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EEQ > SEC Filings for EEQ > Form 10-Q on 31-Oct-2013All Recent SEC Filings

Show all filings for ENBRIDGE ENERGY MANAGEMENT L L C

Form 10-Q for ENBRIDGE ENERGY MANAGEMENT L L C


31-Oct-2013

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, 2013 and 2012, through our ownership of i-units, we had an approximate 18.9% and 13.1%, 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, 2013 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,
                                           2013                 2012             2013                 2012
                                                              (unaudited; in millions)
Net income attributable to general
and limited partner ownership
interests in Enbridge Energy
Partners, L.P.                         $       14.9         $      215.2     $       21.5         $      438.8
Less: Net income allocated to
General Partner                                32.5                 42.5             95.3                 92.6

Net income (loss) allocated to
limited partners                       $      (17.6 )       $      172.7     $      (73.8 )       $      346.2

Our net loss of $3.1 million and $11.0 million for the three and nine month periods ended September 30, 2013, respectively, and our net income of $15.4 million and $29.9 million for the three and nine month periods ended September 30, 2012, 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 37.4% for the three and nine month periods ended September 30, 2013 and 37.0% for the three and nine month periods ended September 30, 2012, applied to our share of the earnings of the Partnership for the respective periods.

For the three month period ended September 30, 2013, our net loss increased by $18.5 million, as compared to the net income in the same period in 2012. The net loss is primarily attributable to the $28.7 million increase in equity losses from the Partnership resulting from the increase in its incentive income distributions to the General Partner in relation to its net income in the same period in 2012. This decrease was offset by a $10.2 million decrease of income tax expense associated with the increase in our net loss.

For the nine month periods ended September 30, 2013, our net loss increased by $40.9 million, as compared to the net income in the same period in 2012. The net loss is primarily attributable to the $64.1 million increase in equity losses from the Partnership resulting from the increase in its incentive income distributions to the General Partner in relation to its net income in the same period in 2012. This decrease was offset by a $23.2 million decrease of income tax expense associated with the increase in our net loss. For the nine month period ended September 30, 2013, the Partnership had higher operating expenses in its Liquids segment as compared to the same period in 2012, primarily due to $22.1 million, after tax, in additional environmental expenses recognized in response to the March 14, 2013 order from the Environmental Protection Agency which requires


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additional containment and active recovery of submerged oil relating to the Line 6B crude oil release, partially offset by insurance recoveries of $4.3 million, after tax, recognized in the second quarter of 2013. In addition, in the third quarter of 2012, the Partnership received insurance proceeds of $12.5 million, net of Line 6B accruals, and did not receive any proceeds in the same period in 2013. Furthermore, in May 2013, we began receiving less allocating income from the Partnership due to the Preferred Units issuance. This caused our equity investment in the Partnership to decrease by $7.1 million while no such transactions existed in 2012.

Issuance of Listed Shares

In March and September 2013, we completed a public offering of 10,350,000 and 8,424,686 Listed Shares, representing limited liability company interests with limited voting rights, at a price to the underwriters of $26.44 and $28.02 per Listed Share, respectively. We received net proceeds of $272.9 million and $235.6 million for the March and September 2013 issuances, respectively, which were subsequently invested in an equal number of the Partnership's i-units.

The following table presents our issuances of additional Listed Shares for 2013.

                                                          Average                                         Ownership                    Ownership
                                 Number of             Offering Price          Net Proceeds           Percentage in the            Percentage in the
                               Listed Shares             per Listed               to the              Partnership Prior            Partnership After
     Issuance Date                Issued                   Share                Company (1)            to the Issuance               the Issuance
                                                                 (in millions, except shares and per share amount)
2013
September 24                          424,686         $          28.02         $        11.9                       18.8  %                      18.9  %
September 13                        8,000,000         $          28.02         $       223.7                       16.8  %                      18.8  %
March 1                            10,350,000         $          26.44         $       272.9                       13.5  %                      16.3  %

Total                              18,774,686                                  $       508.5

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

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, 2013, our issued capitalization consisted of $1,569.6 million associated with our 62,580,105 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

For the three and nine month periods ended September 30, 2013, our income tax benefit of $1.0 million and $5.6 million was $10.2 million and $23.2 million less than the income tax expense we incurred for the


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corresponding periods in 2012, respectively. The increase in income tax benefit for the three and nine month periods ended September 30, 2013, as compared to the income tax expense in the same periods in 2012, was due to the increase in our net loss primarily associated with decreased 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, 2013 by applying a 37.4% 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 2.4%. For the three and nine month periods ended September 30, 2012, our income tax expense was computed 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%.

SUBSEQUENT EVENTS

Share Distribution

On October 30, 2013, our board of directors declared a share distribution payable on November 14, 2013, to shareholders of record as of November 7, 2013, 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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