CALGARY, ALBERTA--January 29, 2003 - Enbridge Inc. today
announced earnings applicable to common shareholders (earnings)
of $576.5 million for the year ended December 31, 2002, or $3.60
per share, compared with $458.5 million, or $2.91 per share, in
2001. Liquids pipelines and international operations contributed
to the increase, along with higher equity earnings from Enbridge
Energy Partners, L.P. (the Partnership). These increases were
offset in part by lower gas distribution earnings due to warmer
weather in 2002 than in 2001. Earnings for 2002 also include an
after-tax gain of $240.0 million from the sale of the Energy
Services business and an after-tax loss of $82.2 million on
assets sold to the Partnership. Prior year's earnings included a
benefit of $58.5 million related to income tax rate reductions.
After adjusting for significant one-time gains and losses and the
impact of weather, earnings for 2002 are $428.4 million, compared
with $387.8 million for the same period last year.(1)
Fourth quarter earnings for 2002 are $34.0 million, or $0.18 per
share, compared with $39.8 million or $0.25 per share for the
fourth quarter of 2001. The quarter includes a loss of $5.9
million on the sale of the United States assets of Enbridge
Midcoast Energy, due to closing adjustments. Earnings for the
fourth quarter of 2002, after adjustments for one-time items, are
$39.8 million, $3.8 million higher than the same period in
2001.(1)
Consistent with this profitability and the Company's positive
outlook, the Board of Directors announced an increase in the
quarterly dividend from $0.38 per common share to $0.415 per
common share. The Board of Directors also declared a quarterly
dividend of $0.34375 per Series A Preferred Share. Both dividends
are payable on March 1, 2003 to shareholders of record on
February 14, 2003.
Commenting on the financial results and common dividend increase,
Patrick D. Daniel, President & Chief Executive Officer, said,
"Enbridge has had another successful year. We once again
delivered strong earnings growth, accomplished a number of key
strategic objectives and are on track to achieve our targeted
debt reduction. The significant dividend increase announced today
reflects confidence in our ability to continue to deliver above
average earnings growth."
---------------------------------------------------------------------(1) Adjusted Earnings Three months ended Year ended December 31, December 31, ----------------- -----------------(millions of dollars,except per share amounts) 2002 2001 2002 2001---------------------------------------------------------------------Earnings applicable to common shareholders 34.0 39.8 576.5 458.5Gain on sale of Energy Services business - - (240.0) -Loss on sale of Enbridge Midcoast Energy assets 5.9 - 82.2 -Gain on sale of securities - - (17.8) -Dilution gains - (7.8) (6.1) (15.2)Weather (0.1) (0.8) 29.3 (5.0)Tax rate reductions - - (1.4) (58.5)Other - 4.8 5.7 8.0 ------ ------ ------ ------ Adjusted earnings 39.8 36.0 428.4 387.8 ------ ------ ------ ------ ------ ------ ------ ------ Adjusted earnings per share $0.25 $0.23 $2.67 $2.47 ------ ------ ------ ------ ------ ------ ------ ------ Adjusted diluted earnings per share $0.25 $0.23 $2.64 $2.44 ------ ------ ------ ------ ------ ------ ------ ------
Mr. Daniel noted further, "Key operating accomplishments in 2002
included our second international investment, a 25% interest in
CLH, Spain's largest refined products transportation and storage
business. In May, we sold our Energy Services business for cash
proceeds of $1 billion. We closed the sale of the United States
assets of Midcoast to the Partnership for consideration of US$820
million. Lastly, the Company increased its ownership interest in
Alliance by almost 16% in the fourth quarter."
Mr. Daniel concluded by saying, "Our outlook for the first
quarter includes the positive effect of the colder than normal
weather in the gas distribution franchise area. This will
increase 2003 first quarter earnings and, with the continued cold
weather, earnings in the second quarter should increase as well."
Mr. Daniel also announced today, that Mr. Derek P. Truswell,
Group Vice President and Chief Financial Officer, has requested
early retirement, effective April 1, 2003. Mr. Truswell has
provided dedicated and outstanding service to the Company and its
shareholders over a 34 year period. His contributions have been
to the highest standard in every respect and the Company wishes
him the very best in retirement. Effective April 1, 2003, Mr.
Stephen J. Wuori, currently Group Vice President, Planning &
Development, will be appointed Group Vice President and Chief
Financial Officer.
FINANCIAL RESULTS
Earnings include results from continuing and discontinued
operations. Earnings from continuing operations are discussed in
the following analysis of financial results. In the fourth
quarter, the Company changed its reporting segments to conform
with changes in senior management responsibilities. The Gas
Services business and the investment in Aux Sable have been moved
to Energy Distribution.
Earnings from continuing operations are $334.2 million, or $2.09
per share, for the year ended December 31, 2002, compared with
$413.2 million, or $2.63 per share, in 2001. Growth in earnings
from the liquids pipelines and international operations, as well
as higher earnings from the Partnership, are more than offset by
the loss on sale of the United States assets of Enbridge Midcoast
Energy, the impact of warmer weather and the positive impact of
income tax rate reductions on earnings in 2001.
Earnings from continuing operations for the three months ended
December 31, 2002 are $34.0 million, or $0.20 per share, compared
with $29.7 million, or $0.19 per share, for the same period last
year. The fourth quarter of 2002 includes growth in earnings from
the Partnership, the Athabasca System and International, the
positive effect of the 2002 rate settlement for Enbridge Gas
Distribution, the higher investment in Alliance and lower
corporate costs. These increases are offset in part by a
decreased contribution from the Enbridge System and lower
Enbridge Midcoast Energy earnings resulting from operating and
income tax adjustments prior to the close of the sale in October
2002. The fourth quarter of 2001 included a $7.8 million dilution
gain on a unit issuance by the Partnership.
Energy Transportation North
Earnings are $236.2 million for the year ended December 31, 2002,
an increase of $31.1 million from 2001. The higher earnings are
due to expansions of the Enbridge and Athabasca Systems. Higher
earnings from the Enbridge System are due to the request from
shippers in mid-2001 to construct Phase III of the Terrace
expansion which results in incremental earnings and to Phase II
of the Terrace expansion which was placed into service in early
2002. These increases are partially offset by an adjustment to
the power allowance credit due to shippers as a result of Terrace
operating at less than capacity. The Athabasca System generated
higher earnings due to the construction of new laterals and
tankage which commenced operations in the second half of 2002.
Results for the three months ended December 31, 2002 are $53.8
million, compared with $59.1 million for the same period last
year. The construction of new facilities on the Athabasca System
and the additional Alliance ownership interest contributed to
earnings growth. Earnings from the Enbridge System are lower due
to the adjustment related to Terrace.
Energy Transportation South
Results for the year ended December 31, 2002 reflect a loss of
$41.4 million, compared with earnings of $46.4 million for 2001.
The 2002 results include an after-tax loss of $82.2 million on
the sale of the Enbridge Midcoast Energy assets. Excluding this
loss, earnings for 2002 are $5.6 million lower than 2001.
Increased earnings from the Partnership, resulting from the
acquisitions of the North Dakota and East Texas systems and the
Enbridge Midcoast Energy assets, are more than offset by lower
earnings from Enbridge Midcoast Energy prior to the sale and
higher dilution gains in 2001. Enbridge Midcoast Energy earnings
reflect improved operating performance from the assets, more than
offset by adjustments related to 2001 that were recorded in 2002
and working capital and other closing adjustments identified
prior to the disposition. The prior year included dilution gains
of $15.2 million, compared with $6.1 million in 2002, reflecting
two unit issuances by the Partnership in 2001, compared with one
in 2002.
In the fourth quarter of 2002, Energy Transportation South
incurred a loss of $2.8 million in comparison with earnings of
$18.6 million for the same period last year. Earnings from the
Partnership increased due to the acquisitions noted above. In
October 2002, the sale of the Enbridge Midcoast Energy assets to
the Partnership was completed and working capital and other
closing adjustments increased the loss by $5.9 million. Operating
results from Enbridge Midcoast Energy reflect a loss from
operations of $3.9 million during the quarter in comparison to
earnings of $4.7 million in the fourth quarter of 2001. The loss
reflects earnings for the period prior to sale which were more
than offset by operating and income tax adjustments identified
prior to the disposition. The prior period also included a $7.8
million dilution gain.
Energy Distribution
Earnings are $113.8 million for the year ended December 31, 2002,
compared with $181.8 million in 2001. Lower earnings in 2002 are
attributable to the warmer weather experienced in the Enbridge
Gas Distribution franchise area, and a lower contribution from
Enbridge Commercial Services, partially offset by improved
earnings from Noverco. Earnings for 2001 included the positive
impact of income tax rate reductions in 2001 of $45.0 million.
Had Enbridge Gas Distribution experienced normal weather in its
franchise area, earnings would increase by $29.3 million. The
decrease was partially offset by operating cost savings required
to mitigate the impact of warmer weather. Degree-days, which are
used as a measure of coldness, were 11% fewer than 2001 and 9%
less than the forecast based on normal weather.
Earnings from Noverco increased by $4.3 million compared with
2001. The increase is due to lower financing costs and higher
incentive earnings. The contribution from Enbridge Commercial
Services is $10.7 million, a decrease of $3.6 million compared
with last year. The decrease is due to the positive impact of tax
rate reductions in 2001 and the transfer of the remaining ECS
operations into Enbridge Gas in the fourth quarter.
The loss for the fourth quarter of 2002 is $22.7 million, an
improvement of $12.8 million from the same period in 2001. The
increase reflects the positive impact of the 2002 rate settlement
received during the quarter and operating cost reductions. In
2001, the rates were settled in the third quarter.
International
Earnings increased by $32.4 million to $68.0 million in 2002. The
acquisition of CLH in the first quarter represents the growth in
International. Earnings from other operations approximate last
year. The operating results from CLH are better than expected due
to higher storage revenues, partially offset by one-time costs
recorded in December to reduce staff levels. The staff reductions
are expected to lower operating costs going forward.
Earnings for the three months ended December 31, 2002 of $17.6
million are $7.1 million higher than the fourth quarter of 2001.
This increase is primarily due to the acquisition of CLH.
Corporate
Corporate costs amount to $42.4 million in 2002, a decrease of
$13.3 million from 2001. In 2002, Corporate includes an after-tax
gain on the sale of securities of $17.8 million, realized in the
first quarter, and lower financing costs. Preferred security
distributions increased in 2002 due to the new issue in February
2002. In addition, corporate activities contribute less in 2002
than in 2001 and business development activities are higher in
2002.
Corporate costs for the three months ended December 31, 2002 are
$11.9 million, compared with $23.0 million for the three months
ended December 31, 2001. During the quarter, the Company incurred
lower financing costs, partially offset by increased business
development costs and higher preferred security distributions.
Discontinued Operations
Earnings from discontinued operations for the year ended December
31, 2002 are $242.3 million, compared with $45.3 million for
2001. The 2002 results include a gain on sale of the Energy
Services business of $240.0 million. The sale was completed in
May 2002. Earnings in 2001 included a full year's operations and
$14.3 million related to the positive effect of income tax rate
reductions.
Enbridge will hold a conference call at 2:15 p.m. Mountain time
(4:15 p.m. Eastern time) today to discuss the annual results. The
call will be broadcast live on the Internet at
www.enbridge.com/investor. A replay will be available shortly
thereafter.
The Annual and Special Meeting of Shareholders will be held at
1:30 p.m. Mountain time on Wednesday, May 7, 2003, in the Crystal
Ballroom at the Fairmont Palliser Hotel in Calgary, Alberta.
Enbridge Inc. is a leader in energy transportation and
distribution in North America and internationally. As a
transporter of energy, Enbridge operates, in Canada and the U.S.,
the world's longest crude oil and liquids pipeline system. The
Company also has international operations and a growing
involvement in the natural gas transmission and midstream
businesses. As a distributor of energy, Enbridge owns and
operates Canada's largest natural gas distribution company, which
provides distribution services in the provinces of Ontario and
Quebec and in New York State; and is developing a gas
distribution system for the province of New Brunswick. The
Company employs approximately 4,000 people, primarily in Canada,
the U.S. and South America. Enbridge common shares trade on the
Toronto Stock Exchange in Canada and on the New York Stock
Exchange in the U.S. under the symbol ENB. Information about
Enbridge is available on the Company's web site at
When used in this news release, the words "anticipate", "expect",
"project", "believe", "estimate", "forecast" and similar
expressions are intended to identify forward-looking statements,
which include statements relating to pending and proposed
projects. Such statements are subject to certain risks,
uncertainties and assumptions pertaining to operating
performance, regulatory parameters, weather and economic
conditions and, in the case of pending and proposed projects,
risks relating to design and construction, regulatory processes,
obtaining financing and performance of other parties, including
partners, contractors and suppliers.
ENBRIDGE INC. HIGHLIGHTS(1) -------------------------------------------------------------------- Three months ended Year ended(unaudited; millions of December 31, December 31, Canadian dollars, ------------------- --------------- except per share amounts) 2002 2001 2002 2001--------------------------------------------------------------------FINANCIAL Earnings/(Loss) Applicable to Common Shareholders Energy Transportation North 53.8 59.1 236.2 205.1 Energy Transportation South (2.8) 18.6 (41.4) 46.4 Energy Distribution (22.7) (35.5) 113.8 181.8 International 17.6 10.5 68.0 35.6 Corporate (11.9) (23.0) (42.4) (55.7)-------------------------------------------------------------------- Continuing operations 34.0 29.7 334.2 413.2 Discontinued operations - 10.1 242.3 45.3-------------------------------------------------------------------- 34.0 39.8 576.5 458.5---------------------------------------------------------------------------------------------------------------------------------------- Cash Provided By/(Used In) Operating Activities Earnings plus charges/(credits) not affecting cash 37.5 165.4 732.7 735.7 Changes in operating assets and liabilities (41.6) (271.9) 151.6 (323.1) Cash provided by operating activities of discontinued operations - (10.7) 26.3 1.9-------------------------------------------------------------------- (4.1) (117.2) 910.6 414.5---------------------------------------------------------------------------------------------------------------------------------------- Common Share Dividends 64.6 57.0 251.1 227.5 Per Common Share Amounts Earnings from continuing operations 0.20 0.19 2.09 2.63 Earnings from discontinued operations (0.02) 0.06 1.51 0.28-------------------------------------------------------------------- 0.18 0.25 3.60 2.91---------------------------------------------------------------------------------------------------------------------------------------- Dividends 0.38 0.35 1.52 1.40 --------------------------------- --------------------------------- Weighted Average Common Shares Outstanding (millions) 160.3 157.3 -------------- --------------OPERATING Energy Transportation(2) Deliveries (thousands of barrels per day) 2,152 2,137 2,088 2,109 Barrel miles (billions) 183 177 705 695 Average haul (miles) 923 902 925 903 Energy Distribution(3) Volumes (billion cubic feet) 47 45 410 427 Number of active customers (thousands) 1,623 1,571 1,623 1,571 Degree day deficiency(4) Actual 4 34 3,362 3,766 Forecast based on normal weather 69 72 3,700 3,816--------------------------------------------------------------------1. Highlights of Energy Distribution reflect the results of Enbridge Gas Distribution (formerly Enbridge Consumers Gas) and other gas distribution operations for the three months and the year ended September 30, 2002 and 2001. 2. Energy Transportation operating highlights include the statistics of the Lakehead System and wholly-owned liquid pipeline operations.3. Energy Distribution volumes and the number of active customers are derived from the aggregate system supply and direct purchase gas supply arrangements. 4. Degree-day deficiency is a measure of coldness. It is calculated by accumulating for each day in the period the total number of degrees easch day by which the daily mean temperature falls below 18 degrees Celsius. The figures given are those accumulated in the Toronto area. ENBRIDGE INC. CONSOLIDATED STATEMENTS OF EARNINGS -------------------------------------------------------------------- Three months ended Year ended(unaudited; millions of December 31, December 31, Canadian dollars, ------------------ ---------------- except per share amounts) 2002 2001 2002 2001-------------------------------------------------------------------- Revenues Gas sales 360.0 376.5 2,987.7 2,675.3 Transportation 247.1 268.3 1,296.6 1,177.6 Energy services 50.4 66.7 263.2 228.0-------------------------------------------------------------------- 657.5 711.5 4,547.5 4,080.9--------------------------------------------------------------------Expenses Gas costs 292.1 306.0 2,578.0 2,202.8 Operating and administrative 170.9 213.2 834.1 739.1 Depreciation 100.5 102.8 403.9 392.5 Loss on sale of Enbridge Midcoast Energy assets 5.3 - 122.7 --------------------------------------------------------------------- 568.8 622.0 3,938.7 3,334.4-------------------------------------------------------------------- Operating Income 88.7 89.5 608.8 746.5Investment and Other Income 67.9 47.7 283.1 194.9Interest Expense (101.1) (122.6) (422.0) (437.1)-------------------------------------------------------------------- 55.5 14.6 469.9 504.3Income Taxes (12.6) 21.1 (102.1) (66.7)--------------------------------------------------------------------Earnings from Continuing Operations 42.9 35.7 367.8 437.6Earnings from Discontinued Operations - 10.1 242.3 45.3--------------------------------------------------------------------Earnings 42.9 45.8 610.1 482.9Preferred Security Distributions (7.1) (4.3) (26.7) (17.5)Preferred Share Dividends (1.8) (1.7) (6.9) (6.9)--------------------------------------------------------------------Earnings Applicable to Common Shareholders 34.0 39.8 576.5 458.5---------------------------------------------------------------------------------------------------------------------------------------- Earnings Applicable to Common Shareholders Continuing Operations 34.0 29.7 334.2 413.2 Discontinued Operations - 10.1 242.3 45.3-------------------------------------------------------------------- 34.0 39.8 576.5 458.5---------------------------------------------------------------------------------------------------------------------------------------- Earnings/(Loss) Per Common Share Continuing Operations 0.20 0.19 2.09 2.63 Discontinued Operations (0.02) 0.06 1.51 0.28-------------------------------------------------------------------- 0.18 0.25 3.60 2.91---------------------------------------------------------------------------------------------------------------------------------------- Diluted Earnings/(Loss) Per Common Share Continuing Operations 0.19 0.19 2.06 2.60 Discontinued Operations (0.01) 0.06 1.50 0.28-------------------------------------------------------------------- 0.18 0.25 3.56 2.88---------------------------------------------------------------------------------------------------------------------------------------- See accompanying notes to the unaudited consolidated financial statements. ENBRIDGE INC. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (unaudited; millions of Canadian dollars) --------------------------------------------------------------------Year ended December 31, 2002 2001-------------------------------------------------------------------- Retained Earnings at Beginning of Year 812.3 581.3Earnings Applicable to Common Shareholders 576.5 458.5Effect of Change in Accounting for Stock-Based Compensation (5.4) -Preferred Securities Issue Costs (4.2) -Common Share Dividends (251.1) (227.5)-------------------------------------------------------------------- Retained Earnings at End of Year 1,128.1 812.3----------------------------------------------------------------------------------------------------------------------------------------See accompanying notes to the unaudited consolidated financial statements. ENBRIDGE INC. CONSOLIDATED STATEMENTS OF CASH FLOWS -------------------------------------------------------------------- Three months ended Year ended December 31, December 31,(unaudited; millions of ------------------ --------------- Canadian dollars) 2002 2001 2002 2001--------------------------------------------------------------------Cash Provided By/(Used In) Operating Activities Earnings from continuing operations 42.9 35.7 367.8 437.6 Charges/(credits) not affecting cash Depreciation 100.5 102.8 403.9 392.5 Equity earnings less than/(in excess) of cash distributions (22.5) 0.8 (44.6) 1.2 Gain on reduction of ownership interest - (11.9) (10.0) (23.4) Gain on sale of securities - - (21.4) - Loss on sale of assets 5.3 - 122.7 - Future income taxes (115.4) 33.4 (64.7) (44.6) Other 26.7 4.6 (21.0) (27.6) Changes in operating assets and liabilities (41.6) (271.9) 151.6 (323.1) Cash provided by operating activities of discontinued operations - (10.7) 26.3 1.9-------------------------------------------------------------------- (4.1) (117.2) 910.6 414.5--------------------------------------------------------------------Investing Activities Acquisitions - (37.3) (289.3) (599.1) Long-term investments (819.2) (5.6) (1,282.7) (41.8) Additions to property, plant and equipment (187.9) (294.3) (729.9) (683.3) Sale of Energy Services business - - 993.3 - Sale of Enbridge Midcoast Energy assets 529.3 - 529.3 - Sale of other assets 64.8 - 73.8 - Proceeds from sale of securities - - 110.5 - Repayments by/(loans to) affiliate 135.8 (280.6) 358.1 (280.6) Changes in construction payable (2.6) 12.8 (14.8) (14.0) Other (6.9) (0.7) (17.4) (2.9)-------------------------------------------------------------------- (286.7) (605.7) (269.1) (1,621.7)--------------------------------------------------------------------Financing Activities Net change in short-term borrowings and short-term debt (145.3) 837.3 (1,163.5) 1,521.4 Long-term debt issued - 400.0 247.4 905.6 Long-term debt repayments (125.0) (430.8) (382.7) (979.6) Non-controlling interests 3.9 (1.2) 0.2 (4.1) Preferred securities issued - - 193.5 - Common shares issued 3.5 3.6 293.1 23.3 Enbridge Energy Management shares issued 421.9 - 421.9 - Preferred security distributions (7.1) (4.3) (26.7) (17.5) Preferred share dividends (1.8) (1.7) (6.9) (6.9) Common share dividends (64.6) (57.0) (251.1) (227.5)-------------------------------------------------------------------- 85.5 745.9 (674.8) 1,214.7--------------------------------------------------------------------Increase/(decrease) in Cash (205.3) 23.0 (33.3) 7.5Cash at Beginning of Period 246.0 51.0 74.0 66.5--------------------------------------------------------------------Cash at End of Period 40.7 74.0 40.7 74.0----------------------------------------------------------------------------------------------------------------------------------------See accompanying notes to the unaudited consolidated financial statements. ENBRIDGE INC.CONSOLIDATED STATEMENTS OF FINANCIAL POSITION--------------------------------------------------------------------December 31, 2002 2001-------------------------------------------------------------------- ASSETS Current Assets Cash 40.7 74.0 Accounts receivable and other 817.5 1,270.2 Gas in storage 583.8 665.6 Current assets of discontinued operations - 123.0 Current assets held for sale - 148.9-------------------------------------------------------------------- 1,442.0 2,281.7Property, Plant and Equipment, net 6,947.6 6,817.5Long-Term Investments 3,371.5 1,772.8Receivable from Affiliate 701.5 -Deferred Amounts 315.8 329.7Future Income Taxes 209.0 142.0Long-Term Assets of Discontinued Operations - 750.0Long-Term Assets Held for Sale - 1,034.0 -------------------------------------------------------------------- 12,987.4 13,127.7---------------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term borrowings 247.5 410.9 Accounts payable and other 714.1 679.9 Interest payable 102.6 100.2 Current maturities and short-term debt 652.3 1,819.7 Current liabilities of discontinued operations - 73.8 Current liabilities held for sale - 125.3-------------------------------------------------------------------- 1,716.5 3,209.8Long-Term Debt 6,040.3 5,913.3Future Income Taxes 837.4 722.8Non-Controlling Interests 560.8 131.1Long-Term Liabilities of Discontinued Operations - 118.6 -------------------------------------------------------------------- 9,155.0 10,095.6--------------------------------------------------------------------Shareholders' Equity Share capital Preferred securities 533.7 339.7 Preferred shares 125.0 125.0 Common shares 2,169.0 1,875.9 Retained earnings 1,128.1 812.3 Foreign currency translation adjustment 12.3 7.4 Reciprocal shareholding (135.7) (128.2)-------------------------------------------------------------------- 3,832.4 3,032.1-------------------------------------------------------------------- Contingencies (Note 8) 12,987.4 13,127.7----------------------------------------------------------------------------------------------------------------------------------------See accompanying notes to the unaudited consolidated financial statements.SELECTED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTSThe accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accountingprinciples. Certain reclassifications have been made to the priorperiod financial statements to conform to the current year'spresentation.1. SEGMENTED INFORMATION(millions of Canadian dollars)Three months ended December 31, 2002-------------------------------------------------------------------- Energy Transportation ---------------- Energy North South Distribution Inter- Corporate Consol- national idated-------------------------------------------------------------------- Revenues 183.3 89.4 375.9 7.4 1.5 657.5Gas costs - (69.4) (222.7) - - (292.1)Operating and administrative (64.1) (17.0) (77.9) (7.6) (4.3)(170.9)Depreciation (38.9) (1.6) (57.9) (0.8) (1.3)(100.5)Loss on sale of Enbridge Midcoast Energy assets - (5.3) - - - (5.3) ----- ------ ----------- ------ -------- -------Operating income/(loss) 80.3 (3.9) 17.4 (1.0) (4.1) 88.7 Investment and other income/(expense) 25.4 12.7 (2.5) 18.0 14.3 67.9Interest and preferred equity charges (25.6) (2.1) (37.6) (0.7) (44.0)(110.0)Income taxes (26.3) (9.5) - 1.3 21.9 (12.6) ----- ------ ----------- ------ -------- -------Earnings/(loss) from continuing operations 53.8 (2.8) (22.7) 17.6 (11.9) 34.0 ----- ------ ----------- ------ -------- ----- ------ ----------- ------ -------- Earnings from discontinued operations - ------Earnings applicable to common shareholders 34.0 ------ ------Three months ended December 31, 2001-------------------------------------------------------------------- Energy Transportation ---------------- Energy North South Distribution Inter- Corporate Consol- national idated-------------------------------------------------------------------- Revenues 185.3 251.3 263.6 10.0 1.3 711.5Gas costs - (196.1) (109.9) - - (306.0)Operating and administrative (64.4) (26.9) (110.9) (5.0) (6.0)(213.2)Depreciation (33.9) (9.5) (57.2) (1.4) (0.8)(102.8) ----- ------ ----------- ------ -------- -------Operating income/(loss) 87.0 18.8 (14.4) 3.6 (5.5) 89.5Investment and other income/(expense) 20.6 19.7 (5.8) 7.7 5.5 47.7Interest and preferred equity charges (24.9) (9.9) (41.6) - (52.2)(128.6)Income taxes (23.6) (10.0) 26.3 (0.8) 29.2 21.1 ----- ------ ----------- ------ -------- -------Earnings/(loss) from continuing operations 59.1 18.6 (35.5) 10.5 (23.0) 29.7 ----- ------ ----------- ------ -------- ----- ------ ----------- ------ --------Earnings from discontinued operations 10.1 ------ Earnings applicable to common shareholders 39.8 ------ ------Year ended December 31, 2002 -------------------------------------------------------------------- Energy Transportation ---------------- Energy North South Distribution Inter- Corporate Consol- national idated-------------------------------------------------------------------- Revenues 742.7 1,264.2 2,506.6 27.2 6.8 4,547.5Gas costs -(1,051.4) (1,526.6) - -(2,578.0)Operating and administrative(263.6) (130.7) (404.3) (19.0) (16.5) (834.1)Depreciation (143.2) (24.8) (229.9) (2.9) (3.1) (403.9)Loss on sale of Enbridge Midcoast Energy assets - (122.7) - - - (122.7) ----- ------ ----------- ------ -------- -------Operating income/(loss) 335.9 (65.4) 345.8 5.3 (12.8) 608.8Investment and other income 82.7 44.2 19.9 64.0 72.3 283.1Interest and preferred equity charges (99.8) (28.1) (161.1) (1.6) (165.0) (455.6)Income taxes (82.6) 7.9 (90.8) 0.3 63.1 (102.1) ----- ------ ----------- ------- -------- -------Earnings/(loss) from continuing operations 236.2 (41.4) 113.8 68.0 (42.4) 334.2 ----- ------ ----------- ------- -------- ----- ------ ----------- ------- --------Earnings from discontinued operations 242.3 ------ Earnings applicable to common shareholders 576.5 ------ ------Year ended December 31, 2001 -------------------------------------------------------------------- Energy Transportation ---------------- Energy North South Distribution Inter- Corporate Consol- national idated--------------------------------------------------------------------Revenues 695.6 708.8 2,638.3 30.8 7.4 4,080.9Gas costs - (558.9) (1,643.9) - -(2,202.8)Operating and administrative(242.6) (71.3) (385.1) (19.0) (21.1) (739.1)Depreciation (134.9) (29.2) (222.1) (2.5) (3.8) (392.5) ----- ------ ----------- -------- ------- -------Operating income/(loss) 318.1 49.4 387.2 9.3 (17.5) 746.5Investment and other income/(expense)69.6 53.0 (0.2) 27.0 45.5 194.9Interest and preferred equity charges (104.0) (28.3) (161.7) (0.1) (167.4) (461.5)Income taxes (78.6) (27.7) (43.5) (0.6) 83.7 (66.7) ----- ------ ----------- ------ ------- -------Earnings/(loss) from continuing operations 205.1 46.4 181.8 35.6 (55.7) 413.2 ----- ------ ----------- ------- -------- ----- ------ ----------- ------- --------Earnings from discontinued operations 45.3 ------Earnings applicable to common shareholders 458.5 ------ ------
2. SALE OF ENBRIDGE MIDCOAST ENERGY ASSETS
In October 2002, the Company closed the sale of the United States
assets of Enbridge Midcoast Energy to Enbridge Energy Partners,
L.P. (EEP), including the Northeast Texas assets described in
Note 3, for proceeds of US$820.0 million. The Company received
cash proceeds of approximately US$339.0 million and the remaining
consideration, in the form of assumed affiliate debt, will be
settled when EEP secures additional financing.
The Company continues to exercise significant influence over the
assets sold and, for the period that the assets were held for
sale, results of operations were not segregated from continuing
operations. The assets generated after-tax earnings of $7.3
million in 2002, excluding the loss on sale of $82.2 million,
after tax.
3. ACQUISITION
In March 2002, the Company acquired natural gas gathering and
processing facilities in Northeast Texas for cash consideration
of $289.3 million. These assets are included in the sale
described in Note 2. The results of operations have been
included in the consolidated statement of earnings for the period
they were owned.
(millions of Canadian dollars) --------------------------------------------------------------------Fair Value of Assets Acquired Property, plant and equipment 242.3 Goodwill 56.2 Working capital deficiency (9.2)-------------------------------------------------------------------- 289.3----------------------------------------------------------------------------------------------------------------------------------------Purchase Price Cash 288.2 Transaction costs 1.1-------------------------------------------------------------------- 289.3----------------------------------------------------------------------------------------------------------------------------------------4. DISCONTINUED OPERATIONS The sale of the Company's operations that provide energy products andservices to retail and commercial customers, including the water heaterrental program, closed in May 2002.Selected financial information related to discontinued operations is asfollows. Three months ended Year endedEarnings December 31, December 31, ------------------ --------------(millions of Canadian dollars) 2002 2001 2002 2001-------------------------------------------------------------------- Net gain on disposition - - 240.0 -Earnings - 10.1 2.3 45.3--------------------------------------------------------------------Earnings from discontinued operations - 10.1 242.3 45.3---------------------------------------------------------------------------------------------------------------------------------------- Three months ended Year endedSelected Earnings Information December 31, December 31, ------------------ --------------(millions of Canadian dollars) 2002 2001 2002 2001--------------------------------------------------------------------Revenues - 348.5 181.9 463.0Income tax expense/(recovery) - (1.7) 34.7 2.5Allocated interest expense - 25.0 12.1 35.4
5. PREFERRED SECURITIES
In February 2002, the Company completed a public offering of $200
million, 7.8% Preferred Securities for net proceeds of $193.5
million. The Preferred Securities may be redeemed at the
Company's option in whole or in part after the fifth anniversary
of issue. The Company has the right to defer, subject to certain
conditions, payments of distributions on the securities for a
period of up to 20 consecutive quarterly periods. Deferred and
regular distribution amounts are payable in cash or, at the
option of the Company, in common shares of the Company. Since
the distributions may be settled through the issuance of common
shares at the Company's option, the Preferred Securities are
classified into their respective debt and equity components. The
equity component of the Preferred Securities was $194.8 million
at December 31, 2002.
6. COMMON SHARES
On September 4, 2002, the Company completed a public offering of
5.0 million common shares at $46.30 per common share. In
connection with the offering, the Company completed a private
placement of 500,000 common shares to Noverco Inc., also at
$46.30 per common share. Net proceeds from the public offering
and the private placement totalled $245.2 million.
7. STOCK-BASED COMPENSATION
The Company accounts for the issue of options under its stock
option plans as capital transactions when the options are
exercised. During the year ended December 31, 2002, 1.8 million
stock options were issued at an average exercise price of $44.90
under the Company's Incentive Stock Option Plan. Of these
options, 1.0 million were fixed stock options and 800,000 were
performance-based stock options. The performance-based options
vest in equal annual instalments over a five-year period and
become exercisable, as to 50% of the grant, if the market price
of a common share exceeds $61.00 per share for 20 consecutive
trading days during the five-year period ended September 16, 2007
and, as to 100%, if the market price of a common share exceeds
$71.00 for 20 consecutive trading days during the same period.
The performance-based options expire on September 16, 2007 but
will extend to September 16, 2010 for any that become exercisable
before September 16, 2007. If the Company had used the
fair-value based method to account for its fixed stock options
and performance-based options, earnings and earnings per share
would have been as follows.
Three months ended Year ended(millions of Canadian dollars) December 31, 2002 December 31,2002-------------------------------------------------------------------- Earnings applicable to common shareholders from continuing operations As reported 34.0 334.2Stock-based compensation expense 1.0 2.9--------------------------------------------------------------------Pro-forma 33.0 331.3 Earnings applicable to common shareholders As reported 34.0 576.5Stock-based compensation expense 1.0 2.9--------------------------------------------------------------------Pro-forma 33.0 573.6 Earnings per common share from continuing operations As reported 0.20 2.09Pro-forma 0.19 2.07 Earnings per common share As reported 0.18 3.60Pro-forma 0.17 3.58
1. Pro-forma earnings and earnings per common share do not
reflect options granted prior to January 1, 2002, the date of
adoption of the standard on stock-based compensation.
2. The Black-Scholes model was used to calculate the fair value
of the fixed stock options. Significant assumptions include a
risk-free interest rate of 5.33%, expected volatility of 25%, an
expected life of 10 years and an expected dividend yield of
3.51%. The weighted average grant-date fair value was $11.42 for
the fixed stock options granted during the year ended December
31, 2002.
3. A barrier valuation model was used to calculate the fair value
of the performance-based options. Significant assumptions include
a risk-free interest rate of 4.20%, expected volatility of 24%,
an expected life of 8 years and an expected dividend yield of
3.46%. The weighted average grant-date fair value was $7.65 for
performance-based options granted during the year ended December
31, 2002.
8. CONTINGENCIES
Late Payment Penalties
In October 2002, the Supreme Court of Canada granted an
Application for Leave to Appeal to a customer who commenced an
action against Enbridge Gas Distribution (formerly Enbridge
Consumers Gas) claiming that the OEB-approved late payment
penalties charged to customers were contrary to Canadian federal
law. The Court will hear the plaintiff's appeal of the Ontario
Court of Appeal's decision, released in December 2001, to dismiss
a Notice of Appeal filed by the plaintiff in April 2000. The
Company believes it has sound defences to the plaintiff's claim
and it intends to vigorously defend the action.
CAPLA Claim
The Canadian Alliance of Pipeline Landowners' Associations and
two individual landowners have commenced an action, which they
will be applying to certify as a class action, against the
Company and TransCanada PipeLines Limited. The claim relates to
restrictions in the National Energy Board Act on the landowners'
use of land within a 30-metre control zone on either side of the
pipeline easements. The Company believes it has a sound defence
and intends to vigorously defend the claim. Since the outcome is
indeterminable, the Company has made no provision for any
potential liability.
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