ENBRIDGE ENERGY PARTNERS LP - FORM 8-K - EX-99.2

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8-K - 8-K - ENBRIDGE ENERGY PARTNERS LP	d812025d8k.htm
EX-99.1 - EX-99.1 - ENBRIDGE ENERGY PARTNERS LP	d812025dex991.htm

Exhibit 99.2

ENBRIDGE ENERGY PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF INCOME


	For the three month period ended September 30,						For the nine month period ended September 30,
	2014			2013			2014		2013
	(unaudited; in millions, except per unit amounts)
Operating revenue	$	1,874.0		$	1,724.0		$	5,663.6	$	4,950.3
Operating revenue - affiliate		68.3			65.4			229.4		204.8

		1,942.3			1,789.4			5,893.0		5,155.1

Operating expenses:
Cost of natural gas		1,208.5			1,234.7			3,888.4		3,469.1
Cost of natural gas - affiliate		29.7			22.8			98.3		95.3
Environmental costs, net of recoveries		50.1			0.6			93.3		184.3
Operating and administrative		119.4			153.6			323.3		348.9
Operating and administrative - affiliate		115.9			111.5			353.6		329.1
Power		59.5			43.0			164.1		105.8
Depreciation and amortization		118.8			99.6			336.0		287.6

		1,701.9			1,665.8			5,257.0		4,820.1

Operating income		240.4			123.6			636.0		335.0
Interest expense, net		137.1			70.5			294.2		226.4
Allowance for equity used during construction		14.5			9.3			47.8		25.2
Other income		1.8			0.4			2.2		1.0

Income before income tax expense		119.6			62.8			391.8		134.8
Income tax expense		2.1			1.5			6.1		17.5

Net income		117.5			61.3			385.7		117.3
Less: Net income attributable to:
Noncontrolling interest		70.7			20.3			149.4		54.3
Series 1 preferred unit distributions		22.5			22.7			67.5		35.8
Accretion of discount on Series 1 preferred units		3.8			3.4			11.1		5.7

Net income attributable to general and limited partner ownership interests in Enbridge Energy Partners, L.P.	$	20.5		$	14.9		$	157.7	$	21.5

Net income (loss) allocable to limited partner interests	$	(14.5	)	$	(17.6	)	$	49.5	$	(73.8	)


Net income (loss) per limited partner unit (basic)	$	(0.04	)	$	(0.05	)	$	0.15	$	(0.23	)

Weighted average limited partner units outstanding (basic)		328.8			317.4			327.6		313.2

Net income (loss) per limited partner unit (diluted)	$	(0.04	)	$	(0.05	)	$	0.15	$	(0.23	)

Weighted average limited partner units outstanding (diluted)		328.8			317.4			327.6		313.2

ENBRIDGE ENERGY PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the nine month period ended September 30,
	2014			2013
	(unaudited; in millions)
Cash provided by operating activities:
Net income	$	385.7		$	117.3
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		336.0			287.6
Derivative fair value net losses		62.7			16.8
Inventory market price adjustments		4.8			3.3
Environmental costs, net of recoveries		81.5			221.1
Distributions from investments in joint ventures		6.1			—
Equity earnings from investments in joint ventures		(7.1	)		—
Deferred income taxes		1.5			13.5
State income taxes		3.2			7.9
Allowance for equity used during construction		(47.8	)		(25.2	)
Amortization of debt issuance and hedging costs		8.0			7.5
Other		5.0			3.2
Changes in operating assets and liabilities, net of acquisitions:
Receivables, trade and other		0.9			66.2
Due from General Partner and affiliates		15.3			(4.9	)
Accrued receivables		27.7			452.5
Inventory		(131.0	)		(87.4	)
Current and long-term other assets		(28.7	)		(22.3	)
Due to General Partner and affiliates		(23.4	)		3.1
Accounts payable and other		(93.1	)		28.0
Environmental liabilities		(116.7	)		(79.8	)
Accrued purchases		(28.6	)		(77.0	)
Interest payable		5.9			8.3
Property and other taxes payable		23.8			8.1
Settlement of interest rate derivatives		—			(5.3	)

Net cash provided by operating activities		491.7			942.5


Cash used in investing activities:
Additions to property, plant and equipment		(2,055.8	)		(1,514.5	)
Changes in restricted cash		31.2			(2.2	)
Investments in joint ventures		(35.4	)		(181.8	)
Distributions from investments in joint ventures in excess of cumulative earnings		27.0			—
Other		(0.7	)		(5.6	)

Net cash used in investing activities		(2,033.7	)		(1,704.1	)


Cash provided by financing activities:
Net proceeds from Series 1 preferred unit issuance		—			1,200.0
Net proceeds from unit issuances		—			519.3
Distributions to partners		(544.2	)		(530.6	)
Repayments to General Partner		(12.0	)		(12.0	)
Net proceeds from issuance of long-term debt		398.1			—
Repayments of long-term debt		—			(200.0	)
Net borrowings under credit facility		30.0			—
Net commercial paper borrowings (repayments)		799.8			(734.9	)
Contributions from noncontrolling interest		1,083.0			355.2
Distributions to noncontrolling interest		(80.9	)		(39.7	)

Net cash provided by financing activities		1,673.8			557.3


Net increase (decrease) in cash and cash equivalents		131.8			(204.3	)
Cash and cash equivalents at beginning of year		164.8			227.9

Cash and cash equivalents at end of period	$	296.6		$	23.6

ENBRIDGE ENERGY PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION


	September 30,			December 31,
	2014			2013
	(unaudited; in millions)
ASSETS

Current assets:
Cash and cash equivalents	$	296.6		$	164.8
Restricted cash		38.2			69.4
Receivables, trade and other, net of allowance for doubtful accounts of $0.5 million in 2014 and 2013		48.5			49.4
Due from General Partner and affiliates		26.7			40.5
Accrued receivables		182.5			210.2
Inventory		221.1			94.9
Other current assets		74.5			47.6

		888.1			676.8
Property, plant and equipment, net		15,038.1			13,176.8
Goodwill		246.7			246.7
Intangibles, net		255.9			263.2
Other assets, net		518.3			538.0

	$	16,947.1		$	14,901.5

LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Due to General Partner and affiliates	$	98.0		$	121.4
Accounts payable and other		632.3			822.0
Environmental liabilities		164.1			233.7
Accrued purchases		437.0			465.6
Interest payable		73.9			68.0
Property and other taxes payable		94.2			70.7
Note payable to General Partner		12.0			12.0
Current maturities of long-term debt		200.0			200.0

		1,711.5			1,993.4
Long-term debt		6,007.9			4,777.4
Loans from General Partner and affiliate		294.0			306.0
Due to General Partner and affiliates		125.8			58.2
Deferred income tax liability		19.0			17.4
Other long-term liabilities		396.0			51.7

Total liabilities		8,554.2			7,204.1


Commitments and contingencies
Partners’ capital:
Series 1 preferred units (48,000,000 at September 30, 2014 and December 31, 2013)		1,171.8			1,160.7
Class D units (66,100,000 at September 30, 2014)		2,516.8			—
Class A common units (254,208,428 at September 30, 2014 and December 31, 2013)		240.1			2,979.0
Class B common units (7,825,500 at September 30, 2014 and December 31, 2013)		—			65.3
i-units (67,260,894 and 63,743,099 at September 30, 2014 and December 31, 2013, respectively)		675.9			1,291.9
Incentive distribution units (1,000 at September 30, 2014)		493.1			—
General Partner		199.9			301.5
Accumulated other comprehensive Income (loss)		(159.0	)		(76.6	)

Total Enbridge Energy Partners, L.P. partners’ capital		5,138.6			5,721.8
Noncontrolling interest		3,254.3			1,975.6

Total partners’ capital		8,392.9			7,697.4

	$	16,947.1		$	14,901.5

NET INCOME PER LIMITED PARTNER UNIT

We allocate our net income among our Series 1 Preferred Units, or Preferred Units, Enbridge Energy Company, Inc., our General Partner, and our limited partners using the two-class method in accordance with applicable authoritative accounting guidance. Under the two-class method, we allocate our net income attributable to our general and limited partner interests to our General Partner and our limited partners according to the distribution formula for available cash as set forth in our partnership agreement. We also allocate any earnings in excess of distributions to our General Partner and limited partners utilizing the distribution formula for available cash specified in our partnership agreement. We allocate any distributions in excess of earnings for the period to our General Partner and limited partners, after Preferred Unit allocations, based on their sharing of losses of 2% and 98%, respectively, as set forth in our partnership agreement. Until July 1, 2014, we allocated the distributions to the General Partner and limited partners as follows:


Distribution Targets	Portion of Quarterly Distribution Per Unit	Percentage Distributed to General Partner			Percentage Distributed to Limited partners
Minimum Quarterly Distribution	Up to $0.295		2	%		98	%
First Target Distribution	> $0.295 to $0.35		15	%		85	%
Second Target Distribution	> $0.35 to $0.495		25	%		75	%
Over Second Target Distribution	In excess of $0.495		50	%		50	%

Equity Restructuring Transaction

On July 1, 2014, we entered into an equity restructuring transaction, or Equity Restructuring, with the General Partner in which the General Partner irrevocably waived its right to receive cash distributions and allocations of items of income, gain, deduction and loss in excess of 2% in respect of its general partner interest in the incentive distribution rights, or Previous IDRs, in exchange for the issuance to a wholly-owned subsidiary of the General Partner of (i) 66.1 million units of a new class of limited partner interests designated as Class D units, and (ii) 1,000 units of a new class of limited partner interests designated as Incentive Distribution Units, or IDUs.

Beginning July 1, 2014, as established by our amended and restated partnership agreement, we calculate distributions to the General Partner and limited partners based upon the distribution rates and percentages set forth in the following table:


Distribution Targets	Portion of Quarterly Distribution Per Unit	Percentage Distributed to General Partner and IDUs⁽¹⁾			Percentage Distributed to Limited partners
Minimum Quarterly Distribution	Up to $0.5345		2	%		98	%
First Target Distribution	> $0.5345		25	%		75	%

⁽¹⁾	For distributions in excess of the Minimum Quarterly Distribution, this percentage includes both the General Partner’s distributions of 2% and the distribution to the Incentive Distribution Unit holder, a wholly-owned subsidiary of our General Partner.

We determined basic and diluted net income (loss) per limited partner unit as follows:


	For the three month period ended September 30,						For the nine month period ended September 30,
	2014			2013			2014			2013
	(unaudited; in millions, except per unit amounts)
Net income	$	117.5		$	61.3		$	385.7		$	117.3
Less Net income attributable to:
Noncontrolling interest		(70.7	)		(20.3	)		(149.4	)		(54.3	)
Series 1 preferred unit distributions		(22.5	)		(22.7	)		(67.5	)		(35.8	)
Accretion of discount on Series 1 preferred units		(3.8	)		(3.4	)		(11.1	)		(5.7	)

Net income attributable to general and limited partner interests in Enbridge Energy Partners, L.P.		20.5			14.9			157.7			21.5
Less distributions:
Incentive distributions		(1.4	)		(32.9	)		(35.9	)		(96.8	)
Distributed earnings attributed to our General Partner		(4.5	)		(3.6	)		(12.6	)		(10.6	)
Distributed earnings allocated to Class D units		(33.1	)		—			(69.8	)		—

Total distributed earnings to our General Partner, Class D units, and IDUs		(39.0	)		(36.5	)		(118.3	)		(107.4	)
Total distributed earnings attributable to our common units and i-units		(182.8	)		(176.5	)		(542.7	)		(518.6	)

Total distributed earnings		(221.8	)		(213.0	)		(661.0	)		(626.0	)

Overdistributed earnings	$	(201.3	)	$	(198.1	)	$	(503.3	)	$	(604.5	)

Weighted average limited partner units outstanding		328.8			317.4			327.6			313.2

Basic and diluted earnings per unit:
Distributed earnings per limited partner unit⁽¹⁾	$	0.56		$	0.56		$	1.66		$	1.66
Overdistributed earnings per limited partner unit⁽²⁾		(0.60	)		(0.61	)		(1.51	)		(1.89	)

Net income (loss) per limited partner unit (basic and diluted)⁽³⁾	$	(0.04	)	$	(0.05	)	$	0.15		$	(0.23	)

⁽¹⁾	Represents the total distributed earnings to common units and i-units divided by the weighted average number of limited partner interests outstanding for the period.

⁽²⁾

Represents the common units’ and i-units’ share (98%) of distributions in excess of earnings divided by the weighted average number of common units and i-units outstanding for the period and overdistributed earnings allocated to the common units and i-units based on the distribution waterfall that is outlined in our partnership agreement.

⁽³⁾

For the three month period ended September 30, 2014, 43,201,310 anti-dilutive Preferred Units and 66,100,000 anti-dilutive Class D units were excluded from the if-converted method of calculating diluted earnings per unit. For the nine month period ended September 30, 2014, 43,201,310 anti-dilutive Preferred Units and 22,275,458 anti-dilutive Class D units were excluded from the if-converted method of calculating diluted earnings per unit.

SEGMENT INFORMATION

Our business is divided into operating segments, defined as components of the enterprise, about which financial information is available and evaluated regularly by our Chief Operating Decision Maker, collectively comprised of our senior management, in deciding how resources are allocated and performance is assessed.

Each of our reportable segments is a business unit that offers different services and products that is managed separately, because each business segment requires different operating strategies. We have segregated our business activities into two distinct operating segments:

•

Liquids; and

•

Natural Gas.

During the first quarter of 2014, the Partnership changed its reporting segments. The Marketing segment was combined with the Natural Gas segment to form one new segment called “Natural Gas”. There was no change to the Liquids segment.

This change was a result of the reorganization of EEP resulting from MEP’s IPO which prompted Management to reassess the presentation of EEP’s reportable segments considering the financial information available and evaluated regularly by EEP’s Chief Operating Decision Maker. The new segment is consistent with how management makes resource allocation decisions, evaluates performance, and furthers the achievement of the Partnership’s long-term objectives. Financial information for the prior periods has been restated to reflect the change in reporting segments.

The following tables present certain financial information relating to our business segments and corporate activities:


	For the three month period ended September 30, 2014
	Liquids		Natural Gas		Corporate⁽¹⁾			Total
	(unaudited; in millions)
Operating revenue	$	542.9	$	1,399.4	$	—		$	1,942.3
Cost of natural gas		—		1,238.2		—			1,238.2
Environmental costs, net of recoveries		50.1		—		—			50.1
Operating and administrative		126.5		105.0		3.8			235.3
Power		59.5		—		—			59.5
Depreciation and amortization		79.3		39.5		—			118.8

		315.4		1,382.7		3.8			1,701.9
Operating income (loss)		227.5		16.7		(3.8	)		240.4
Interest expense, net		—		—		137.1			137.1
Allowance for equity used during construction		—		—		14.5			14.5
Other income (expense)⁽²⁾		—		6.1		(4.3	)		1.8

Income (loss) before income tax expense		227.5		22.8		(130.7	)		119.6
Income tax expense		—		—		2.1			2.1

Net income (loss)		227.5		22.8		(132.8	)		117.5
Less: Net income attributable to:
Noncontrolling interest		—		—		70.7			70.7
Series 1 preferred unit distributions		—		—		22.5			22.5
Accretion of discount on Series 1 preferred units		—		—		3.8			3.8

Net income (loss) attributable to general and limited partner ownership interests in Enbridge Energy Partners, L.P.	$	227.5	$	22.8	$	(229.8	)	$	20.5

⁽¹⁾	Corporate consists of interest expense, interest income, allowance for equity during construction, noncontrolling interest and other costs such as income taxes, which are not allocated to the business segments.

⁽²⁾	Other income (expense) for our Natural Gas segment includes our equity investment in the Texas Express NGL system which began recognizing operating costs during the fourth quarter of 2013.


	For the three month period ended September 30, 2013
	Liquids		Natural Gas			Corporate⁽¹⁾			Total
	(unaudited; in millions)
Operating revenue	$	401.5	$	1,387.9		$	—		$	1,789.4
Cost of natural gas		—		1,257.5			—			1,257.5
Environmental costs, net of recoveries		0.6		—			—			0.6
Operating and administrative		149.7		113.6			1.8			265.1
Power		43.0		—			—			43.0
Depreciation and amortization		63.8		35.8			—			99.6

		257.1		1,406.9			1.8			1,665.8
Operating income (loss)		144.4		(19.0	)		(1.8	)		123.6
Interest expense, net		—		—			70.5			70.5
Allowance for equity used during construction		—		—			9.3			9.3
Other income		—		—			0.4			0.4

Income (loss) before income tax expense		144.4		(19.0	)		(62.6	)		62.8
Income tax expense		—		—			1.5			1.5

Net income (loss)		144.4		(19.0	)		(64.1	)		61.3
Less: Net income attributable to:
Noncontrolling interest		—		—			20.3			20.3
Series 1 preferred unit distributions		—		—			22.7			22.7
Accretion of discount on Series 1 preferred units		—		—			3.4			3.4

Net income (loss) attributable to general and limited partner ownership interests in Enbridge Energy Partners, L.P.	$	144.4	$	(19.0	)	$	(110.5	)	$	14.9

⁽¹⁾	Corporate consists of interest expense, interest income, allowance for equity during construction, noncontrolling interest and other costs such as income taxes, which are not allocated to the business segments.


	As of and for the nine month period ended September 30, 2014
	Liquids		Natural Gas			Corporate⁽¹⁾			Total
	(unaudited; in millions)
Operating revenue	$	1,449.9	$	4,443.1		$	—		$	5,893.0
Cost of natural gas		—		3,986.7			—			3,986.7
Environmental costs, net of recoveries		93.3		—			—			93.3
Operating and administrative		352.5		317.5			6.9			676.9
Power		164.1		—			—			164.1
Depreciation and amortization		222.7		113.3			—			336.0

		832.6		4,417.5			6.9			5,257.0
Operating income (loss)		617.3		25.6			(6.9	)		636.0
Interest expense, net		—		—			294.2			294.2
Allowance for equity used during construction		—		—			47.8			47.8
Other income (expense)		—		7.1	⁽²⁾		(4.9	)		2.2

Income (loss) before income tax expense		617.3		32.7			(258.2	)		391.8
Income tax expense		—		—			6.1			6.1

Net income (loss)		617.3		32.7			(264.3	)		385.7
Less: Net income attributable to:
Noncontrolling interest		—		—			149.4			149.4
Series 1 preferred unit distributions		—		—			67.5			67.5
Accretion of discount on Series 1 preferred units		—		—			11.1			11.1

Net income (loss) attributable to general and limited partner ownership interests in Enbridge Energy Partners, L.P.	$	617.3	$	32.7		$	(492.3	)	$	157.7

Total assets	$	11,252.8	$	5,461.9	⁽³⁾	$	232.4		$	16,947.1

Capital expenditures (excluding acquisitions)	$	1,861.3	$	158.4		$	3.2		$	2,022.9

⁽¹⁾	Corporate consists of interest expense, interest income, allowance for equity used during construction, noncontrolling interest and other costs such as income taxes, which are not allocated to the business segments.

⁽²⁾	Other income (expense) for our Natural Gas segment includes our equity investment in the Texas Express NGL system which began recognizing operating costs during the fourth quarter of 2013.

⁽³⁾	Total assets for our Natural Gas segment includes our long term equity investment in the Texas Express NGL system.


	As of and for the nine month period ended September 30, 2013
	Liquids		Natural Gas			Corporate⁽¹⁾			Total
	(unaudited; in millions)
Operating revenue	$	1,100.7	$	4,054.4		$	—		$	5,155.1
Cost of natural gas		—		3,564.4			—			3,564.4
Environmental costs, net of recoveries		184.3		—			—			184.3
Operating and administrative		334.8		337.8			5.4			678.0
Power		105.8		—			—			105.8
Depreciation and amortization		181.0		106.6			—			287.6

Operating income (loss)		294.8		45.6			(5.4	)		335.0
Interest expense, net		—		—			226.4			226.4
Allowance for equity used during construction		—		—			25.2			25.2
Other income		—		—			1.0			1.0

Income (loss) before income tax expense		294.8		45.6			(205.6	)		134.8
Income tax expense		—		—			17.5			17.5

Net income (loss)		294.8		45.6			(223.1	)		117.3
Less: Net income attributable to:
Noncontrolling interest		—		—			54.3			54.3
Series 1 preferred unit distributions		—		—			35.8			35.8
Accretion of discount on Series 1 preferred units		—		—			5.7			5.7

Net income (loss) attributable to general and limited partner ownership interests in Enbridge Energy Partners, L.P.	$	294.8	$	45.6		$	(318.9	)	$	21.5

Total assets	$	8,497.9	$	5,224.6	⁽²⁾	$	161.5		$	13,884.0

Capital expenditures (excluding acquisitions)	$	1,527.2	$	191.9		$	13.9		$	1,733.0

⁽¹⁾	Corporate consists of interest expense, interest income, allowance for equity used during construction, noncontrolling interest and other costs such as income taxes, which are not allocated to the business segments.

⁽²⁾	Total assets for our Natural Gas Segment includes our long term equity investment in the Texas Express NGL system.

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