UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
September 30, 2011 For the quarterly period ended September 30, 2011
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-31383
ENBRIDGE ENERGY MANAGEMENT, L.L.C.
(Exact Name of Registrant as Specified in Its Charter)
| | |
| Delaware | | 61-1414604 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer
Identification No.) |
1100 Louisiana, Suite 3300
Houston, Texas 77002
(Address of Principal Executive Offices) (Zip Code)
(713) 821-2000
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
| | | | | | |
Large Accelerated Filer | | x | | Accelerated Filer | | ¨ |
| | | |
Non-Accelerated Filer | | ¨ (Do not check if a smaller reporting company) | | Smaller reporting company | | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The Registrant had 37,053,942 Listed Shares outstanding as of October 31, 2011.
DOCUMENTS INCORPORATED BY REFERENCE:
Quarterly Report on Form 10-Q of Enbridge Energy Partners, L.P. for the quarterly period ended September 30, 2011.
PART I—FINANCIAL INFORMATION
| Item 1. | Financial Statements |
ENBRIDGE ENERGY MANAGEMENT, L.L.C.
STATEMENTS OF INCOME
| | | | | | | | | | | | | | | | |
| | | For the three month period
ended September 30, | | | For the nine month period
ended September 30, | |
| | | 2011 | | | 2010 | | | 2011 | | | 2010 | |
| | | (unaudited; in millions, except per unit amounts) | |
Equity income (loss) from investment in Enbridge Energy Partners, L.P. | | $ | 12.6 | | | $ | (60.6 | ) | | $ | 45.4 | | | $ | (29.3 | ) |
| | | | | | | | | | | | | | | | |
Income (loss) before income tax expense | | | 12.6 | | | | (60.6 | ) | | | 45.4 | | | | (29.3 | ) |
Income tax expense (benefit) | | | 4.8 | | | | (22.6 | ) | | | 16.9 | | | | (11.1 | ) |
| | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 7.8 | | | $ | (38.0 | ) | | $ | 28.5 | | | $ | (18.2 | ) |
| | | | | | | | | | | | | | | | |
Net income (loss) per share, basic and diluted (Note 2) | | $ | 0.21 | | | $ | (1.10 | ) | | $ | 0.79 | | | $ | (0.54 | ) |
| | | | | | | | | | | | | | | | |
Weighted average shares outstanding (Note 2) | | | 36.8 | | | | 34.4 | | | | 36.2 | | | | 33.8 | |
| | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
1
ENBRIDGE ENERGY MANAGEMENT, L.L.C.
STATEMENTS OF COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | |
| | | For the three month period
ended September 30, | | | For the nine month period
ended September 30, | |
| | | 2011 | | | 2010 | | | 2011 | | | 2010 | |
| | | (unaudited; in millions) | |
Net income (loss) | | $ | 7.8 | | | $ | (38.0 | ) | | $ | 28.5 | | | $ | (18.2 | ) |
Equity in other comprehensive loss of Enbridge Energy Partners, L.P., net of tax benefit of $3.3, $2.9, $6.4 and $5.3, respectively | | | (5.9 | ) | | | (5.1 | ) | | | (11.1 | ) | | | (9.1 | ) |
| | | | | | | | | | | | | | | | |
Comprehensive income (loss) | | $ | 1.9 | | | $ | (43.1 | ) | | $ | 17.4 | | | $ | (27.3 | ) |
| | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
2
ENBRIDGE ENERGY MANAGEMENT, L.L.C.
STATEMENTS OF CASH FLOWS
| | | | | | | | |
| | | For the nine month period
ended September 30, | |
| | | 2011 | | | 2010 | |
| | | (unaudited; in millions) | |
Cash flows from operating activities | | | | | | | | |
Net income (loss) | | $ | 28.5 | | | $ | (18.2 | ) |
Adjustments to reconcile net income to net cash flows from operating activities: | | | | | | | | |
Equity (income) loss from investment in Enbridge Energy Partners, L.P. | | | (45.4 | ) | | | 29.3 | |
Changes in operating assets and liabilities, net of cash acquired: | | | | | | | | |
Due from affiliates | | | (0.1 | ) | | | (0.1 | ) |
Due to affiliates | | | 0.1 | | | | 0.1 | |
Deferred income taxes | | | 16.9 | | | | (11.1 | ) |
| | | | | | | | |
Net cash flows from operating activities | | | — | | | | — | |
| | | | | | | | |
Net cash flows from investing activities | | | — | | | | — | |
| | | | | | | | |
Net cash flows from financing activities | | | — | | | | — | |
| | | | | | | | |
Net change in cash and cash equivalents | | | — | | | | — | |
Cash and cash equivalents at beginning of year | | | — | | | | — | |
| | | | | | | | |
Cash and cash equivalents at end of period | | $ | — | | | $ | — | |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
3
ENBRIDGE ENERGY MANAGEMENT, L.L.C.
STATEMENTS OF FINANCIAL POSITION
| | | | | | | | |
| | | September 30,
2011 | | | December 31,
2010 | |
| | | (unaudited; dollars in millions) | |
| ASSETS | | | | | | | | |
Due from affiliates | | $ | 0.2 | | | $ | 0.1 | |
Investment in Enbridge Energy Partners, L.P. | | | 612.8 | | | | 551.4 | |
| | | | | | | | |
| | $ | 613.0 | | | $ | 551.5 | |
| | | | | | | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | |
Due to affiliates | | $ | 0.2 | | | $ | 0.1 | |
Deferred income tax liability | | | 103.7 | | | | 80.8 | |
| | | | | | | | |
| | | 103.9 | | | | 80.9 | |
| | | | | | | | |
Commitments and contingencies | | | | | | | | |
Shareholders’ equity (Notes 2, 3 and 4) | | | | | | | | |
Voting shares-unlimited authorized; 4.12 and 3.92 issued and outstanding at September 30, 2011 and December 31, 2010, respectively | | | — | | | | — | |
Listed shares-unlimited authorized; 37,053,942 and 35,285,418 issued and outstanding at September 30, 2011 and December 31, 2010, respectively | | | 825.5 | | | | 748.5 | |
Accumulated deficit | | | (287.9 | ) | | | (260.5 | ) |
Accumulated other comprehensive income (loss) | | | (28.5 | ) | | | (17.4 | ) |
| | | | | | | | |
| | | 509.1 | | | | 470.6 | |
| | | | | | | | |
| | $ | 613.0 | | | $ | 551.5 | |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
4
ENBRIDGE ENERGY MANAGEMENT, L.L.C.
NOTES TO THE FINANCIAL STATEMENTS (unaudited)
1. BASIS OF PRESENTATION
We are a limited partner of Enbridge Energy Partners, L.P., which we refer to as the Partnership, through our ownership of i-units, a special class of the Partnership’s limited partner interests. We have prepared the accompanying unaudited interim financial statements in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, they contain all adjustments, consisting only of normal recurring adjustments, which management considers necessary to present fairly our financial position at September 30, 2011, our results of operations for the three and nine month periods ended September 30, 2011 and 2010 and our cash flows for the nine month periods ended September 30, 2011 and 2010. We derived our statement of financial position as of December 31, 2010 from the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. Our results of operations for the three and nine month periods ended September 30, 2011 should not be taken as indicative of the results to be expected for the full year. The interim financial statements should be read in conjunction with our financial statements and notes thereto presented in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. Our results of operations, financial position and cash flows are dependent on the results of operations, financial position and cash flows of the Partnership. As a result, you should also read these interim financial statements in conjunction with the Partnership’s consolidated financial statements and notes thereto presented in its Annual Report on Form 10-K for the fiscal year ended December 31, 2010, as well as the Partnership’s interim consolidated financial statements presented in its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011.
2. SHARE SPLIT
Our listed shares, which we refer to as Listed Shares, are traded on the New York Stock Exchange, or NYSE. On February 18, 2011, our board of directors approved a split of our Listed and voting shares effected by a distribution on April 21, 2011 of one Listed Share for each Listed Share outstanding and one voting share for each voting share outstanding to shareholders of record on April 7, 2011. The net income per share and weighted average shares outstanding for the three and nine month periods ended September 30, 2010 presented in our statements of income and the number of shares at December 31, 2010 presented in our statements of financial position are presented reflecting the retrospective effects of the share split.
3. SHARE DISTRIBUTION
The following table sets forth the details regarding our share distributions, as approved by our board of directors for the nine month period ended September 30, 2011.
| | | | | | | | | | | | | | | | | | | | | | | | |
Distribution
Declaration Date | | Record Date | | Distribution
Payment Date | | Distribution
per Unit
of the
Partnership (1) | | | Average
Closing
Price of the
Listed Shares (1) | | | Additional
i-units
owned (1) | | | Listed
Shares
distributed
to Public (1) | | | Shares
distributed
to General
Partner(1) (2) | |
| (in millions, except per unit amounts) | |
January 28 | | February 4 | | February 14 | | $ | 0.51375 | | | $ | 31.75 | | | | 570,918 | | | | 472,593 | | | | 98,325 | |
April 28 | | May 6 | | May 13 | | $ | 0.51375 | | | $ | 33.25 | | | | 554,016 | | | | 458,602 | | | | 95,414 | |
July 28 | | August 5 | | August 12 | | $ | 0.53250 | | | $ | 30.13 | | | | 643,589 | | | | 532,749 | | | | 110,840 | |
| (1) | Distributions per unit, average closing price, additional i-units owned, and Listed Shares distributed to the public and to the General Partner for the distribution paid on February 14, 2011 have been retrospectively adjusted for the two-for-one split of the Partnership’s units and of our Listed and Voting shares. |
| (2) | Enbridge Energy Company, Inc. is the general partner of the Partnership, which we refer to as the General Partner. |
5
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 $55.9 million and $50.4 million during the nine month periods ended September 30, 2011 and 2010, respectively.
4. CAPITAL ACCOUNT ADJUSTMENTS ON ISSUANCES OF COMMON UNITS BY ENBRIDGE ENERGY PARTNERS, L.P.
The Partnership records an adjustment to the carrying value of its book capital accounts when it issues additional common units and the new issuance price per unit is greater than or less than the average cost per unit for each class of units. We refer to these adjustments as capital account adjustments. We recognize any capital account adjustments recorded by the Partnership to the book capital account it maintains for our i-units by increasing or decreasing our investment in the Partnership and recording a corresponding capital account adjustment directly to “Shareholders’ equity” on our statements of financial position in conjunction with our adoption of the authoritative accounting guidance for noncontrolling interests in consolidated financial statements.
Partnership Issuances of Class A Common Units
The following table presents the issuances of additional Class A common units by the Partnership for the current year, excluding issuances under the Partnership’s Equity Distribution Agreement, or EDA, and the Amended and Restated Equity Distribution Agreement, or Amended EDA.
| | | | | | | | | | | | | | | | | | | | | | | | |
2011 Issuance Date | | Number of
Class A
Common units
Issued | | | Average
Offering
Price per
Class A
common unit | | | Net Proceeds to
the Partnership (1) | | | Ownership
Percentage in the
Partnership Prior
to the Issuance | | | Ownership
Percentage in the
Partnership After
the Issuance | | | Increases in
the Book
Value of
Investment (2) | |
| | | (in millions, except units and per unit amount) | |
September | | | 8,000,000 | | | $ | 28.20 | | | $ | 218.3 | | | | 13.7 | % | | | 13.3 | % | | $ | 12.1 | |
July | | | 8,050,000 | | | $ | 30.00 | | | | 233.7 | | | | 14.0 | % | | | 13.5 | % | | $ | 15.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
2011 Totals | | | 16,050,000 | | | | | | | $ | 452.0 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Net of underwriters’ fees and discounts, commissions and issuance expenses if any. |
| (2) | Before the effect of income taxes. |
Equity Distribution Agreement
In June 2010, the Partnership entered into an EDA for the issue and sale from time to time of its Class A common units up to an aggregate amount of $150.0 million. On May 27, 2011, the Partnership entered into an Amended EDA for the issue and sale from time to time of its Class A common units up to an aggregate amount of $500.0 million from the execution of the agreement through May 20, 2014.
During the period from execution of the EDA through May 25, 2011, the Partnership sold 2,118,025 Class A common units, representing 4,236,050 units after giving effect to a two-for-one split of their Class A common units that became effective on April 21, 2011, for aggregate gross proceeds of $124.8 million of which $64.5 million are gross proceeds received in 2011, and no further sales will be made under that agreement. On May 27, 2011, the Partnership de-registered the remaining aggregate $25.2 million of Class A common units that were registered under the EDA and remained unsold as of that date.
6
The following table presents the net proceeds from the Partnership’s Class A common unit issuances, resulting from the Amended EDA, during the nine month period ended September 30, 2011:
| | | | | | | | | | | | | | | | | | | | | | | | |
Issuance Date | | Number of
Class A
common units
Issued | | | Average
Offering
Price
per Class A
common unit | | | Net Proceeds to
the Partnership (1) | | | Ownership
Percentage in the
Partnership Prior
to the Issuance | | | Ownership
Percentage in the
Partnership After
the Issuance | | | Increases in
the Book
Value of
Investment (2) | |
| | | (unaudited; in millions, except units and per unit amounts) | |
May 27 to June 30, 2011 | | | 333,794 | | | $ | 30.30 | | | $ | 9.9 | | | | 14.0 | % | | | 14.0 | % | | $ | 1.2 | |
July 1 to September 30, 2011 | | | 751,766 | | | $ | 28.38 | | | | 20.8 | | | | 13.7 | % | | | 13.3 | % | | $ | 1.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 1,085,560 | | | | | | | $ | 30.7 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Net of commissions and issuance costs of $0.4 million and $0.6 million for the three and nine month periods ended September 30, 2011. |
| (2) | Before the effect of income taxes. |
For the three and nine month periods ended September 30, 2011, we recorded $28.2 million and $33.5 million, respectively, of capital account adjustments with respect to all the Partnership’s Class A common unit issuances. The after tax effect of these capital account adjustments to our Shareholders’ equity at September 30, 2011 was $17.8 million and $21.1 million, respectively.
5. SUMMARIZED FINANCIAL INFORMATION FOR ENBRIDGE ENERGY PARTNERS, L.P.
| | | | | | | | | | | | | | | | |
| | | For the three month period
ended September 30, | | | For the nine month period
ended September 30, | |
| | | 2011 | | | 2010 | | | 2011 | | | 2010 | |
| | | (unaudited; in millions, except per unit amounts) | |
Operating revenue | | $ | 2,372.2 | | | $ | 1,889.3 | | | $ | 7,033.1 | | | $ | 5,567.9 | |
Operating expenses | | | 2,156.6 | | | | 2,202.0 | | | | 6,359.6 | | | | 5,483.2 | |
| | | | | | | | | | | | | | | | |
Operating income (loss) | | $ | 215.6 | | | $ | (312.7 | ) | | $ | 673.5 | | | $ | 84.7 | |
| | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 134.8 | | | $ | (386.3 | ) | | $ | 437.6 | | | $ | (105.7 | ) |
Less: Net income attributable to noncontrolling interest | | | 12.2 | | | | 20.1 | | | | 41.0 | | | | 45.3 | |
| | | | | | | | | | | | | | | | |
Net income (loss) attributable to Enbridge Energy Partners, L.P. | | $ | 122.6 | | | $ | (406.4 | ) | | $ | 396.6 | | | $ | (151.0 | ) |
| | | | | | | | | | | | | | | | |
We owned approximately 13.3 percent and 14.2 of the Partnership at September 30, 2011 and 2010, respectively.
6. SUBSEQUENT EVENTS
Share Distribution
On October 28, 2011, our board of directors declared a share distribution payable on November 14, 2011, to shareholders of record as of November 4, 2011, based on the $0.53250 per limited partner unit distribution declared by the Partnership. The Partnership’s distribution increases the number of i-units we own. The amount of this increase is calculated by dividing the cash amount distributed by the Partnership per common unit, by the
7
average closing price of one of our Listed Shares on the NYSE for the 10-trading day period immediately preceding the ex-dividend date for our shares, multiplied by the number of shares outstanding on the record date. We distribute additional Listed Shares to our Listed shareholders and additional shares to the General Partner in respect of these additional i-units.
7. RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
Accounting Standards Update—Presentation of Comprehensive Income
In June 2011, the Financial Accounting Standards Board, or FASB, issued guidance on the presentation of comprehensive income as part of the FASB’s joint project with the International Accounting Standards Board, or IASB, requiring presentation of net income and other comprehensive income either in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive, statements of net income and other comprehensive income. The guidance eliminated the option to report other comprehensive income and its components in the statement of changes in equity and the disclosure of reclassification adjustments in the footnotes. The guidance does not change which components of comprehensive income are recognized in net income or other comprehensive income, when an item of other comprehensive income must be reclassified to net income or the earnings-per-share computation.
The accounting update is effective for the first reporting period beginning after December 15, 2011, with early application permitted. The guidance requires retrospective application. We do not intend to adopt the provisions of this pronouncement early. Our adoption of this pronouncement will require us to modify the items we present in the consolidated statements of comprehensive income.
8
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
RESULTS OF OPERATIONS
Our results of operations consist of our share of earnings of Enbridge Energy Partners, L.P., or the Partnership, attributed to the i-units we own. At September 30, 2011 and 2010, through our ownership of i-units, we had an approximate 13.3 percent and 14.2 percent, respectively, limited partner interest in the Partnership. Our percentage ownership of the Partnership will change over time as the number of i-units we own becomes a different percentage of the total limited partner interests outstanding due to our ownership of additional i-units and other issuances of limited partner interests by the Partnership.
The information set forth under “Part I, Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Partnership’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011 is hereby incorporated by reference, as our results of operations, financial position and cash flows are dependent on the results of operations, financial position and cash flows of the Partnership.
The following table presents the Partnership’s allocation of net income and loss to Enbridge Energy Company, Inc., the general partner of the Partnership, referred to as the General Partner, and limited partners for the periods presented.
| | | | | | | | | | | | | | | | |
| | | For the three month period
ended September 30, | | | For the nine month period
ended September 30, | |
| | | 2011 | | | 2010 | | | 2011 | | | 2010 | |
| | | (unaudited; in millions) | |
Net income (loss) attributable to general and limited partner ownership interests in Enbridge Energy Partners, L.P. | | $ | 122.6 | | | $ | (406.4 | ) | | $ | 396.6 | | | $ | (151.0 | ) |
Less: Net income allocated to General Partner | | | 32.1 | | | | 9.3 | | | | 75.2 | | | | 45.8 | |
| | | | | | | | | | | | | | | | |
Net income (loss) allocated to limited partners | | $ | 90.5 | | | $ | (415.7 | ) | | $ | 321.4 | | | $ | (196.8 | ) |
| | | | | | | | | | | | | | | | |
Our net income of $7.8 million and $28.5 million for the three and nine month periods ended September 30, 2011, respectively, and our net loss of $38.0 million and $18.2 million for the three and nine month periods ended September 30, 2010, represents equity in earnings and losses attributable to the i-units that we own decreased by deferred income tax expense. Deferred income tax expense is calculated based on the difference between the accounting and tax basis of our investment in the Partnership and the combined federal and state income tax rate of 37.2% for the three and nine month periods ended September 30, 2011 and 37.9% for the three and nine month periods ended 2010, applied to our share of the earnings of the Partnership for the respective periods.
For the three months ended September 30, 2011, our net income increased by $45.8 million as compared to the same period in 2010. The increase is primarily attributable to the $73.2 million increase in equity income from the Partnership resulting from the increase in its net income in relation to the same period in 2010. This increase was slightly offset by $27.4 million of additional income tax expense associated with the increase in our net income. In 2010, the Partnership sustained losses from two crude oil releases that adversely affected its operating results and consequently the equity income we derive from the Partnership’s operations.
For the nine months ended September 30, 2011, our net income increased by $46.7 million as compared to the same period in 2010. The components comprising our net income changed during the nine month period ended September 30, 2011 compared with the same period in 2010 for the same reasons as noted above in the three-month analysis.
9
The Partnership records an adjustment to the carrying value of its book capital accounts when it issues additional common units and the new issuance price per unit is greater than or less than the average cost per unit for each class of units. We refer to these adjustments as capital account adjustments. We recognize any capital account adjustments recorded by the Partnership to the book capital account it maintains for our i-units by increasing or decreasing our investment in the Partnership and recording a corresponding capital account adjustment directly to “Shareholders’ equity” on our statements of financial position in conjunction with our adoption of the authoritative accounting guidance for noncontrolling interests in consolidated financial statements.
Partnership Issuances of Class A Common Units
The following table presents the issuances of additional Class A common units by the Partnership for the current year, excluding issuances under the Partnership’s Equity Distribution Agreement, or EDA, and the Amended and Restated Equity Distribution Agreement, or Amended EDA.
| | | | | | | | | | | | | | | | | | | | | | | | |
2011 Issuance Date | | Number of
Class A
Common units
Issued | | | Average
Offering Price
per Class A
common unit | | | Net Proceeds
to the
Partnership (1) | | | Ownership
Percentage in the
Partnership Prior
to the Issuance | | | Ownership
Percentage in the
Partnership After
the Issuance | | | Increases in
the Book
Value of
Investment (2) | |
| | | (in millions, except units and per unit amount) | |
September | | | 8,000,000 | | | $ | 28.20 | | | $ | 218.3 | | | | 13.7 | % | | | 13.3 | % | | $ | 12.1 | |
July | | | 8,050,000 | | | $ | 30.00 | | | | 233.7 | | | | 14.0 | % | | | 13.5 | % | | $ | 15.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
2011 Totals | | | 16,050,000 | | | | | | | $ | 452.0 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Net of underwriters’ fees and discounts, commissions and issuance expenses if any. |
| (2) | Before the effect of income taxes. |
Equity Distribution Agreement
In June 2010, the Partnership entered into an EDA for the issue and sale from time to time of its Class A common units up to an aggregate amount of $150.0 million. On May 27, 2011, the Partnership entered into an Amended EDA for the issue and sale from time to time of its Class A common units up to an aggregate amount of $500.0 million from the execution of the agreement through May 20, 2014.
During the period from execution of the EDA through May 25, 2011, the Partnership sold 2,118,025 Class A common units, representing 4,236,050 units after giving effect to a two-for-one split of their Class A common units that became effective on April 21, 2011, for aggregate gross proceeds of $124.8 million of which $64.5 million are gross proceeds received in 2011, and no further sales will be made under that agreement. On May 27, 2011, the Partnership de-registered the remaining aggregate $25.2 million of Class A common units that were registered under the EDA and remained unsold as of that date.
The following table presents the net proceeds from the Partnership’s Class A common unit issuances, resulting from the Amended EDA, during the nine month period ended September 30, 2011:
| | | | | | | | | | | | | | | | | | | | | | | | |
Issuance Date | | Number of
Class A
common units
Issued | | | Average
Offering Price
per Class A
common unit | | | Net Proceeds
to the
Partnership (1) | | | Ownership
Percentage in the
Partnership Prior
to the Issuance | | | Ownership
Percentage in the
Partnership After
the Issuance | | | Increases in
the Book
Value of
Investment (2) | |
| | | (unaudited; in millions, except units and per unit amounts) | |
May 27 to June 30, 2011 | | | 333,794 | | | $ | 30.30 | | | $ | 9.9 | | | | 14.0 | % | | | 14.0 | % | | $ | 1.2 | |
July 1 to September 30, 2011 | | | 751,766 | | | $ | 28.38 | | | | 20.8 | | | | 13.7 | % | | | 13.3 | % | | $ | 1.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 1,085,560 | | | | | | | $ | 30.7 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Net of commissions and issuance costs of $0.4 million and $0.6 million for the three and nine month periods ended September 30, 2011. |
| (2) | Before the effect of income taxes. |
10
For the three and nine month periods ended September 30, 2011, we recorded $28.2 million and $33.5 million, respectively, of capital account adjustments with respect to all the Partnership’s Class A common unit issuances. The after tax effect of these capital account adjustments to our Shareholders’ equity at September 30, 2011 was $17.8 million and $21.1 million, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Our authorized capital structure consists of two classes of membership interests: (1) our listed shares, which we refer to as Listed Shares, are traded on the New York Stock Exchange, or NYSE, which represent limited liability company interests with limited voting rights, and (2) our voting shares, which represent limited liability company interests with full voting rights. At September 30, 2011, our issued capitalization consisted of $825.5 million associated with our 37,053,942 Listed Shares outstanding.
The number of our shares outstanding, including the voting shares owned by the General Partner, will at all times equal the number of i-units we own in the Partnership. Typically, the General Partner and owners of the Partnership’s Class A and B common units will receive distributions from the Partnership in cash. Instead of receiving cash distributions on the i-units we own, however, we receive additional i-units under the terms of the Partnership’s limited partnership agreement. The amount of additional i-units we receive is calculated by dividing the amount of the 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 for the 10-trading day period immediately preceding the ex-dividend date for our shares, multiplied by the number of our shares outstanding on the record date. We make share distributions to our shareholders concurrently with the i-unit distributions we receive from the Partnership that increases the number of i-units we own. As a result of our share distributions, the number of shares outstanding is equal to the number of i-units that we own in the Partnership.
INCOME TAXES
Our income tax expense of $4.8 million and $16.9 million for the three and nine month periods ended September 30, 2011, respectively, is $27.4 million and $28.0 million more than the income tax benefit we incurred for the corresponding periods in 2010. The increase in income tax expense for the three and nine month periods ended September 30, 2011 as compared to the same periods in 2010 was due to the increase in our net income primarily associated with increased amounts of equity income we recognized from the Partnership.
We computed our income tax expense for the three and nine month periods ended September 30, 2011 by applying a 37.2% effective income tax rate to our pre-tax income, which represents the federal statutory rate of 35.0% and the effective state income tax rate of 2.2%. For the three and nine month periods ended 2010 our income tax benefit was computed by applying a 37.9% effective income tax rate to our pre-tax loss, which represents the federal statutory rate of 35.0% and the effective state income tax rate of 2.9%.
SUBSEQUENT EVENTS
Share Distribution
On October 28, 2011, our board of directors declared a share distribution payable on November 14, 2011, to shareholders of record as of November 4, 2011, based on the $0.53250 per limited partner unit distribution declared by the Partnership. The Partnership’s distribution increases the number of i-units we own. The amount of this increase is calculated by dividing the cash amount distributed by the Partnership per common unit, by the average closing price of one of our Listed Shares on the NYSE for the 10-trading day period immediately preceding the ex-dividend date for our shares, multiplied by the number of shares outstanding on the record date. We distribute additional Listed Shares to our Listed shareholders and additional shares to the General Partner in respect of these additional i-units.
11
RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
Accounting Standards Update—Presentation of Comprehensive Income
In June 2011, the Financial Accounting Standards Board, or FASB, issued guidance on the presentation of comprehensive income as part of the FASB’s joint project with the International Accounting Standards Board, or IASB, requiring presentation of net income and other comprehensive income either in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive, statements of net income and other comprehensive income. The guidance eliminated the option to report other comprehensive income and its components in the statement of changes in equity and the disclosure of reclassification adjustments in the footnotes. The guidance does not change which components of comprehensive income are recognized in net income or other comprehensive income, when an item of other comprehensive income must be reclassified to net income or the earnings-per-share computation.
The accounting update is effective for the first reporting period beginning after December 15, 2011, with early application permitted. The guidance requires retrospective application. We do not intend to adopt the provisions of this pronouncement early. Our adoption of this pronouncement will require us to modify the items we present in the consolidated statements of comprehensive income.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
The nature of our business and operations is such that we do not conduct activities or enter into transactions of the type requiring discussion under this item.
For a discussion of these matters as they pertain to the Partnership, please read the information set forth under “Part I, Item 3—Quantitative and Qualitative Disclosures about Market Risk” in the Partnership’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011, which is hereby incorporated by reference, as activities of the Partnership have an impact on our results of operations and financial position.
| Item 4. | Controls and Procedures |
Enbridge Management and Enbridge Inc., or Enbridge, maintain systems of disclosure controls and procedures designed to provide reasonable assurance that we are able to record, process, summarize and report the information required to be disclosed in our annual and quarterly reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, within the time periods specified in the rules and forms of the Securities and Exchange Commission. These disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officers, has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2011. Based upon that evaluation, our principal executive and principal financial officers concluded that our disclosure controls and procedures are effective to accomplish their purpose. In conducting this assessment, our management relied on similar evaluations conducted by employees of Enbridge affiliates who provide certain treasury, accounting and other services on our behalf. We have not made any changes that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the three month period ended September 30, 2011.
12
PART II—OTHER INFORMATION
We are a participant in various legal proceedings arising in the ordinary course of business. Some of these proceedings are covered, in whole or in part, by insurance. We believe that the outcome of all these legal proceedings will not, individually or in the aggregate, have a material adverse effect on our operating results, cash flows or financial position.
Our risk factors have not materially changed from the disclosures included in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.
Reference is made to the “Index of Exhibits” following the signature page, which we hereby incorporate into this Item.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | |
| | | | | ENBRIDGE ENERGY MANAGEMENT, L.L.C. (Registrant) |
| | | |
Date: October 31, 2011 | | | | By: | | /S/ MARK A. MAKI |
| | | | | | Mark A. Maki |
| | | | | | President (Principal Executive Officer) |
| | | |
Date: October 31, 2011 | | | | By: | | /S/ STEPHEN J. NEYLAND |
| | | | | | Stephen J. Neyland |
| | | | | | Vice President, Finance (Principal Financial Officer) |
14
Index of Exhibits
Each exhibit identified below is filed as a part of this Quarterly Report on Form 10-Q. Exhibits included in this filing are designated by an asterisk; all exhibits not so designated are incorporated by reference to a prior filing as indicated.
| | |
Exhibit
Number | | Description |
| |
| 31.1* | | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
| 31.2* | | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
| 32.1* | | Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
| 32.2* | | Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
| 99.1 * | | Enbridge Energy Partners, L.P.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011. |
| |
| 101.INS* | | XBRL Instance Document. |
| 101.SCH* | | XBRL Taxonomy Extension Schema Document. |
| 101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase Document. |
| 101.DEF* | | XBRL Taxonomy Extension Definition Linkbase Document. |
| 101.LAB* | | XBRL Taxonomy Extension Label Linkbase Document. |
| 101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase Document. |
15
