Management’s Discussion and Analysis
|
CONSOLIDATED RESULTS
| Financial Performance 1 |
|
|
|
|
|
| (millions of Canadian dollars, except per share amounts) |
2006 |
|
2005 |
|
2004 |
| Earnings Applicable to Common Shareholders |
|
|
|
|
|
|
| Liquids Pipelines |
|
274.2 |
|
229.1 |
|
219.9 |
| Gas Pipelines |
|
61.2 |
|
59.8 |
|
53.8 |
| Sponsored Investments |
|
86.8 |
|
64.8 |
|
66.2 |
| Gas Distribution and Services2 |
|
178.2 |
|
178.8 |
|
313.1 |
| International |
|
83.2 |
|
87.4 |
|
73.6 |
| Corporate |
|
(68.2) |
|
(63.9) |
|
(81.3) |
| Earnings Applicable to Common Shareholders |
|
615.4 |
|
556.0 |
|
645.3 |
| Earnings Per Common Share |
|
1.81 |
|
1.65 |
|
1.93 |
| Diluted Earnings Per Common Share |
|
1.79 |
|
1.63 |
|
1.91 |
| 1 |
Financial Performance data have been extracted from financial statements prepared in accordance with Canadian Generally Accepted Accounting Principles. |
| 2 |
The reported results for the year ended December 31, 2004, include earnings for the 15 months ended December 31, 2004, for Enbridge Gas Distribution, Noverco and other gas distribution entities. This inclusion resulted from the elimination of the quarter lag basis of consolidation in 2004. |
|
Earnings applicable to common shareholders were $615.4 million for the year ended December 31, 2006, or $1.81 per share, compared with $556.0 million, or $1.65 per share, in 2005. The $59.4 million increase in earnings was primarily the result of higher earnings from the Enbridge crude oil mainline system, strong results from Enbridge Energy Partners, LP (EEP) and from the Aux Sable natural gas fractionation facility. The 2006 results also included $48.9 million from the revaluation of future income tax balances due to tax rate reductions enacted in 2006. These positive factors were partially offset by a lower earnings contribution from Enbridge Gas Distribution (EGD), as the weather in the Ontario market was significantly warmer than normal during 2006.
Earnings applicable to common shareholders were $556.0 million for the year ended December 31, 2005, or $1.65 per share, compared with $645.3 million, or $1.93 per share, in 2004. The $89.3 million decrease in earnings was primarily the result of the sale of the investment in AltaGas in 2004, which resulted in an after-tax gain of $97.8 million as well as the absence of earnings from AltaGas after the sale. Earnings for 2004 also included 15 months of earnings for gas distribution utilities, reflecting the change in year end for those entities. Positive factors in 2005 included the earnings contribution from the Enbridge Offshore Pipelines, higher contribution from the gas distribution utility and lower interest expense.
Earnings Applicable to Common Shareholders
(millions of Canadian dollars) |
 |
Non-GAAP Measures — Adjusted Operating Earnings
Management believes that the presentation of adjusted operating earnings provides useful information to investor
and shareholders as it provides increased predictive value and performance trends. Adjusted operating earnings represent earnings applicable to common shareholders adjusted for significant non-operating factors. This measure does not have a standardized meaning prescribed by Canadian generally accepted accounting principles (GAAP) and is not considered a GAAP measure. Therefore, this measure may not be comparable with a similar measure presented by other issuers.
Adjusted Operating Earnings per Common Share
(dollars per share) |
 |
Adjusted Operating Earnings
| (millions of Canadian dollars, except per share amounts) |
2006 |
|
2005 |
|
2004 |
| GAAP earnings as reported |
|
615.4 |
|
556.0 |
|
645.3 |
| Significant after-tax non-operating factors and variances: |
|
|
|
|
|
| Sponsored Investments |
|
|
|
|
|
|
| Dilution gains on the issue of EEP units |
|
– |
|
(8.9) |
|
(7.6) |
| EEP non-cash derivative fair value losses/(gains) |
|
(6.5) |
|
5.0 |
|
– |
| Revalue future income taxes due to tax rate changes |
|
(6.0) |
|
– |
|
– |
| Gas Distribution and Services |
|
|
|
|
|
|
| Gain on sale of investment in AltaGas Income Trust |
|
– |
|
– |
|
(97.8) |
| EGD calendar year basis adjustment1 |
|
– |
|
– |
|
(27.1) |
| Warmer/(colder) than normal weather |
|
36.9 |
|
– |
|
(21.3) |
| Impairment loss on Calmar gas plant |
|
– |
|
– |
|
8.2 |
| Dilution gain in Noverco (Gaz Metro unit issuance) |
|
(4.0) |
|
(7.3) |
|
– |
| Dilution gain - AltaGas Income Trust |
|
– |
|
– |
|
(8.0) |
| Revalue future income taxes due to tax rate changes |
|
(28.9) |
|
– |
|
(0.6) |
| International |
|
|
|
|
|
|
| Gain on land sale in CLH |
|
– |
|
(7.6) |
|
– |
| Corporate |
|
|
|
|
|
|
| Revalue future income taxes due to tax rate changes |
|
(14.0) |
|
– |
|
– |
| Adjusted Operating Earnings |
|
592.9 |
|
537.2 |
|
491.1 |
| Adjusted Operating Earnings per Common Share |
|
1.74 |
|
1.59 |
|
1.47 |
| 1 |
Effective December 31, 2004, EGD changed its fiscal year-end from September 30 to December 31. Consequently, the reported consolidated results for the year ended December 31, 2004 included EGD’s results for the fifteen months ended December 31, 2004. The adjustment above deducts EGD’s results for the three months ended December 31, 2003, to reflect EGD’s 2004 earnings on the calendar basis, consistent with 2005 and 2006. |
|
Each of the significant non-operating factors and variances is described in the Results of Operations sections for the respective business segment.
| Significant operating factors affecting earnings in 2006 include: |
 |
Enbridge crude oil mainline system earnings were higher primarily due to lower oil loss costs, higher earnings from Terrace and the Incentive Tolling Settlement (ITS). |
|
EEP earnings increased significantly with higher crude oil throughput, strong margins and increased volumes in the
natural gas gathering and processing businesses. |
|
Aux Sable experienced strong natural gas processing margins throughout the year resulting in significant earnings under the upside sharing agreement. |
| Enbridge completed several strategic initiatives during 2005: |
|
Commenced construction of the Southern Access Expansion; |
|
Completed the reversal of Spearhead Pipeline, which commenced operations in the first quarter of 2006; |
|
Received industry support for the Alberta Clipper Project; |
|
Received industry support for the Southern Lights Pipeline Project; and |
|
Announced plans to construct a natural gas lateral to connect the deepwater Shenzi field to existing Gulf of Mexico pipelines. |
