate |
Maturity | 2008 | 2007 | |||||||
(millions of Canadian dollars) |
|||||||||||
| Gas Pipelines | |||||||||||
| Long-term credit facilities (US$1.0 million; 2007 – US$1.9 million) |
2012 | 1.2 | 1.9 | ||||||||
| Senior notes (US$413.8 million; 2007 – US$441.8 million) |
6.76% | 2015-2025 | 506.8 | 436.5 | |||||||
| Capital lease obligations | 10.62% | 2013-2020 | 47.4 | 39.9 | |||||||
| Sponsored Investments | |||||||||||
| Credit facilities | 2011-2012 | 174.1 | 141.5 | ||||||||
| Medium term notes | 4.69% | 2009-2014 | 190.0 | 190.0 | |||||||
| Senior notes | 6.86% | 2015-2025 | 679.0 | 707.7 | |||||||
| Fair value increment on senior notes acquired | 38.2 | 43.3 | |||||||||
| Gas Distribution and Services | |||||||||||
| Term debt (US$21.6 million; 2007 – US$15.7 million) |
4.10% | 2009-2010 | 26.6 | 15.5 | |||||||
| Capital lease obligations | 12.00% | 2016-2021 | 5.7 | 4.9 | |||||||
| Deferred debt issue costs | (10.3 | ) | (11.7 | ) | |||||||
| Total Non-Recourse Debt | 1,658.7 | 1,569.5 | |||||||||
| Current Maturities | (184.7 | ) | (61.1 | ) | |||||||
| Non-Recourse Long-Term Debt | 1,474.0 | 1,508.4 | |||||||||
Long-term debt maturities on non-recourse borrowings for the years ending December 31, 2009 through 2013 are $184.7 million, $92.4 million, $76.4 million, $81.9 million and $144.2 million, respectively. The medium term notes and senior notes bear interest at fixed rates.
Interest obligations on non-recourse borrowings for the years ending December 31, 2009 through 2013 are $93.8 million, $85.0 million, $79.4 million, $74.0 million and $68.1 million, respectively.
Certain assets of Alliance Pipeline Canada, with a carrying value of $1.1 billion, are pledged as collateral to Alliance Pipeline Canada's lenders and to the lenders to Alliance Pipeline US. As well, certain assets of Alliance Pipeline US, with a carrying value of $1.0 billion, are pledged as collateral to Alliance Pipeline US's lenders and to the lenders to Alliance Pipeline Canada.
Non-recourse debt has a fair value of $1,671.7 million (2007 – $1,634.8 million).