SHAREHOLDERS' EQUITY | Share Distributions Our authorized capital structure consists of two classes of interests: (1) Listed Shares, which represent limited liability company interests with limited voting rights, and (2) voting shares, which represent limited liability company interests with full voting rights, all voting shares of which are held by the General Partner. We make share distributions on a quarterly basis at the same time that the Partnership declares and makes cash distributions to the General Partner and limited partner interests other than the i-units. We do not receive cash distributions on the i-units we own and do not otherwise have any cash flow attributable to our ownership of the i-units. Instead, when the Partnership makes cash distributions to the General Partner and other limited partner interests, we receive additional i-units under the terms of the Partnership Agreement. The amount of the additional i-units we receive is calculated by dividing the amount of the per unit cash distribution paid by the Partnership on each of its Class A and B common units by the average closing price of one of our Listed Shares on the NYSE as determined for a 10 trading-day period ending on the trading day immediately prior to the ex-dividend date for our shares multiplied by the number of shares outstanding on the record date. We concurrently distribute additional shares to our shareholders that are equivalent in number to the additional i-units we receive from the Partnership. As a result, the number of our outstanding shares is equal to the number of i-units that we own in the Partnership. The following table sets forth the details regarding our share distributions, as approved by our board of directors for the years ended December 31, 2016, 2015 and 2014. Distribution Record Date Distribution Distribution Average Additional Listed Shares 2016 October 28 November 7 November 14 $ 0.58300 $ 25.06 1,861,187 1,643,677 217,510 July 28 August 5 August 12 $ 0.58300 $ 22.84 1,991,304 1,758,587 232,717 April 29 May 6 May 13 $ 0.58300 $ 21.14 2,093,257 1,848,626 244,631 January 29 February 5 February 12 $ 0.58300 $ 16.27 2,625,681 2,318,827 306,854 8,571,429 7,569,717 1,001,712 2015 October 30 November 6 November 13 $ 0.58300 $ 27.10 1,543,182 1,362,836 180,346 July 30 August 7 August 14 $ 0.58300 $ 30.68 1,337,969 1,181,605 156,364 April 30 May 8 May 15 $ 0.57000 $ 37.25 1,061,026 937,028 123,998 January 29 February 6 February 13 $ 0.57000 $ 37.50 1,038,375 917,024 121,351 4,980,552 4,398,493 582,059 2014 October 31 November 7 November 14 $ 0.55500 $ 35.75 1,044,292 922,250 122,042 July 31 August 7 August 14 $ 0.55500 $ 34.53 1,064,113 939,754 124,359 April 30 May 8 May 15 $ 0.54350 $ 29.14 1,212,031 1,070,385 141,646 January 30 February 7 February 14 $ 0.54350 $ 27.90 1,241,652 1,096,544 145,108 4,562,088 4,028,933 533,155 We had non-cash operating activities in the form of i-units distributed to us by the Partnership and corresponding non-cash financing activities in the form of share distributions to our shareholders in the amounts of $179.1 million, $161.3 million and $144.0 million during the years ended December 31, 2016, 2015 and 2014, respectively. Partnership Transactions Impacting Shareholders’ Equity MEP Drop Down Transaction On July 1, 2014, the Partnership sold a 12.6% limited partner interest in Midcoast Operating, L.P., or Midcoast Operating, to Midcoast Energy Partners, L.P., or MEP, for $350.0 million in cash, which reduced the Partnership’s total ownership interest in Midcoast Operating from 61% to 48.4%. The difference between the fair value and the carrying value of the interest in Midcoast Operating was recorded as an adjustment to the Partnership’s capital accounts. This noncash adjustment resulted in a reduction of $15.5 million, net of a $9.3 million tax benefit, to the book basis of our investment in the Partnership, based on our proportionate ownership interest in the Partnership at the time of the transaction, with a corresponding reduction to “Capital account adjustments” on our statements of shareholders’ equity. Partnership Equity Restructuring Effective July 1, 2014, the General Partner entered into an equity restructuring transaction, or Equity Restructuring, with the Partnership 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 Previous IDRs, in exchange for the issuance to a wholly-owned subsidiary of the General Partner of a new class of limited partner interests designated as Class D units, and a new class of limited partner interests designated as IDUs. The IDUs entitle the holder thereof to receive 23% of the incremental cash distributions paid by the Partnership in excess of $0.5435 per unit per quarter on its Class A and Class B common units, collectively, the common units, the i-units we own, the Class D units, and the Class E units. As a result of the Equity Restructuring and the associated creation of the Class D units and IDUs, a reallocation in the carrying values of the Partnership’s capital accounts was required. The Class D units and IDUs were recorded at fair value, and the remaining balance in the Partnership’s capital accounts was allocated to the General Partner, the common units, and i-units on a pro-rata basis. In addition, the reallocation among the Partnership’s capital accounts resulted in a negative capital account balance for the Partnership’s Class B common units. The Partnership Agreement does not allow for the capital accounts of any limited partner to be negative and, as a result, requires the General Partner and those limited partners with positive capital account balances that participate in earnings of the Partnership based on their ownership interest to allocate income to the capital account of the Class B common units on a pro rata basis to bring the balance to zero. The reallocation from these noncash transactions reduced the book basis of our investment in the Partnership, based on our proportionate ownership interest in the Partnership at the time of the transaction, by $375.4 million, net of a $222.7 million tax benefit. A corresponding reduction to our Shareholders’ equity was recorded and is reflected under “Capital account adjustments” on our statements of shareholders’ equity. Alberta Clipper Drop Down to the Partnership On January 2, 2015, the Partnership completed a transaction, or the Drop Down, pursuant to which it acquired the remaining 66.7% interest in the U.S. segment of the Alberta Clipper Pipeline from the General Partner. The consideration consisted of 18,114,975 units of a new class of limited partner interests designated as Class E units with an aggregate value of $694.0 million issued to the General Partner, plus a cash repayment of approximately $306.0 million of indebtedness. The Partnership recorded the issuance of the Class E units at a fair value of $767.7 million, which was $364.0 million higher than the $403.7 million carrying value of the Partnership’s related noncontrolling interest in Alberta Clipper. As a result, the Partnership reduced the carrying values of the Class A and Class B common units, the i-units, and the General Partner interest by $364.0 million on a pro-rata basis. The recording of this noncash transaction reduced the book basis of our investment in the Partnership, based on our proportionate ownership interest in the Partnership at the time of the transaction, by $46.2 million, net of a $27.3 million tax benefit. A corresponding reduction to our “Shareholders’ equity” was recorded and is reflected under “Capital account adjustments” in the significant changes in the statements of shareholders’ equity. The recording of this transaction also reduced the carrying values of both classes of the common units below zero. As discussed above, the Partnership Agreement requires that such capital account deficits are cured by additional allocations from the capital accounts of the i-units and the General Partner on a pro-rata basis. Our pro-rata share of this curing as a result of the Drop Down, was $29.4 million, net of a $17.3 million tax benefit, which is reflected as an additional reduction to the book basis of our investment in the Partnership, with a corresponding reduction to our “Shareholders’ equity.” |