Content
Financial Position
| 2008 |
2007 |
|||||||||||
| December 31, | Canada | United States |
Canada | United States |
||||||||
(millions of Canadian dollars) |
||||||||||||
Assets |
||||||||||||
| Cash and cash equivalents 2, 5 | 541.7 | 961.0 | 166.7 | 214.4 | ||||||||
| Accounts receivable and other 2, 3, 5 | 2,322.5 | 3,174.8 | 2,388.7 | 3,118.4 | ||||||||
| Inventory 2, 5 | 844.7 | 911.3 | 709.4 | 817.3 | ||||||||
| 3,708.9 | 5,047.1 | 3,264.8 | 4,150.1 | |||||||||
| Property, plant and equipment, net 2, 5 | 16,389.6 | 24,738.0 | 12,597.6 | 17,999.4 | ||||||||
| Long-term investments 2, 5 | 2,491.8 | 412.2 | 2,076.3 | 1,253.1 | ||||||||
| Deferred amounts and other assets 1, 2, 3, 4, 5 | 1,318.4 | 2,079.5 | 1,182.0 | 1,653.5 | ||||||||
| Intangible assets 5 | 225.3 | 333.9 | 212.0 | 302.4 | ||||||||
| Goodwill 5 | 389.2 | 807.7 | 388.0 | 725.1 | ||||||||
| Future income taxes 1, 5 | 178.2 | 178.2 | 186.7 | 187.3 | ||||||||
| 24,701.4 | 33,596.6 | 19,907.4 | 26,270.9 | |||||||||
Liabilities and Shareholders' Equity |
||||||||||||
| Short-term borrowings | 874.6 | 874.6 | 545.6 | 545.5 | ||||||||
| Accounts payable and other 2, 3, 5 | 2,411.5 | 3,202.7 | 2,213.8 | 3,195.1 | ||||||||
| Interest payable 5 | 101.9 | 143.6 | 89.1 | 109.8 | ||||||||
| Current maturities and short-term debt 5 | 533.8 | 533.8 | 605.2 | 632.7 | ||||||||
| Current portion of non-recourse debt 2, 5 | 184.7 | 706.0 | 61.1 | 60.9 | ||||||||
| 4,106.5 | 5,460.7 | 3,514.8 | 4,544.0 | |||||||||
| Long-term debt 3 | 10,154.9 | 10,256.9 | 7,729.0 | 7,771.7 | ||||||||
| Non-recourse long-term debt 2, 5 | 1,474.0 | 5,447.5 | 1,508.4 | 4,337.2 | ||||||||
| Other long-term liabilities 2, 4, 5 | 259.0 | 398.6 | 253.9 | 479.2 | ||||||||
| Future income taxes 1, 2, 3, 4, 5 | 1,290.8 | 2,014.2 | 975.6 | 1,545.7 | ||||||||
| Non-controlling interests 5 | 797.4 | 3,493.8 | 650.5 | 2,355.2 | ||||||||
| 18,082.6 | 27,071.7 | 14,632.2 | 21,033.0 | |||||||||
Shareholders' Equity |
||||||||||||
| Preferred shares | 125.0 | 125.0 | 125.0 | 125.0 | ||||||||
| Common shares | 3,194.0 | 3,194.0 | 3,026.5 | 3,026.5 | ||||||||
| Contributed surplus | 37.9 | – | 25.7 | – | ||||||||
| Retained earnings | 3,383.4 | 3,350.5 | 2,537.3 | 2,504.4 | ||||||||
| Additional paid in capital | – | 81.7 | – | 69.6 | ||||||||
| Accumulated other comprehensive loss 3, 4 | 32.8 | (72.0 | ) | (285.0 | ) | (333.3 | ) | |||||
| Reciprocal shareholding | (154.3 | ) | (154.3 | ) | (154.3 | ) | (154.3 | ) | ||||
| 6,618.8 | 6,524.9 | 5,275.2 | 5,237.9 | |||||||||
| 24,701.4 | 33,596.6 | 19,907.4 | 26,270.9 | |||||||||
1. Future Income Taxes
Under U.S. GAAP, deferred income tax liabilities are recorded for rate-regulated operations, which follow the taxes payable method for ratemaking purposes. As these deferred income taxes are expected to be recoverable in future revenues, a corresponding regulatory asset is also recorded. These assets and liabilities are adjusted to reflect changes in enacted income tax rates. At December 31, 2008, a deferred tax liability of $803.3 million (2007 – $572.7 million) is recorded for U.S. GAAP purposes and reflects the difference between the carrying value and the tax basis of property, plant and equipment. Regulated companies following the taxes payable method are not required to record this additional tax liability under Canadian GAAP. For the year ended December 31, 2007, to recover the additional deferred income taxes recorded under U.S. GAAP through the ratemaking process, it would have been necessary to record incremental revenue of $785.6 million.
2. Accounting for Joint Ventures
U.S. GAAP requires the Company's investments in joint ventures to be accounted for using the equity method. However, under an accommodation of the U.S. Securities and Exchange Commission, accounting for jointly controlled investments need not be reconciled from Canadian to U.S. GAAP if the joint venture is jointly controlled by all parties having an equity interest in the entity. Joint ventures in which all owners do not share joint control are reconciled to U.S. GAAP. The different accounting treatment affects only display and classification and not earnings or shareholders' equity.
3. Accumulated Other Comprehensive Loss
Financial instruments are now recognized in Canadian GAAP in substantially the same manner as U.S. GAAP. As a result of the change in Canadian accounting, certain comparative balances have been reclassified for U.S. GAAP purposes, including the recognition of regulated non-financial instruments and offsetting regulatory liabilities as well as OCI from equity investees. In addition, transaction costs arising from the issuance of debt are now recorded net against the related long-term debt. For U.S. GAAP, these transaction costs are reclassified to deferred amounts and other assets.
The only Canadian – U.S. GAAP difference in accumulated other comprehensive loss is the underfunded status of the pension and OPEB plans. The following are the impacts of the underfunded status on OCI in Canadian dollars.
Amounts removed from other comprehensive income (OCI) and recognized as components of the net pension and OPEB costs in the year is as follows:
Year ended December 31, |
2008 |
2007 |
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(millions of Canadian dollars) |
||||||
Prior service cost |
0.5 |
0.5 |
||||
Net transitional obligation |
(1.0 |
) |
(1.0 |
) |
||
Net loss |
1.6 |
3.1 |
||||
1.1 |
2.6 |
Amounts accumulated in OCI that have not yet been recognized as a component of net periodic benefit cost is as follows:
Year ended December 31, |
2008 |
2007 |
||||
(millions of Canadian dollars) |
||||||
Prior service cost |
0.8 |
3.5 |
||||
Net transitional obligation |
(5.8 |
) |
(6.7 |
) |
||
Net loss |
109.9 |
51.5 |
||||
104.9 |
48.3 |
Net amounts reflected in OCI for the year are as follows:
Year ended December 31, |
2008 |
2007 |
||||
(millions of Canadian dollars) |
||||||
Unamortized prior service cost |
(2.8 |
) |
(0.9 |
) |
||
Unamortized net transitional obligation |
1.0 |
0.9 |
||||
Net loss/(gain) |
58.4 |
(23.3 |
) |
|||
56.6 |
(23.3 |
) |
The Company estimates that approximately $1.2 million related to pension and OPEB plans at December 31, 2008 will be reclassified into earnings in the next twelve months.
Pension Benefits |
OPEB |
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(millions of Canadian dollars) |
|||||
Net transitional obligation |
(1.1 |
) |
0.5 |
||
Prior service costs |
0.2 |
– |
|||
Loss |
1.4 |
0.2 |
|||
Reclassification |
0.5 |
0.7 |
The after tax amounts recognized in the tables above exclude the Gas Distribution and Services plans since these plans are funded through regulated rates on a cash basis and are not recorded as net pension assets or liabilities.
4. Pension Funding Status
FAS 158, Employers' Accounting for Defined Pension and Other Postretirement Plans, requires an employer to recognize the overfunded or underfunded status of a defined benefit post retirement plan or OPEB as an asset or liability and to recognize changes in the funded status in the period in which they occur through comprehensive income. FAS 158 adjustments resulted in an increase in the net liability of $158.7 million (December 31, 2007 – $73.1 million) for the underfunded status of the plans, a decrease in deferred tax liability of $53.8 million (December 31, 2007 – $24.8 million) and an increase in accumulated other comprehensive loss of $104.9 million (December 31, 2007 – $48.3 million). As required by FAS 158, the Company adjusted the amounts recognized related to the Canadian pension plans to reflect a December 31 measurement date.
5. Consolidation of a Limited Partnership
As a result of adopting EITF 04-5, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights, the Company is consolidating its 27.0% interest in Enbridge Energy Partners for U.S. GAAP purposes, resulting in an increase to both assets and liabilities of $8,248.2 million (December 31, 2007 – $5,932.7 million) and no changes to equity and earnings.
6. Unrecognized tax benefits
| 2008 | 2007 |
|||||
(millions of Canadian dollars) |
||||||
Unrecognized Tax Benefits at January 1, |
61.0 |
78.0 |
||||
Gross increases for tax positions of current year |
33.4 |
5.0 |
||||
Gross decreases for tax positions of prior years |
(82.4 |
) |
(14.0 |
) |
||
Changes in translation of foreign currency |
0.8 |
(6.0 |
) |
|||
Settlements during the period |
– |
(2.0 |
) |
|||
Unrecognized Tax Benefits at December 31, |
12.8 |
61.0 |
The unrecognized tax benefits at December 31, 2008, if recognized, would affect the Company's effective income tax rate. Gross increases include a $32.2 million charge for the U.S. tax matter currently under litigation, to unrecognize all of the tax benefits. As an unfavourable court decision was rendered in 2008, the full tax benefit balance of $64.6 was reversed and the unrecognized benefits removed as reflected in gross decreases. The Company does not anticipate further adjustments to the unrecognized tax benefits during the next twelve months that would have a material impact on its consolidated financial statements.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Income tax expense for the year ended December 31, 2008 includes $1.8 million (2007 – $2.0 million) of interest. As at December 31, 2008, interest and penalties of $8.8 million (2007 – $7.0 million) have been accrued.
The Company and its subsidiaries are subject to either Canadian federal and provincial income tax, U.S. federal, state and local income tax, or the relevant income tax in other international jurisdictions. The Company has substantially concluded all Canadian federal and provincial income tax matters for the years through 2002 and all returns are generally closed through 2003. All U.S. federal income tax returns and generally all U.S. state and local income tax returns are closed through 2004 for all tax matters with the exception of the ongoing tax litigation. U.S. federal income tax returns for 2005 are currently under examination by the Internal Revenue Service.
7. Indefinite reversal rule
We have not provided deferred taxes on the unremitted earnings of foreign investments that the Company does not intend to repatriate in the foreseeable future. These earnings relate to ongoing operations and as at December 31, 2008 were approximately $427.6M. It is not practicable to determine, due to the availability of U.S. foreign tax credits, the deferred income tax liability that would be payable if such earnings were not reinvested indefinitely.