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EEQ > SEC Filings for EEQ > Form 10-Q on 1-Nov-2012All Recent SEC Filings

Show all filings for ENBRIDGE ENERGY MANAGEMENT L L C

Form 10-Q for ENBRIDGE ENERGY MANAGEMENT L L C


1-Nov-2012

Quarterly Report


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, a special class of the Partnership's limited partner interests, we own. At September 30, 2012 and 2011, through our ownership of i-units, we had an approximate 13.1% and 13.3%, 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, 2012, 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                       For the nine month
                                          period ended September 30,               period ended September 30,
                                          2012                 2011                2012                 2011
                                                               (unaudited; in millions)
Net income attributable to
general and limited partner
ownership interests in Enbridge
Energy Partners, L.P.                 $       215.2        $       122.6       $       438.8        $       396.6
Less: Net income allocated to
General Partner                                38.1                 32.1                94.4                 75.2

Net income allocated to limited
partners                              $       177.1        $        90.5       $       344.4        $       321.4

Our net income of $15.4 million and $29.9 million for the three and nine month periods ended September 30, 2012, respectively, and $7.8 million and $28.5 million for the three and nine month periods ended September 30, 2011, respectively, represents equity in earnings 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 37.0% for the three and nine month periods ended September 30, 2012 and 37.2% for the three and nine month periods ended September 30, 2011, applied to our share of the earnings of the Partnership for the respective periods.

For the three months ended September 30, 2012, our net income increased by $7.6 million as compared to the same period in 2011. The increase is primarily attributable to the $12.0 million increase in equity income from the Partnership resulting from the increase in its net income in relation to the same period in 2011. This increase was slightly offset by a $4.4 million increase of income tax expense associated with the increase in our net income.

For the nine months ended September 30, 2012, our net income increased by $1.4 million as compared to the same period in 2011. The components comprising our net income changed during the nine month period ended September 30, 2012 compared with the same period in 2011 for the same reasons as noted above in the three-month analysis.

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


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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.



                  Number of           Average                                      Ownership                Ownership             Increases in
                   Class A         Offering Price         Net Proceeds         Percentage in the        Percentage in the           the Book
    2012        Common units        per Class A              to the            Partnership Prior        Partnership After           Value of
Issuance Date      Issued           common unit         Partnership  (1)        to the Issuance           the Issuance          Investment  (2)
                                                        (in millions, except units and per unit amount)
September          16,100,000     $          28.64     $            446.8                   13.9  %                  13.1  %    $           22.6

(1) Net of underwriters' fees and discounts, commissions and issuance expenses if any.

(2) Before the effect of income taxes.

For the three and nine month periods ended September 30, 2012, we recorded $22.6 million and $22.7 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, 2012 was $14.3 million.

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, and 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, 2012, our issued capitalization consisted of $959.7 million associated with our 40,502,824 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 increase 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 $9.2 million and $17.6 million for the three and nine month periods ended September 30, 2012, respectively, is $4.4 million and $0.7 million more than the income tax expense we incurred for the corresponding periods in 2011. The increase in income tax expense for the three and nine month periods ended September 30, 2012 as compared to the same periods in 2011 was due to the increase in our net income primarily associated with increased amounts of equity income we recognized from the Partnership.


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We computed our income tax expense for the three and nine month periods ended September 30, 2012 by applying a 37.0% 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 2.0%. For the three and nine month periods ended September 30, 2011, our income tax expense was computed 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%.

SUBSEQUENT EVENTS

Share Distribution

On October 31, 2012, our board of directors declared a share distribution payable on November 14, 2012, to shareholders of record as of November 7, 2012, based on the $0.5435 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 voting shares to the General Partner in respect of these additional i-units.

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