UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
Dated October 30, 2003
Commission file number 0-21080
_____________________________________________________
ENBRIDGE INC.
(Exact name of Registrant as specified in its charter)
CANADA NONE
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
3000, 425 -- 1st STREET S.W.
CALGARY, ALBERTA, CANADA T2P 3L8
(Address of principal executive offices and postal code)
(403) 231-3900
(Registrants telephone number, including area code)
_____________________________________________________
[Indicate by check mark whether the Registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.]
Form 20-F _______ Form 40-F ___ x ___
[Indicate by check mark whether the Registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934].
Yes _______ No ___ x ___
THIS REPORT ON FORM 6-K SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE IN THE
REGISTRATION STATEMENTS ON FORM S-8 (FILE NO. 333-13456, 333-97305 AND 333-6436)
AND FORM F-3 (FILE NO. 33-77022) OF ENBRIDGE INC. AND TO BE PART THEREOF FROM
THE DATE ON WHICH THIS REPORT IS FURNISHED, TO THE EXTENT NOT SUPERSEDED BY
DOCUMENTS OR REPORTS SUBSEQUENTLY FILED OR FURNISHED.
Page 1
The following documents are being submitted herewith:
o Press Release dated October 30, 2003.
o Interim Report to Shareholders for the nine months ended September 30, 2003.
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 INC.
(Registrant)
Date: October 30, 2003 By: /s/ "Blaine G. Melnyk"
-------------------------
Blaine G. Melnyk
Corporate Secretary &
Associate General Counsel
Page 2
[ENBRIDGE LOGO]
NEWS RELEASE
ENBRIDGE REPORTS EARNINGS OF $639.9 MILLION FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2003
CALGARY, ALBERTA, OCTOBER 30, 2003 -- Enbridge Inc. today announced earnings
applicable to common shareholders of $639.9 million for the nine months ended
September 30, 2003, or $3.87 per share, compared with $542.5 million, or $3.42
per share, for the same period in 2002.
Earnings for the three months ended September 30, 2003 are $90.7 million, or
$0.54 per share, compared with a loss of $3.9 million, or $0.03 per share, for
the same period in 2002.
The 2003 results include a $169.1 million gain on the transfer of assets to
Enbridge Income Fund (EIF), whereas the prior year reflected a $240.0 million
gain on the sale of the retail services business, both after-tax and recorded in
the respective second quarters. The third quarter of 2002 included a $76.3
million writedown of the Enbridge Midcoast Energy assets. Excluding these gains
and the writedown, earnings have improved significantly from the prior year.
This is primarily a result of higher natural gas volumes on the gas distribution
system due to colder than normal weather, higher earnings from additional
interests in the Alliance Pipeline and higher earnings on the Enbridge crude oil
system following the Terrace expansion.
Enbridge President & Chief Executive Officer Patrick D. Daniel noted, "The third
quarter again highlights Enbridge's ability to generate consistent and sustained
earnings growth from its low risk infrastructure asset base. Earnings per share
for the nine months, after excluding significant non-recurring factors, are
higher by approximately 8% on a year over year basis. Looking forward, robust
continental energy demand fundamentals and increasing energy supply from Canada
will support continued growth. Enbridge is positioned to benefit from these
fundamentals and has a significant inventory of new projects that are in various
stages of development."
On October 30, 2003, the Enbridge Board of Directors declared quarterly
dividends of $0.415 per common share and $0.34375 per Series A Preferred Share.
Both dividends are payable on December 1, 2003 to shareholders of record on
November 14, 2003.
The Company has previously provided guidance for full year 2003 earnings per
common share of $2.80 - $2.90, excluding significant non-recurring factors. The
Company expects full year 2003 earnings per common share in the lower half of
that range.
-1-
CONSOLIDATED EARNINGS/(LOSS)
Three months ended Nine months ended
(millions of Canadian dollars) September 30, September 30,
----------------------------- --------------------- ----------------------
2003 2002 2003 2002
----- ----- ----- -----
Energy Transportation North 78.4 61.7 395.4 182.9
Energy Transportation South 7.1 (60.2) 31.8 (38.6)
Gas Distribution and Services 6.3 (1.9) 209.2 137.3
International 17.9 16.4 52.1 50.4
Corporate (19.0) (19.9) (48.6) (31.8)
----- ----- ----- -----
90.7 (3.9) 639.9 300.2
Discontinued Operations - - - 242.3
----- ----- ----- -----
90.7 (3.9) 639.9 542.5
===== ===== ===== =====
Significant non-recurring factors and variances affecting consolidated earnings
are as follows:
o Energy Transportation North includes a $169.1 million after-tax gain on the
sale of assets to Enbridge Income Fund (EIF) recorded in the second quarter
of 2003.
o Energy Transportation South included a $76.3 million after-tax writedown of
the Enbridge Midcoast Energy assets recorded in the third quarter of 2002.
o Energy Transportation South includes a $9.2 million dilution gain on an
Enbridge Energy Partners, L.P. (EEP) unit issuance in the second quarter of
2003, whereas the prior year included a $6.1 million dilution gain in the
first quarter.
o Gas Distribution and Services includes the positive effect of colder than
normal weather of $44.2 million in 2003, including $2.5 million in the
third quarter. In the nine months ended September 30, 2002, warm weather
negatively affected earnings by $29.4 million; however, during the third
quarter weather was colder, which increased earnings by $10.0 million. The
positive weather effect in 2003 is partially offset by a $7.1 million
regulatory disallowance related to a prior year and recorded in the first
quarter of 2003.
o Corporate included a $17.8 after-tax million gain on a sale of marketable
securities recorded in the first quarter of 2002.
o The second quarter of each year includes the effect of the Alberta 0.5% tax
rate reductions. The 2003 results also include the effect of a higher
federal future tax rate since federal surtax will apply when large
corporations tax is eliminated. These tax rate changes result in a $7.1
million net charge to earnings in the second quarter of 2003 compared with
a net recovery of $1.4 million in the comparable period of the prior year.
o Discontinued operations included a $240.0 million after-tax gain on the
sale of the retail energy services business in 2002.
Operating factors that enhance earnings in 2003 include the additional ownership
interest in Alliance, Terrace Phase III, which was placed into service April 1,
2003, improved results from gas service activities and higher earnings from EEP
and CLH of
-2-
Spain. These positive factors are partially offset by the absence of earnings
from Enbridge Midcoast Energy, sold to an affiliate of Enbridge in October 2002,
and an increased loss from Aux Sable.
--------------------------------------------------------------------------------
ENERGY TRANSPORTATION NORTH
--------------------------------------------------------------------------------
Three months ended Nine months ended
(millions of Canadian dollars) September 30, September 30,
------------------------------ ----------------------- -----------------------
2003 2002 2003 2002
----- ----- ----- -----
Enbridge System 43.2 33.9 113.5 102.2
Athabasca System 12.1 11.1 35.2 30.6
NW System 2.1 2.7 6.2 7.1
Saskatchewan System - 1.6 3.1 4.9
Alliance Pipeline (US) 9.3 4.5 27.0 13.8
Alliance Pipeline (Canada) - 4.7 19.6 15.2
Vector Pipeline 1.7 2.6 6.0 5.0
Enbridge Income Fund 7.5 - 7.5 -
Other 2.5 0.6 8.2 4.1
---- ---- ----- -----
78.4 61.7 226.3 182.9
Gain on sale of assets to Enbridge Income Fund - - 169.1 -
---- ---- ----- -----
78.4 61.7 395.4 182.9
==== ==== ===== =====
o Enbridge System earnings include incremental earnings from Terrace as Phase
III was placed into service on April 1, 2003. To a lesser degree, the
timing of operating and maintenance expenses also favourably impacted
earnings in the third quarter of 2003.
o Higher earnings from the Athabasca System are primarily the result of the
completion of additional facilities and tankage.
o Alliance Pipeline (US) earnings reflect the additional ownership interests
of 15.7% acquired in the fourth quarter of 2002, 1.1% in March 2003 and
11.8% in April 2003, of which 1.1% is expected to close in the fourth
quarter of 2003.
o Vector earnings reflect increased volumes due to both colder than normal
weather in eastern Canada and higher storage injections. This is offset in
part by the cumulative effect of a change in depreciable life from 20 to 25
years in accordance with FERC guidelines which was recorded in the third
quarter of 2002.
o EIF commenced operations July 1, 2003 and the earnings from this investment
more than offset the 2002 third quarter earnings from the Saskatchewan
System and Alliance Pipeline (Canada), which are now included in EIF.
However, the interest in Alliance Pipeline (Canada) was only 21.4% in 2002
and had increased to 50% prior to the disposition to EIF.
-3-
--------------------------------------------------------------------------------
ENERGY TRANSPORTATION SOUTH
--------------------------------------------------------------------------------
Three months ended Nine months ended
(millions of Canadian dollars) September 30, September 30,
------------------------------ --------------------- ---------------------
2003 2002 2003 2002
----- ----- ----- -----
Enbridge Energy Partners 6.0 4.5 19.7 13.3
Feeder Pipelines and Other 1.1 2.7 2.9 7.1
Enbridge Midcoast Energy - 8.9 - 11.2
Enbridge Energy Partners dilution gain - - 9.2 6.1
--- ----- ----- -----
7.1 16.1 31.8 37.7
Writedown of Enbridge Midcoast Energy assets - (76.3) - (76.3)
--- ----- ----- -----
7.1 (60.2) 31.8 (38.6)
=== ----- ===== =====
o Higher earnings from EEP are due to the acquisition of the Enbridge
Midcoast Energy assets in October 2002.
o Feeder Pipelines and Other reflect lower earnings from Frontier as a result
of lower tolls and volumes as well as higher costs on the Toledo System.
o In each year, EEP issued additional common units. Enbridge did not
participate in these offerings, resulting in dilution gains.
-4-
--------------------------------------------------------------------------------
GAS DISTRIBUTION AND SERVICES
--------------------------------------------------------------------------------
Three months ended Nine months ended
(millions of Canadian dollars) September 30, September 30,
------------------------------ -------------------- --------------------
2003 2002 2003 2002
---- ---- ---- ----
Enbridge Gas Distribution 2.8 (2.0) 171.5 108.8
Noverco 0.6 1.3 22.6 24.6
CustomerWorks/ECS 4.5 2.5 13.3 8.0
Enbridge Gas New Brunswick 1.3 0.4 3.4 2.4
Aux Sable (1.6) (0.9) (8.2) (3.4)
Other Gas Distribution Operations 0.3 1.0 7.6 6.8
Gas Services (0.6) (4.4) (1.2) (9.8)
Other (1.0) 0.2 0.2 (0.1)
---- ---- ----- -----
6.3 (1.9) 209.2 137.3
==== ==== ===== =====
o Higher earnings in 2003 are attributable to the colder than normal weather
experienced in the Enbridge Gas Distribution franchise area, amounting to
$44.2 million. During the comparative nine months of 2002, weather was
warmer than normal, resulting in a $29.4 million reduction in earnings. In
2003, degree days, which are used as a measure of coldness, were 19.3%
greater than 2002 and 13.8% greater than the forecast based on normal
weather.
(millions of Canadian dollars) Three months ended Nine months ended
except number of degree days) September 30, September 30,
------------------------------ -------------------- --------------------
2003 2002 2003 2002
---- ---- ---- ----
Actual degree days 801 851 4,007 3,358
Forecast degree days based on normal weather 714 699 3,521 3,631
Earnings increase/(decrease) due to weather 2.5 10.0 44.2 (29.4)
o The positive effect of weather in the current year is offset in part by a
$7.1 million regulatory disallowance related to long-term transportation
contracts recognized in the first quarter of 2003. The improved earnings in
the third quarter of 2003 include the positive effect of the 2003 rate
settlement and a decrease in operating and maintenance expenses. Operating
and maintenance expenses were higher in the first and second quarters as a
result of colder than normal weather and the timing of expenditures.
o The main component of CustomerWorks/ECS earnings in 2003 is the
contribution from CustomerWorks. The primary operations of Enbridge
Commercial Services (ECS) were rebundled in Enbridge Gas Distribution at
the end of 2002. In 2002, earnings from CustomerWorks were affected by
activity levels, including customer service calls, which were lower due to
warmer weather. In 2003, earnings are based
-5-
on a fixed fee assuming normal activity and reflect growth in the
CustomerWorks customer base.
o The loss from Aux Sable reflects the combined effect of higher natural gas
prices and lower ethane prices, most significantly during the second
quarter. The results from Aux Sable in 2003 also reflect the increase in
ownership interest from 21.4% to 42.7% offset by lower depreciation as the
acquisition of the additional interest was at a discount to the book value.
o The loss of $1.2 million for Gas Services in 2003 is an improvement of $8.6
million from the same period last year. The improvement is due primarily to
the commencement of fee-based gas service management contracts with certain
U.S.-based companies in late 2002 and increased demand for natural gas and
associated transmission service, reducing merchant capacity losses on
Alliance and Vector.
-6-
--------------------------------------------------------------------------------
INTERNATIONAL
--------------------------------------------------------------------------------
Three months ended Nine months ended
(millions of Canadian dollars) September 30, September 30,
------------------------------ -------------------- --------------------
2003 2002 2003 2002
---- ---- ---- ----
OCENSA/CITCol 8.1 9.8 24.0 28.1
CLH 11.4 7.6 32.5 23.9
Jose Terminal and Other (1.6) (1.0) (4.4) (1.6)
---- ---- ---- ----
17.9 16.4 52.1 50.4
==== ==== ==== ====
o Earnings from OCENSA/CITCol decreased due to lower incentive earnings from
CITCol, consistent with prior quarters.
o Operating results from CLH reflect increased volumes and the impact of the
stronger Euro, partially offset by a reduction in marine fleet revenues due
to the scheduled retirement of certain ships.
o As a result of a breach of the Jose Terminal operating agreement by PDVSA,
the Venezuelan state oil company, the SWEC Partnership has filed a notice
of contract termination and has filed for international arbitration, as
provided for in the operating agreement. The Company ceased recognition of
earnings commencing February 1, 2003. Other is primarily administration and
business development costs and the results of the Technology business.
-7-
--------------------------------------------------------------------------------
CORPORATE
--------------------------------------------------------------------------------
Corporate costs total $48.6 million for the nine months ended September 30, 2003
compared to $31.8 million for the same period in 2002. The 2002 results included
a $17.8 million after-tax gain on the sale of marketable securities. For the
three months ended September 30, 2003, corporate costs are $19.0 million
compared to $19.9 million for the same period in 2002.
Enbridge will hold a conference call at 2:15 p.m. Mountain time (4:15 p.m.
Eastern time) today to discuss the third quarter results. The call can be
accessed at 1-800-375-9259 and will be broadcast live on the Internet at
WWW.ENBRIDGE.COM/INVESTOR. A replay will be available shortly thereafter at
1-800-408-3053 using the access code 1488876#..
The interim financial statements and MD&A are available on Enbridge's website.
--------------------------------------------------------------------------------
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 website
at www.enbridge.com.
--------------------------------------------------------------------------------
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 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 CONTACTS:
MEDIA INVESTMENT COMMUNITY
Jim Rennie Colin Gruending
(403) 231-3931 (403) 231-5919
E-mail: jim.rennie@enbridge.com E-mail: colin.gruending@enbridge.com
-8-
ENBRIDGE INC.
MANAGEMENT'S DISCUSSION & ANALYSIS
SEPTEMBER 30, 2003
This discussion should be read in conjunction with the unaudited consolidated
financial statements of Enbridge Inc. as at and for the three and nine months
ended September 30, 2003.
--------------------------------------------------------------------------------
CONSOLIDATED EARNINGS/(LOSS)
--------------------------------------------------------------------------------
Three Months Ended Nine Months ended
(millions of Canadian dollars) September 30, September 30,
------------------------------ -------------------------- --------------------------
2003 2002 2003 2002
----- ----- ----- -----
Energy Transportation North 78.4 61.7 395.4 182.9
Energy Transportation South 7.1 (60.2) 31.8 (38.6)
Gas Distribution and Services 6.3 (1.9) 209.2 137.3
International 17.9 16.4 52.1 50.4
Corporate (19.0) (19.9) (48.6) (31.8)
----- ----- ----- -----
90.7 (3.9) 639.9 300.2
Discontinued Operations - - - 242.3
----- ----- ----- -----
90.7 (3.9) 639.9 542.5
===== ===== ===== =====
Earnings applicable to common shareholders are $639.9 million for the nine
months ended September 30, 2003, or $3.87 per share, compared with $542.5
million, or $3.42 per share, for the comparable nine months of 2002.
Earnings applicable to common shareholders for the three months ended September
30, 2003 are $90.7 million, or $0.54 per share, compared with a loss of $3.9
million, or $0.03 per share, for the three months ended September 30, 2002.
Significant factors and variances affecting consolidated earnings are as
follows:
o Energy Transportation North includes a $169.1 million after-tax gain on the
sale of assets to Enbridge Income Fund (EIF) recorded in the second quarter
of 2003.
o Energy Transportation South included a $76.3 million after-tax writedown of
the Enbridge Midcoast Energy assets recorded in the third quarter of 2002.
o Energy Transportation South includes a $9.2 million dilution gain on an
Enbridge Energy Partners, L.P. (EEP) unit issuance in the second quarter of
2003, whereas the prior year included a $6.1 million dilution gain in the
first quarter.
o Gas Distribution and Services includes the positive effect of colder than
normal weather of $44.2 million in 2003, including $2.5 million in the
third quarter. In the nine months ended September 30, 2002, warm weather
negatively affected earnings by $29.4 million; however, during the third
quarter the weather was colder, which increased earnings by $10.0 million.
The positive weather effect in 2003 is partially offset by a $7.1 million
regulatory disallowance related to a prior year and recorded in the first
quarter of 2003.
-1-
o Corporate included a $17.8 million after-tax gain on a sale of marketable
securities recorded in the first quarter of 2002.
o The second quarter of each year includes the effect of the Alberta 0.5% tax
rate reductions. The 2003 results also include the effect of a higher
federal future tax rate since federal surtax will apply when large
corporations tax is eliminated. These tax rate changes result in a $7.1
million net charge to earnings in the second quarter of 2003 compared with
a net recovery of $1.4 million in the comparable period of the prior year.
o Discontinued operations included a $240.0 million after-tax gain on the
sale of the retail energy services business in 2002.
Operating factors that enhance earnings in 2003 include the additional ownership
interest in Alliance, Terrace Phase III, which was placed into service April 1,
2003, improved results from gas service activities and higher earnings from EEP
and CLH of Spain. These positive factors are partially offset by the absence of
earnings from Enbridge Midcoast Energy, sold in October 2002 to an affiliate of
Enbridge, and an increased loss from Aux Sable.
RECENT DEVELOPMENTS
SPEARHEAD PIPELINE
In September 2003, Enbridge closed the previously announced acquisition of a 90%
interest in the Cushing to Chicago pipeline system from BP pipelines North
America Inc. For US$122 million. Of the total purchase price, US$57 million was
paid on the date of acquisition. The remaining us$65 million will be paid, at
the option of enbridge, prior to the reversal of the flow of the primarily
inactive pipeline but no later than December 31, 2004. Construction to reverse
the flow will commence when shipper support is confirmed and is expected to be
complete by January 1, 2005 at a cost of approximately US$20 million. Upon
reversal, this pipeline will provide Canadian producers with the ability to
transport Canadian crude oil south from Chicago to Cushing.
VECTOR PIPELINE
On October 1, 2003, Enbridge closed the acquisition of an additional 15%
interest in the Vector Pipeline from Duke Energy for US$72.5 million including
the assumption of Duke's US$45.6 million partner loan to Vector. Enbridge now
has a 60% interest in the Vector Pipeline and shares joint control with DTE
Energy which owns the remaining 40%.
OUTLOOK
On October 10, 2003, the Company received a written decision from the Ontario
Energy Board (OEB) in respect of the Enbridge Gas Distribution Inc. (Enbridge
Gas) fiscal 2004 rate application. Rates in 2004 will increase 1.8% above 2003
rates. The decision includes a 50/50 sharing mechanism with ratepayers should
Enbridge Gas exceed the benchmark return on equity of 9.69% on a weather
normalized basis. A decision on the hearings with respect to operation and
maintenance expense outsourcing and the review of the OEB formula for setting
return on equity remain outstanding, pending a decision by the OEB, and it is
uncertain as to how these decisions will impact 2004 rates.
The Company has previously provided guidance for full year 2003 earnings per
common share of $2.80 - $2.90, excluding significant non-recurring factors. The
Company affirms full year 2003 earnings per common share guidance in the lower
half of that range.
-2-
FINANCIAL RESULTS
ENERGY TRANSPORTATION NORTH
--------------------------------------------------------------------------------
EARNINGS
--------------------------------------------------------------------------------
Three Months ended Nine Months ended
(millions of Canadian dollars) September 30, September 30,
------------------------------ -------------------------- --------------------------
2003 2002 2003 2002
----- ----- ----- -----
Enbridge System 43.2 33.9 113.5 102.2
Athabasca System 12.1 11.1 35.2 30.6
NW System 2.1 2.7 6.2 7.1
Saskatchewan System - 1.6 3.1 4.9
Alliance Pipeline (US) 9.3 4.5 27.0 13.8
Alliance Pipeline (Canada) - 4.7 19.6 15.2
Vector Pipeline 1.7 2.6 6.0 5.0
Enbridge Income Fund 7.5 - 7.5 -
Other 2.5 0.6 8.2 4.1
---- ---- ----- -----
78.4 61.7 226.3 182.9
Gain on sale of assets to Enbridge Income Fund - - 169.1 -
---- ---- ----- -----
78.4 61.7 395.4 182.9
==== ==== ===== =====
Earnings are $395.4 million for the nine months ended September 30, 2003, an
increase of $212.5 million over the same period in 2002. The results include a
$169.1 million after-tax gain on the sale of the Saskatchewan System and the 50%
interest in Alliance Pipeline (Canada) to EIF, effective June 30, 2003. The
results also reflect higher earnings from the Enbridge System, Athabasca System,
Alliance Pipeline and Vector Pipeline.
Enbridge System earnings include incremental earnings from Terrace as Phase III
was placed into service on April 1, 2003. To a lesser degree, the timing of
operating and maintenance expenses also favourably impacted earnings in the
third quarter of 2003.
Higher earnings from the Athabasca System are primarily the result of the
completion of additional facilities and tankage.
Alliance Pipeline (US) earnings reflect the additional ownership interests of
15.7% acquired in the fourth quarter of 2002, 1.1% in March 2003 and 11.8% in
April 2003, of which 1.1% is expected to close in the fourth quarter of 2003.
Vector earnings for the nine months ended September 30, 2003 reflect increased
volumes due to both colder than normal weather in eastern Canada and higher
storage injections. This increase is offset in part by the cumulative effect of
a change in depreciable life from 20 to 25 years in accordance with FERC
guidelines which was recorded in the third quarter of 2002.
EIF commenced operations July 1, 2003 and the earnings from this investment more
than offset the 2002 third quarter earnings from the Saskatchewan System and
Alliance Pipeline
-3-
(Canada), which are now included in EIF. However, the interest in Alliance
Pipeline (Canada) was only 21.4% in 2002 and had increased to 50% prior to the
disposition to EIF.
Earnings for the three months ended September 30, 2003 are $78.4 million, an
increase of $16.7 million from the same period last year. The three month
results include the incremental earnings from Terrace Phase III and higher
earnings from Alliance Pipeline (US) resulting from the increased ownership
interest. To a lesser degree, the timing of operating and maintenance expenses
on the Enbridge System also favourably impacted earnings in the third quarter of
2003. Earnings for the third quarter of 2003 also include the results of EIF,
offset by the absence of earnings from the Saskatchewan System and Alliance
Canada which were sold to EIF.
ENERGY TRANSPORTATION SOUTH
--------------------------------------------------------------------------------
EARNINGS/(LOSS)
--------------------------------------------------------------------------------
Three Months ended Nine Months ended
(millions of Canadian dollars) September 30, September 30,
------------------------------ ----------------------------------- ------------------------------------
2003 2002 2003 2002
---- ----- ----- -----
Enbridge Energy Partners 6.0 4.5 19.7 13.3
Feeder Pipelines and Other 1.1 2.7 2.9 7.1
Enbridge Midcoast Energy - 8.9 - 11.2
Enbridge Energy Partners dilution gain - - 9.2 6.1
--- ----- ----- -----
7.1 16.1 31.8 37.7
Writedown of Enbridge Midcoast Energy assets - (76.3) - (76.3)
--- ----- ----- -----
7.1 (60.2) 31.8 (38.6)
=== ===== ===== =====
Earnings are $31.8 million for the first nine months of 2003, compared with a
loss of $38.6 million for the same period of 2002. Included in the 2002 results
was a $76.3 million writedown of the Enbridge Midcoast Energy assets which were
sold to EEP in October 2002. The current year results reflect higher earnings
from EEP due to the acquisition of the Enbridge Midcoast Energy assets in
October 2002.
Feeder Pipelines and Other reflect lower earnings from Frontier as a result of
lower tolls and volumes as well as higher costs on the Toledo System.
In each year, EEP issued additional common units. Enbridge did not participate
in these offerings, resulting in dilution gains.
For the three months ended September 30, 2003, earnings are $7.1 million
compared with a loss of $60.2 million for the same period in 2002. The three
month results reflect similar factors as the nine month results.
-4-
GAS DISTRIBUTION AND SERVICES
--------------------------------------------------------------------------------
EARNINGS/(LOSS)
--------------------------------------------------------------------------------
Three Months ended Nine Months ended
(millions of Canadian dollars) September 30, September 30,
------------------------------ ----------------------- -------------------------
2003 2002 2003 2002
---- ---- ----- -----
Enbridge Gas Distribution 2.8 (2.0) 171.5 108.8
Noverco 0.6 1.3 22.6 24.6
CustomerWorks/ECS 4.5 2.5 13.3 8.0
Enbridge Gas New Brunswick 1.3 0.4 3.4 2.4
Aux Sable (1.6) (0.9) (8.2) (3.4)
Other Gas Distribution Operations 0.3 1.0 7.6 6.8
Gas Services (0.6) (4.4) (1.2) (9.8)
Other (1.0) 0.2 0.2 (0.1)
---- ---- ----- -----
6.3 (1.9) 209.2 137.3
==== ==== ===== =====
Earnings are $209.2 million for the nine months ended September 30, 2003,
compared with $137.3 million for the nine months ended September 30, 2002.
Higher earnings in 2003 are attributable to the colder than normal weather
experienced in the Enbridge Gas Distribution franchise area, amounting to $44.2
million. During the comparative nine months of 2002, weather was warmer than
normal, resulting in a $29.4 million reduction in earnings. In 2003, degree
days, which are used as a measure of coldness, were 19.3% greater than 2002 and
13.8% greater than the forecast based on normal weather.
(millions of Canadian dollars Three Months ended Nine Months ended
except number of degree days) September 30, September 30,
----------------------------- ------------------------ ------------------------
2003 2002 2003 2002
---- ----- ----- -----
Actual degree days 801 851 4,007 3,358
Forecast degree days based on normal weather 714 699 3,521 3,631
Earnings increase/(decrease) due to weather 2.5 10.0 44.2 (29.4)
The positive effect of weather in the current year is offset in part by a $7.1
million regulatory disallowance related to long-term transportation contracts
recognized in the first quarter of 2003. The improved earnings in the third
quarter of 2003 include the positive effect of the 2003 rate settlement and a
decrease in operating and maintenance expenses. Operating and maintenance
expenses were higher in the first and second quarters as a result of colder than
normal weather and the timing of expenditures.
The main component of CustomerWorks/ECS earnings in 2003 is the contribution
from CustomerWorks. The primary operations of Enbridge Commercial Services (ECS)
were rebundled in Enbridge Gas Distribution at the end of 2002. In 2002,
earnings from CustomerWorks were affected by activity levels, including customer
service calls, which were
-5-
lower due to warmer weather. In 2003, earnings are based on a fixed fee assuming
normal activity and reflect growth in the CustomerWorks customer base.
The loss from Aux Sable reflects the combined effect of higher natural gas
prices and lower ethane prices, most significantly during the second quarter.
The results from Aux Sable in 2003 also reflect the increase in ownership
interest from 21.4% to 42.7% offset by lower depreciation as the acquisition of
the additional interest was at a discount to the book value.
The loss of $1.2 million for Gas Services in 2003 is an improvement of $8.6
million from the same period last year. The improvement is due primarily to the
commencement of fee-based gas service management contracts with certain
U.S.-based companies in late 2002 and increased demand for natural gas and
associated transmission service, reducing merchant capacity losses on Alliance
and Vector.
For the three months ended September 30, 2003 earnings are $6.3 million, an
increase of $8.2 million from the same period last year. The weather in the
third quarter, while colder than normal, was warmer than the same period in
2002. The improved earnings in the third quarter of 2003 include the positive
effect of the 2003 rate settlement and decreasing operating and maintenance
expenses. Operating and maintenance expenses were higher in the first and second
quarters as a result of colder than normal weather and the timing of
expenditures.
The improvement in Gas Services and CustomerWorks/ECS during the third quarter
of 2003 reflects similar factors to those described for the nine months of 2003.
Due to the seasonal nature of energy distribution operations, quarterly earnings
are not indicative of full year results.
-6-
INTERNATIONAL
--------------------------------------------------------------------------------
EARNINGS
--------------------------------------------------------------------------------
Three Months ended Nine Months ended
(millions of Canadian dollars) September 30, September 30,
------------------------------ ----------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
OCENSA/CITCol 8.1 9.8 24.0 28.1
CLH 11.4 7.6 32.5 23.9
Jose Terminal and Other (1.6) (1.0) (4.4) (1.6)
---- ---- ---- ----
17.9 16.4 52.1 50.4
==== ==== ==== ====
Earnings are $52.1 million for the nine months ended September 30, 2003,
compared with $50.4 million for the same period in 2002 and reflect the
following factors.
Earnings from OCENSA/CITCol decreased due to lower incentive earnings from
CITCol, consistent with prior quarters.
Operating results from CLH reflect increased volumes and the impact of the
stronger Euro, partially offset by a reduction in marine fleet revenues due to
the scheduled retirement of certain ships.
As a result of a breach of the Jose Terminal operating agreement by PDVSA, the
Venezuelan state oil company, the SWEC Partnership has filed a notice of
contract termination and has filed for international arbitration, as provided
for in the operating agreement. The Company ceased recognition of earnings
commencing February 1, 2003. Other is primarily administration and business
development costs and the results of the Technology business.
For the three months ended September 30, 2003, earnings are $17.9 million and
are $1.5 million higher than earnings of $16.4 million for the three months
ended September 30, 2002. The three month results reflect an increase in
earnings from CLH due to increased volumes and the impact of the stronger Euro.
Offsetting this positive effect are lower incentive earnings from CITCol and the
contract termination at the Jose Terminal.
CORPORATE
Corporate costs total $48.6 million for the nine months ended September 30, 2003
compared with $31.8 million for the same period in 2002. The 2002 results
included a $17.8 million after-tax gain on the sale of marketable securities.
For the three months ended September 30, 2003, corporate costs are $19.0 million
compared with $19.9 million for the same period in 2002.
LIQUIDITY AND CAPITAL RESOURCES
Significant transactions in 2003 include the receipt of cash proceeds of $353.5
million from the sale of the Saskatchewan System and the 50% interest in
Alliance Canada to EIF. The Company also received $434.5 million when affiliate
financing due to Enbridge was reduced as EEP completed a public offering of
common units as well as a private offering of senior notes. Both of these
transactions occurred during the second quarter of 2003. Investing and
-7-
financing activity in the third quarter of 2003 is comparable to the prior year
comparative period with the exception of the Spearhead acquisition and the
common shares issued in the prior year.
The Company expects to generate sufficient cash from operations to fund budgeted
investing activity and common share dividends throughout the remainder of 2003.
Cash from operations reflects fluctuations due to the higher gas prices and
distribution volumes of the Enbridge Gas Distribution business. Temporary
differences between accounting and taxable income driven by changes in gas costs
to be settled with ratepayers have increased the amount of future income taxes
in 2003. The significant variance in operating assets and liabilities is due to
an increase in accounts receivable resulting from higher gas costs pending
recovery from ratepayers as well as higher equal billing plan balances.
Investing activities in 2003 primarily consist of additions to property, plant
and equipment at Enbridge Gas Distribution as well as an additional investment
in the Alliance pipeline, which closed in April 2003, and the acquisition of the
Spearhead Pipeline. Activities in 2002 were more significant and included the
acquisition of the Northeast Texas assets and the 25% equity investment in CLH,
both during the first three months of the year. Additions to property, plant and
equipment were also higher in 2002 due to the inclusion of Enbridge Midcoast
Energy and Athabasca System construction activity. Proceeds from the sale of
assets in both 2003 and 2002 have more than offset the cash used for investing
activities. These proceeds have been used to reduce debt levels pending future
deployment.
Financing activities in both years reflect the payment of common share
dividends. Additionally, debt has been reduced using significant cash proceeds
from the disposition of assets and the repayment of the loan from affiliate
during the second quarter of 2003. The Company also completed an issue of
preferred securities in February 2002 and common shares in September 2002.
On October 30, 2003, the Enbridge Board of Directors declared quarterly
dividends of $0.415 per common share and $0.34375 per Series A Preferred Share.
Both dividends are payable on December 1, 2003 to shareholders of record on
November 14, 2003.
When used in this report, 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 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.
-8-
ENBRIDGE INC.
HIGHLIGHTS(1)
--------------------------------------------------------------------------------
Three Months ended Nine Months ended
September 30, September 30,
(unaudited; millions of Canadian dollars, ---------------------- --------------------------
except per share amounts) 2003 2002 2003 2002
----------------------------------------- ----- ------ ------ ------
FINANCIAL
Earnings/(Loss) Applicable to Common Shareholders
Energy Transportation North 78.4 61.7 395.4 182.9
Energy Transportation South 7.1 (60.2) 31.8 (38.6)
Gas Distribution and Services 6.3 (1.9) 209.2 137.3
International 17.9 16.4 52.1 50.4
Corporate (19.0) (19.9) (48.6) (31.8)
----- ----- ------ -----
Continuing operations 90.7 (3.9) 639.9 300.2
Discontinued operations - - - 242.3
----- ----- ------ -----
90.7 (3.9) 639.9 542.5
===== ===== ====== =====
Cash Provided By Operating Activities
Earnings plus charges/(credits) not affecting cash 209.1 250.6 832.2 693.0
Changes in operating assets and liabilities (60.6) 16.3 (235.3) 193.2
Cash provided by operating activities of
discontinued operations - - - 28.6
----- ----- ------ -----
148.5 266.9 596.9 914.8
===== ===== ====== =====
Common Share Dividends 71.2 62.3 212.6 186.5
Per Common Share Amounts
Earnings/(Loss) from continuing operations 0.54 (0.03) 3.87 1.89
Earnings from discontinued operations - - - 1.53
----- ----- ------ -----
0.54 (0.03) 3.87 3.42
===== ===== ====== =====
Dividends per Common Share 0.415 0.380 1.245 1.140
===== ===== ====== =====
Weighted Average Common Shares Outstanding (millions) 165.2 158.9
===== ===== ====== =====
OPERATING
Energy Transportation(2)
Deliveries (thousands of barrels per day) 2,114 2,063 2,063 2,066
Barrel miles (billions) 178 173 522 522
Average haul (miles) 916 909 926 926
Gas Distribution and Services(3)
Volumes (billion cubic feet) 93 99 412 363
Number of active customers (thousands) 1,675 1,618 1,675 1,618
Degree day deficiency(4)
Actual 801 851 4,007 3,358
Forecast based on normal weather 714 699 3,521 3,631
===== ===== ====== =====
1. Highlights of Gas Distribution and Services reflect the results of Enbridge
Gas Distribution and other gas distribution operations on a one quarter lag
basis for the three and nine months ended June 30, 2003 and 2002.
2. Energy Transportation operating highlights include the statistics of the
13.2% owned Lakehead System and other wholly-owned liquid pipeline
operations.
3. Gas Distribution and Services 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 each
day by which the daily mean temperature falls below 18 degrees Celsius. The
figures given are those accumulated in the Toronto area.
-9-
ENBRIDGE INC.
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months ended Nine Months ended
September 30, September 30,
(unaudited; millions of Canadian dollars; ---------------------- -----------------------
except per share amounts) 2003 2002 2003 2002
----------------------------------------- ------- ------- ------- -------
Revenues
Gas sales 682.0 778.9 2,628.7 2,627.8
Transportation 329.9 308.9 1,209.2 1,049.5
Energy services 56.2 82.5 163.1 212.7
------- ------- ------- -------
1,068.1 1,170.3 4,001.0 3,890.0
------- ------- ------- -------
Expenses
Gas costs 597.1 683.8 2,300.7 2,285.9
Operating and administrative 180.9 240.4 577.1 663.2
Depreciation 107.4 98.1 334.0 303.4
Writedown of assets held for sale - 117.4 - 117.4
------- ------- ------- -------
885.4 1,139.7 3,211.8 3,369.9
------- ------- ------- -------
Operating Income 182.7 30.6 789.2 520.1
Investment and Other Income 49.0 69.6 154.5 215.2
Gain on Sale of Assets to Enbridge Income Fund - - 239.9 -
Interest Expense (108.5) (106.8) (337.1) (320.8)
------- ------- ------- -------
123.2 (6.6) 846.5 414.5
Income Taxes (24.1) 11.3 (181.4) (89.5)
------- ------- ------- -------
Earnings from Continuing Operations 99.1 4.7 665.1 325.0
Earnings from Discontinued Operations - - - 242.3
------- ------- ------- -------
Earnings 99.1 4.7 665.1 567.3
Preferred Security Distributions (6.7) (6.9) (20.1) (19.6)
Preferred Share Dividends (1.7) (1.7) (5.1) (5.2)
------- ------- ------- -------
Earnings/(Loss) Applicable to Common Shareholders 90.7 (3.9) 639.9 542.5
======= ======= ======= =======
Earnings/(Loss) Applicable to Common Shareholders
Continuing Operations 90.7 (3.9) 639.9 300.2
Discontinued Operations - - - 242.3
------- ------- ------- -------
90.7 (3.9) 639.9 542.5
======= ======= ======= =======
Earnings/(Loss) Per Common Share
Continuing Operations 0.54 (0.03) 3.87 1.89
Discontinued Operations - - - 1.53
------- ------- ------- -------
0.54 (0.03) 3.87 3.42
======= ======= ======= =======
Diluted Earnings/(Loss) Per Common Share
Continuing Operations 0.53 (0.03) 3.84 1.87
Discontinued Operations - - - 1.51
------- ------- ------- -------
0.53 (0.03) 3.84 3.38
======= ======= ======= =======
See accompanying notes to the unaudited consolidated financial statements.
-10-
ENBRIDGE INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
--------------------------------------------------------------------------------
Nine Months ended
September 30,
--------------------------
(unaudited; millions of Canadian dollars) 2003 2002
----------------------------------------- ------- -------
Retained Earnings at Beginning of Period 1,128.1 812.3
Earnings Applicable to Common Shareholders 639.9 542.5
Common Share Dividends (212.6) (186.5)
Preferred Securities Issue Costs - (4.2)
Effect of Change in Accounting for Stock-based Compensation - (5.4)
------- -------
Retained Earnings at End of Period 1,555.4 1,158.7
======= =======
See accompanying notes to the unaudited consolidated financial statements.
-11-
ENBRIDGE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
Three Months ended Nine Months ended
September 30, September 30,
---------------------- -------------------------
(unaudited; millions of Canadian dollars) 2003 2002 2003 2002
----------------------------------------- ------ ------ ------ -------
Cash Provided By Operating Activities
Earnings from continuing operations 99.1 4.7 665.1 325.0
Charges/(credits) not affecting cash
Depreciation 107.4 98.1 334.0 303.4
Equity earnings less than/(in excess of) cash distributions (9.6) 7.7 (42.6) (22.1)
Gain on assets sold to Enbridge Income Fund - - (239.9) -
Gain on reduction of ownership interest - - (19.2) (10.0)
Writedown of assets held for sale - 117.4 - 117.4
Gain on sale of securities - - - (21.4)
Future income taxes 4.6 41.0 128.1 48.4
Other 7.6 (18.3) 6.7 (47.7)
Changes in operating assets and liabilities (60.6) 16.3 (235.3) 193.2
Cash provided by operating activities of
discontinued operations - - - 28.6
------ ------ ------ --------
148.5 266.9 596.9 914.8
------ ------ ------ --------
Investing Activities
Additions to property, plant and equipment (96.3) (156.3) (271.9) (542.0)
Long-term investments (2.1) (14.7) (47.8) (463.5)
Acquisition of Spearhead Pipeline (78.3) - (78.3) -
Proceeds on redemption of ECT preferred units 24.9 - 24.9 -
Sale of assets to Enbridge Income Fund - - 331.2 -
Disposition of Energy Services business - - - 993.3
Asset acquisition - - - (289.3)
Changes in construction payable 1.0 3.3 (4.3) (12.2)
Loans to affiliate (3.7) (0.2) 430.8 222.3
Sale of securities - - - 110.5
Other - 11.8 - 15.9
------ ------ ------ --------
(154.5) (156.1) 384.6 35.0
------ ------ ------ --------
Financing Activities
Net change in short-term borrowings
and short-term debt 28.4 (206.3) (437.9) (1,035.6)
Long-term debt issues - - 150.0 247.4
Long-term debt repayments (100.0) - (325.0) (257.7)
Non-recourse long-term debt issued by joint ventures - - 525.6 -
Non-recourse long-term debt repaid by joint ventures (9.8) - (663.8) -
Non-controlling interests (1.3) (1.4) (3.2) (3.7)
Preferred securities issued - - - 193.5
Common shares issued 25.5 258.2 54.5 289.6
Preferred security distributions (6.7) (6.9) (20.1) (19.6)
Preferred share dividends (1.7) (1.7) (5.1) (5.2)
Common share dividends (71.2) (62.3) (212.6) (186.5)
------ ------ ------ --------
(136.8) (20.4) (937.6) (777.8)
------ ------ ------ --------
Increase/(Decrease) in Cash (142.8) 90.4 43.9 172.0
Cash at Beginning of Period 227.4 155.6 40.7 74.0
------ ------ ------ --------
Cash at End of Period 84.6 246.0 84.6 246.0
====== ====== ====== ========
See accompanying notes to the unaudited consolidated financial statements.
-12-
ENBRIDGE INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
--------------------------------------------------------------------------------
September 30, December 31,
(millions of Canadian dollars) 2003 2002
------------------------------ ------------ -----------
(unaudited) (audited)
ASSETS
Current Assets
Cash 84.6 40.7
Accounts receivable and other 955.9 817.5
Gas in storage 516.2 583.8
-------- --------
1,556.7 1,442.0
Property, Plant and Equipment, net 8,070.1 6,947.6
Long-Term Investments 2,777.3 3,371.5
Receivable from Affiliate 175.5 701.5
Deferred Amounts 407.5 315.8
Future Income Taxes 123.4 209.0
-------- --------
13,110.5 12,987.4
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings 328.7 247.5
Accounts payable and other 574.5 714.1
Interest payable 76.7 102.6
Current maturities and short-term debt 281.4 652.3
Future income taxes 54.4 -
-------- --------
1,315.7 1,716.5
Long-Term Debt 6,307.9 6,040.3
Future Income Taxes 711.9 837.4
Non-Controlling Interests 529.8 560.8
-------- --------
8,865.3 9,155.0
Shareholders' Equity
Share capital
Preferred securities 532.7 533.7
Preferred shares 125.0 125.0
Common shares 2,223.6 2,169.0
Retained earnings 1,555.4 1,128.1
Foreign currency translation adjustment (55.8) 12.3
Reciprocal shareholding (135.7) (135.7)
-------- --------
4,245.2 3,832.4
-------- --------
Contingency (Note 6)
13,110.5 12,987.4
======== ========
See accompanying notes to the unaudited consolidated financial statements.
-13-
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles and should be read
in conjunction with the consolidated financial statements and notes thereto
included in Enbridge Inc.'s 2002 Annual Report. These interim financial
statements follow the same accounting policies and methods of application as
those included in the 2002 Annual Report.
Earnings for interim periods may not be indicative of results for the fiscal
year due to weather and other factors. Certain reclassifications have been made
to the prior period financial statements to conform to the current year's
presentation.
1. SEGMENTED INFORMATION
(millions of Canadian dollars)
THREE MONTHS ENDED SEPTEMBER 30, 2003
ENERGY
TRANSPORTATION GAS
-------------------- DISTRIBUTION
NORTH SOUTH AND SERVICES INTERNATIONAL CORPORATE CONSOLIDATED
----- ----- ------------ ------------- --------- ------------
REVENUES 244.1 9.0 807.9 7.1 - 1,068.1
GAS COSTS - - (597.1) - - (597.1)
OPERATING AND ADMINISTRATIVE (70.1) (5.5) (94.0) (9.1) (2.2) (180.9)
DEPRECIATION (44.9) (1.6) (59.6) (0.5) (0.8) (107.4)
----- ---- ------ ---- ----- -------
OPERATING INCOME/(LOSS) 129.1 1.9 57.2 (2.5) (3.0) 182.7
INVESTMENT AND OTHER INCOME/(EXPENSE) 16.8 10.5 (2.2) 20.4 3.5 49.0
INTEREST AND PREFERRED EQUITY CHARGES (38.9) - (39.2) (0.1) (38.7) (116.9)
INCOME TAXES (28.6) (5.3) (9.5) 0.1 19.2 (24.1)
----- ---- ------ ---- ----- -------
EARNINGS/(LOSS) APPLICABLE
TO COMMON SHAREHOLDERS 78.4 7.1 6.3 17.9 (19.0) 90.7
===== ==== ====== ==== ===== =======
Three months ended September 30, 2002
Energy
Transportation Gas
-------------------- Distribution
North South and Services International Corporate Consolidated
----- ----- ------------ ------------- --------- ------------
Revenues 188.7 403.4 571.4 6.7 0.1 1,170.3
Gas costs - (333.1) (350.7) - - (683.8)
Operating and administrative (71.3) (40.8) (121.2) (4.3) (2.8) (240.4)
Depreciation (35.4) (2.2) (58.7) (0.9) (0.9) (98.1)
Writedown of assets held for sale - (117.4) - - - (117.4)
----- ------ ------ ---- ----- ------
Operating income/(loss) 82.0 (90.1) 40.8 1.5 (3.6) 30.6
Investment and other income 19.7 8.5 0.9 16.8 23.7 69.6
Interest and preferred equity charges (23.9) (8.4) (38.6) (0.9) (43.6) (115.4)
Income taxes (16.1) 29.8 (5.0) (1.0) 3.6 11.3
----- ------ ------ ---- ----- ------
Earnings/(loss) applicable
to common shareholders 61.7 (60.2) (1.9) 16.4 (19.9) (3.9)
===== ====== ====== ==== ===== ======
-14-
NINE MONTHS ENDED SEPTEMBER 30, 2003
ENERGY
TRANSPORTATION GAS
---------------------- DISTRIBUTION
NORTH SOUTH AND SERVICES INTERNATIONAL CORPORATE CONSOLIDATED
----- ----- ------------ ------------- --------- ------------
REVENUES 729.8 26.3 3,230.5 14.4 - 4,001.0
GAS COSTS - - (2,300.7) - - (2,300.7)
OPERATING AND ADMINISTRATIVE (221.0) (16.2) (309.6) (17.7) (12.6) (577.1)
DEPRECIATION (146.3) (5.0) (178.7) (1.6) (2.4) (334.0)
------ ----- ------- ----- ------ -------
OPERATING INCOME/(LOSS) 362.5 5.1 441.5 (4.9) (15.0) 789.2
INVESTMENT AND OTHER INCOME/(EXPENSE) 56.3 53.6 25.9 56.1 (37.4) 154.5
GAIN ON SALE OF ASSETS 239.9 - - - - 239.9
INTEREST AND PREFERRED EQUITY CHARGES (117.6) (0.1) (121.1) (0.5) (123.0) (362.3)
INCOME TAXES (145.7) (26.8) (137.1) 1.4 126.8 (181.4)
------ ----- ------- ----- ------ -------
EARNINGS/(LOSS) APPLICABLE
TO COMMON SHAREHOLDERS 395.4 31.8 209.2 52.1 (48.6) 639.9
====== ===== ======= ===== ====== =======
Nine months ended September 30, 2002
Energy
Transportation Gas
-------------------- Distribution
North South and Services International Corporate Consolidated
----- ----- ------------ ------------- --------- ------------
Revenues 559.2 1,174.8 2,136.1 19.8 0.1 3,890.0
Gas costs - (982.0) (1,303.9) - - (2,285.9)
Operating and administrative (198.4) (113.7) (330.2) (11.4) (9.5) (663.2)
Depreciation (104.3) (23.2) (171.2) (2.1) (2.6) (303.4)
Writedown of assets held for sale - (117.4) - - - (117.4)
------ ------- ------- ----- ------ --------
Operating income/(loss) 256.5 (61.5) 330.8 6.3 (12.0) 520.1
Investment and other income 57.3 31.5 23.1 46.0 57.3 215.2
Interest and preferred equity charges (74.2) (26.0) (124.0) (0.9) (120.5) (345.6)
Income taxes (56.7) 17.4 (92.6) (1.0) 43.4 (89.5)
------ ------- ------- ----- ------ --------
Earnings/(loss) from
continuing operations 182.9 (38.6) 137.3 50.4 (31.8) 300.2
====== ======= ======= ===== ======
Earnings from discontinued operations 242.3
--------
Earnings applicable to common shareholders 542.5
========
Segmented information has been restated to reflect the changes in management
responsibilities, effective in the first quarter of 2003.
2. STOCK-BASED COMPENSATION
The Company accounts for the issuance of options as capital transactions when
the options are exercised. A maximum of 15 million shares are reserved for
issuance under the Incentive Stock Option Plan (2002). During the nine months
ended September 30, 2003, 1.0 million (2002 -- 1.8 million) fixed stock options
were issued at a weighted average exercise price of $41.65 (2002 -- $44.91). The
weighted average grant-date fair value of the fixed stock options granted during
the nine months ended September 30, 2003 was $8.46 (2002 - $11.42) for each
option granted. Outstanding stock options expire over a period no later than
February 6, 2013. If the Company had used the fair-value based method to account
for stock-based compensation, earnings and earnings per share would have been as
follows.
-15-
Three months ended Nine months ended
September 30, September 30,
-------------------- ----------------------
(millions of Canadian dollars except per share amounts) 2003 2002 2003 2002
------------------------------------------------------- ---- ----- ----- -----
Earnings/(Loss) applicable to common shareholders
As reported 90.7 (3.9) 639.9 542.5
Stock-based compensation expense 1.3 0.8 3.3 1.9
---- ----- ----- -----
Pro forma earnings 89.4 (4.7) 636.6 540.6
==== ===== ===== =====
Earnings/(Loss) per share
As reported 0.54 (0.03) 3.87 3.42
==== ===== ===== =====
Pro forma 0.53 (0.03) 3.85 3.41
==== ===== ===== =====
1. Pro forma earnings and earnings per share reflect options granted
subsequent to January 1, 2002, the date of adoption of the standard on
stock-based compensation. Stock-based compensation expense is recognized
over the four year vesting period for fixed stock options and the five
year vesting period for performance-based stock options based on the fair
value determined on the date of grant.
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 5.235% (2002 -- 5.332%), expected volatility of 22% (2002 -- 25%), an
expected life of 8 years (2002 -- 10 years) and an expected dividend yield
of 3.95% (2002 -- 3.51%).
3. ACQUISITION
In September 2003, the Company acquired 90% of the outstanding shares of CCPS
Transportation L.L.C., owner of the Cushing to Chicago Pipeline System, for
US$122 million. Of the total purchase price, US$57 million was paid on the date
of acquisition. Payment of the remaining US$65 million depends upon completion
of reversal of the flow of the pipeline and must be paid no later than December
31, 2004 to allow reversal to proceed. The acquisition was accounted for using
the purchase method and the results of operations have been included in the
consolidated statement of earnings from the date of acquisition. The amount paid
was allocated to property, plant and equipment.
4. FORMATION OF ENBRIDGE INCOME FUND AND RELATED ASSET SALES
On June 30, 2003, the Company formed the Enbridge Income Fund (EIF), an
unincorporated open-ended trust established under the laws of Alberta.
Concurrent with the closing of the public offering, the Company subscribed for
14,500,000 subordinated trust units of EIF, representing a 45.3% common equity
interest in EIF. Enbridge also subscribed for 40,648,750 preferred units of
Enbridge Commercial Trust (ECT), a direct subsidiary of EIF.
On July 10, 2003, the underwriters exercised their over-allotment option to
purchase an additional 2,625,000 trust units which reduced the Company's common
equity interest to 41.9%. The proceeds from this transaction were used to redeem
2,625,000 preferred units held by Enbridge.
On formation, EIF acquired the Company's 50% interest in the Canadian segment of
the Alliance Pipeline together with its 100% interest in Enbridge Pipelines
(Saskatchewan) Inc. for total proceeds of $905.0 million before working capital
adjustments of $20.6 million and
-16-
transaction costs of $0.2 million. The Company recorded an after-tax gain on the
sale of $169.1 million. Enbridge's net investment in Alliance Canada was $333.6
million at December 31, 2002 and was classified as a long-term investment. The
net assets of Enbridge Pipelines (Saskatchewan) Inc. consist primarily of
property, plant and equipment and comprised $86.5 million of Enbridge Inc.'s
total property, plant and equipment balance at December 31, 2002.
The Company's $145.0 million initial investment in subordinated units of EIF was
offset by a $145.0 million unrecognized gain resulting in a book value of nil.
The unrecognized gain is being amortized into income over the life of the
underlying assets of EIF and is included as a component of equity earnings. In
addition, a decrease in the Company's equity ownership of EIF will result in a
portion of the unrecognized gain being realized. Since the equity investment was
recorded on inception as nil cash distributions in excess of equity earnings are
recorded as a deferred credit. A portion of the deferred credit will be recorded
as income concurrent with a reduction of the Company's equity interest in EIF.
The fair value of Enbridge's EIF trust units at the September 30, 2003 closing
price of $11.75 per unit is $170.4 million.
The Company's 38 million preferred units are accounted for as a $380.2 million
cost investment at September 30, 2003.
5. JOINT VENTURE
Alliance Pipeline Canada, Alliance Pipeline U.S., Aux Sable, and Alliance Canada
Marketing, have been jointly controlled with Fort Chicago Energy Partners LP
since April 1, 2003. The Company's proportionate share of earnings, cash flows
and financial position related to these entities is summarized below, with the
exception of Alliance Pipeline Canada. The Company's 50% interest in Alliance
Pipeline Canada was sold effective June 30, 2003.
-17-
THREE MONTHS ENDED NINE MONTHS ENDED
(millions of Canadian dollars) SEPTEMBER 30, 2003 SEPTEMBER 30, 2003
------------------------------ ------------------ ------------------
Earnings
Revenues 120.3 288.8
Gas sales (64.4) (127.9)
Operating and administrative (18.4) (51.1)
Depreciation (11.1) (41.6)
Interest expense (13.1) (41.3)
Investment and other income 0.6 1.7
Income taxes 0.5 0.9
----- ------
Proportionate share of net earnings 14.4 29.5
===== ======
Cash Flows
Cash provided by operations 56.5 78.6
Cash provided by investing activities 12.5 10.4
Cash used in financing activities (29.2) (181.1)
----- ------
Proportionate share of increase/(decrease) in cash 39.8 (92.1)
===== ======
AS AT
SEPTEMBER 30, 2003
------------------
Financial Position
Current assets 92.5
Property, plant and equipment, net 1,136.5
Other long-term assets 118.3
Current liabilities (112.6)
Long-term debt (720.1)
Other long-term liabilities (48.6)
-------
Proportionate share of net assets 466.0
=======
Included in the Company's proportionate share of cash from joint ventures is
$27.4 million cash in trust. The use of this cash is restricted.
The Company's proportionate share of property, plant and equipment includes
$1,029.3 million, which primarily relates to pipeline in service and $107.2
million related to the Aux Sable plant. The pipeline is being depreciated on a
25-year straight-line basis and the plant assets are being depreciated
straight-line over a 30-year period.
The Company's proportionate share of joint venture debt is noted below. This
debt is non-recourse to Enbridge as security provided by the joint ventures is
limited to the rights and assets of the individual joint venture and does not
extend to the rights and assets of Enbridge, except to the extent of Enbridge's
investment.
-18-
AS AT
(millions of Canadian dollars) SEPTEMBER 30, 2003
------------------------------ ------------------
Credit Facilities 16.9
Senior Notes:
7.770% due 2015 188.3
6.996% due 2019 208.9
7.877% due 2025 132.2
4.591% due 2025 196.6
Obligations under capital leases 8.7
-----
751.6
Less current portion of long-term debt (31.5)
-----
720.1
=====
The Senior Notes may be redeemed by Alliance Pipeline U.S. at any time, at a
price equal to the outstanding principal plus accrued but unpaid interest and a
make-whole premium. Alliance Pipeline U.S. may be required to redeem the Senior
Notes in whole or in part from proceeds received under insurance claims for
damages if the proceeds are not applied to repair or rebuild the Alliance
pipeline system.
Interest on the Senior Notes is payable semi-annually. Principal repayments
commenced June 30, 2001 on the 6.996% Senior Notes, December 31, 2001 on the
7.770% Senior Notes, June 30, 2003 on the 4.591% Senior Notes and commence June
30, 2019 on the 7.877% Senior Notes. Principal repayments are due semi-annually
thereafter in each instance and are closely tied to the recovery rates for
capital depreciation and deferred income taxes contained in the transportation
agreements.
6. CONTINGENCY
As previously disclosed, the remediation of discontinued manufactured gas plant
sites may result in future costs to Enbridge Gas Distribution Inc. (Enbridge
Gas). In October 2002, a claim was filed for $55 million in damages relating to
a certain manufactured gas plant site. Enbridge Gas filed a statement of defence
in June 2003 denying liability. Although management believes that it has a valid
defence to this claim, certain risks exist. The probable overall cost cannot be
determined at this time due to uncertainty about the presence and extent of
damage in addition to the potential alternative remediation approaches which
vary in cost. Enbridge Gas expects that costs, if any, not recovered through
insurance would be recovered through rates. As such, management does not believe
that the outcome will have a material impact on the financial statements.
-19-
SUPPLEMENTARY FINANCIAL INFORMATION
================================================================================
Number of Shares
----------------
Common Shares -- issued and outstanding 171,536,770
(voting equity shares)
Preference Shares, Series A 5,000,000
(non-voting equity shares)
Total issued and outstanding stock options 6,584,936
(3,350,611 vested)
The Company has a Shareholder Rights plan designed to encourage the fair
treatment of shareholders in connection with any takeover offer for the Company.
Rights issued under the plan become exercisable when a person, and any related
parties, acquires or announces its intention to acquire 20% or more of the
Company's outstanding common shares without complying with certain provisions
set out in the plan or without approval of the Board of Directors of the
Company. Should such an acquisition or announcement occur, each rights holder,
other than the acquiring person and related parties, will have the right to
purchase common shares of the Company at a 50% discount to the market price at
that time.
Supplementary information as at October 20, 2003.