Brookfield Infrastructure Partners L.P 6-K, filed Aug 10, 2021
Brookfield Infrastructure Partners L.P. (BIP)
About this 6-K
Brookfield Infrastructure Partners L.P filed this 6-K on August 10, 2021.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 6-K
REPORT OFFOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of August 2021 Commission file number 001-33632
BROOKFIELD INFRASTRUCTURE PARTNERS L.P.
(Exact name of Registrant as specified in its charter)
73 FrontStreet, Fifth floor Hamilton, HM 12 Bermuda
(Address of principal executive office)
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 ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
The information contained in Exhibits 99.1, 99.2 and 99.3 of this Form 6-K is incorporated by reference into the registrant’s registration statement on Form F-4 (File No. 333-253365-01).
The following documents, which are attached as exhibits hereto, are incorporated by reference herein:
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.
| BROOKFIELD INFRASTRUCTURE PARTNERS L.P.,<br><br><br>by its general partner, BROOKFIELD INFRASTRUCTURE PARTNERS LIMITED | ||
|---|---|---|
| Date: August 10, 2021 | By: | /s/ Jane Sheere |
| Name: | Jane Sheere | |
| Title: | Secretary |
EX-99.1
Exhibit 99.1
Inter Pipeline Ltd.
Interim Consolidated Balance Sheets
| As at | |||||
|---|---|---|---|---|---|
| June 30 | December 31 | ||||
| (unaudited)(millions of Canadian dollars) | 2021 | 2020 | |||
| ASSETS | |||||
| Current Assets | |||||
| Cash and cash equivalents | $ | 28.7 | **** | $ | 40.1 |
| Accounts receivable | **** | 337.0 | **** | 329.2 | |
| Derivatives (note 10) | **** | 2.8 | **** | 0.1 | |
| Prepaid expenses and other assets | **** | 78.6 | **** | 50.1 | |
| Inventory | **** | 26.7 | **** | 14.0 | |
| Assets of the Empress divestiture group held for sale | **** | — | **** | 175.3 | |
| Total Current Assets | **** | 473.8 | **** | 608.8 | |
| Non-Current Assets | |||||
| Right-of-use<br>assets | **** | 122.2 | **** | 110.5 | |
| Property, plant and equipment (note 5) | **** | 12,380.7 | **** | 11,915.2 | |
| Goodwill and intangible assets | **** | 499.8 | **** | 431.9 | |
| Total Assets | $ | 13,476.5 | **** | $ | 13,066.4 |
| LIABILITIES AND EQUITY | |||||
| Current Liabilities | |||||
| Dividends payable (note 8) | $ | 17.2 | **** | $ | 17.2 |
| Accounts payable and other liabilities | **** | 612.3 | **** | 466.2 | |
| Derivatives (note 10) | **** | 33.2 | **** | 0.8 | |
| Lease liabilities | **** | 15.6 | **** | 14.6 | |
| Current income taxes payable | **** | 5.6 | **** | 3.0 | |
| Short-term debt and current portion of long-term debt<br>(note 6) | **** | 1,688.9 | **** | 1,629.7 | |
| Liabilities of the Empress divestiture group held for sale | **** | — | **** | 44.3 | |
| Total Current Liabilities | **** | 2,372.8 | **** | 2,175.8 | |
| Non-Current Liabilities | |||||
| Long-term debt (note 6) | **** | 5,251.1 | **** | 5,165.0 | |
| Long-term lease liabilities | **** | 136.5 | **** | 125.1 | |
| Provisions | **** | 300.2 | **** | 375.3 | |
| Long-term deferred revenue and other liabilities | **** | 40.2 | **** | 35.0 | |
| Deferred income taxes | **** | 1,025.3 | **** | 974.4 | |
| Total Liabilities | **** | 9,126.1 | **** | 8,850.6 | |
| Commitments (notes 5 and 12) | |||||
| Equity | |||||
| Shareholders’ equity (note 8) | **** | 4,383.3 | **** | 4,213.0 | |
| Total reserves | **** | (32.9 | ) | 2.8 | |
| Total Equity | **** | 4,350.4 | **** | 4,215.8 | |
| Total Liabilities and<br>Equity | $ | 13,476.5 | **** | $ | 13,066.4 |
See accompanying condensed notes to the interim consolidated financial statements.
Inter Pipeline - 1
Inter Pipeline Ltd.
Interim Consolidated Statements of Net Income
| Three Months Ended June 30 | Six Months Ended June 30 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (unaudited)(millions of Canadian dollars) | 2021 | 2020 | 2021 | 2020 | ||||||
| Revenue | $ | 702.9 | **** | $ | 539.5 | $ | 1,400.1 | **** | $ | 1,143.3 |
| Cost of sales | **** | 388.6 | **** | 260.0 | **** | 739.3 | **** | 576.2 | ||
| Loss on derivatives (note 10) | **** | 34.1 | **** | 2.9 | **** | 54.5 | **** | 2.9 | ||
| GROSS PROFIT | **** | 280.2 | **** | 276.6 | **** | 606.3 | **** | 564.2 | ||
| Depreciation and amortization | **** | 77.1 | **** | 95.4 | **** | 147.0 | **** | 187.4 | ||
| Financing charges | **** | 35.6 | **** | 49.4 | **** | 73.0 | **** | 98.1 | ||
| General and administrative | **** | 70.8 | **** | 46.3 | **** | 123.3 | **** | 70.0 | ||
| Gain on sale of the Empress divestiture group (note<br>3) | **** | (70.0 | ) | — | **** | (70.0 | ) | — | ||
| INCOME BEFORE INCOMETAXES | **** | 166.7 | **** | 85.5 | **** | 333.0 | **** | 208.7 | ||
| Income tax expense (note 7) | **** | 21.2 | **** | 23.0 | **** | 59.7 | **** | 57.1 | ||
| NET INCOME | $ | 145.5 | **** | $ | 62.5 | $ | 273.3 | **** | $ | 151.6 |
| Net income per share (note 8) | ||||||||||
| Basic and diluted | $ | 0.34 | **** | $ | 0.15 | $ | 0.64 | **** | $ | 0.36 |
Interim Consolidated Statements of Comprehensive Income
| Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (unaudited)(millions of Canadian dollars) | 2021 | 2020 | 2021 | 2020 | |||||||
| NET INCOME | $ | 145.5 | **** | $ | 62.5 | **** | $ | 273.3 | **** | $ | 151.6 |
| OTHER COMPREHENSIVE (LOSS) INCOME | |||||||||||
| Item that may be reclassified subsequently to net income | |||||||||||
| Unrealized (loss) gain on translating financial statements of foreign<br>operations | (0.9 | ) | (29.0 | ) | (35.7 | ) | 28.7 | ||||
| Other Comprehensive (Loss)Income | **** | (0.9 | ) | (29.0 | ) | **** | (35.7 | ) | 28.7 | ||
| COMPREHENSIVE INCOME | $ | 144.6 | **** | $ | 33.5 | $ | 237.6 | **** | $ | 180.3 |
See accompanying condensed notes to the interim consolidated financial statements.
Inter Pipeline - 2
Inter Pipeline Ltd.
Interim Consolidated Statements of Cash Flows
| Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (unaudited)(millions of Canadian dollars) | 2021 | 2020 | 2021 | 2020 | ||||||||
| OPERATING ACTIVITIES | ||||||||||||
| Net income | $ | 145.5 | **** | $ | 62.5 | $ | 273.3 | **** | $ | 151.6 | ||
| Items not involving cash: | ||||||||||||
| Depreciation and amortization | **** | 77.1 | **** | 95.4 | **** | 147.0 | **** | 187.4 | ||||
| Gain on sale of the Empress divestiture group (note<br>3) | **** | (70.0 | ) | — | **** | (70.0 | ) | — | ||||
| Non-cash expense (recovery) | **** | 8.8 | **** | 5.4 | **** | 12.1 | **** | (0.9 | ) | |||
| Deferred income tax expense | **** | 19.1 | **** | 21.1 | **** | 53.5 | **** | 53.8 | ||||
| Unrealized loss on derivatives (note 10) | **** | 25.8 | **** | — | **** | 29.7 | **** | — | ||||
| Funds from operations | **** | 206.3 | **** | 184.4 | **** | 445.6 | **** | 391.9 | ||||
| Net change in<br>non-cash operating working capital | **** | 25.0 | **** | 36.2 | **** | 54.3 | **** | 19.7 | ||||
| Cash provided by operating activities | **** | 231.3 | **** | 220.6 | **** | 499.9 | **** | 411.6 | ||||
| INVESTING ACTIVITIES | ||||||||||||
| Expenditures on property, plant and equipment | **** | (348.8 | ) | (283.3 | ) | **** | (641.4 | ) | (599.8 | ) | ||
| Receipt of government grants | **** | 7.4 | **** | 8.1 | **** | 7.4 | **** | 10.2 | ||||
| Proceeds from sale of the Empress divestiture group<br>(note 3) | **** | 38.7 | **** | — | **** | 38.7 | **** | — | ||||
| Net change in<br>non-cash investing working capital | **** | 54.9 | **** | (89.3 | ) | **** | 49.8 | **** | (46.6 | ) | ||
| Cash used in investing activities | **** | (247.8 | ) | (364.5 | ) | **** | (545.5 | ) | (636.2 | ) | ||
| FINANCING ACTIVITIES | ||||||||||||
| Cash dividends paid on common shares (note<br>8) | **** | (51.5 | ) | (18.2 | ) | **** | (103.0 | ) | (106.9 | ) | ||
| Principal payments on lease liabilities | **** | (3.7 | ) | (4.6 | ) | **** | (7.0 | ) | (10.5 | ) | ||
| Increase in debt including transaction costs | **** | 61.2 | **** | 467.8 | **** | 141.7 | **** | 641.1 | ||||
| Net change in<br>non-cash financing working capital | **** | 0.1 | **** | (43.5 | ) | **** | — | **** | (42.0 | ) | ||
| Cash provided by financing activities | **** | 6.1 | **** | 401.5 | **** | 31.7 | **** | 481.7 | ||||
| Effect of foreign currency translation on cash | **** | 2.0 | **** | (1.1 | ) | **** | 2.5 | **** | (1.2 | ) | ||
| (Decrease) increase in cash and cash equivalents | **** | (8.4 | ) | 256.5 | **** | (11.4 | ) | 255.9 | ||||
| Cash and cash equivalents, beginning of period | **** | 37.1 | **** | 32.0 | **** | 40.1 | **** | 32.6 | ||||
| Cash and cash equivalents, end of<br>period | $ | 28.7 | **** | $ | 288.5 | $ | 28.7 | **** | $ | 288.5 | ||
| Cash taxes (recovered) paid | $ | — | **** | $ | (3.1 | ) | $ | 3.0 | **** | $ | (0.2 | ) |
| Cash interest paid | $ | 84.5 | **** | $ | 69.2 | $ | 140.5 | **** | $ | 137.5 |
See accompanying condensed notes to the interim consolidated financial statements.
Inter Pipeline - 3
Inter Pipeline Ltd.
Interim Consolidated Statements of Changes in Equity
| (unaudited)(millions of Canadian dollars) | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Share | Earnings / | Total | ||||||||||
| Capital | (Deficit) | Reserves | Equity | |||||||||
| Balance, January 1, 2021 | $ | — | $ | 4,213.0 | $ | 2.8 | $ | 4,215.8 | **** | |||
| Net income for the period | — | 273.3 | — | **** | 273.3 | **** | ||||||
| Other comprehensive loss | — | — | (35.7 | ) | **** | (35.7 | ) | |||||
| Dividends declared (note 8) | — | (103.0 | ) | — | **** | (103.0 | ) | |||||
| Balance, June 30,2021 | $ | — | $ | 4,383.3 | $ | (32.9 | ) | $ | 4,350.4 | **** | ||
| Balance, January 1, 2020 | $ | 4,900.3 | $ | (836.3 | ) | $ | 25.3 | $ | 4,089.3 | |||
| Net income for the period | — | 151.6 | — | 151.6 | ||||||||
| Other comprehensive income | — | — | 28.7 | 28.7 | ||||||||
| Dividends declared (note 8) | — | (232.6 | ) | — | (232.6 | ) | ||||||
| Shares issued under Premium Dividend^™^ and Dividend Reinvestment Plan<br>(note 8) | 125.7 | — | — | 125.7 | ||||||||
| Stated capital adjustment | (5,026.0 | ) | 5,026.0 | — | — | |||||||
| Balance, June 30,<br>2020 | $ | — | $ | 4,108.7 | $ | 54.0 | $ | 4,162.7 |
See accompanying condensed notes to the interim consolidated financial statements.
^™^ Denotes trademark of Canaccord Genuity Corp.
Inter Pipeline - 4
Inter Pipeline Ltd.
Condensed Notes to Interim Consolidated Financial Statements
June 30, 2021
(unaudited)(millions of Canadian dollars, except asotherwise indicated)
- STATEMENT OF COMPLIANCE AND BASIS OF PREPARATION
These unaudited condensed interim consolidated financial statements (interim financial statements) have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting. These interim financial statements do not contain all disclosures required by International Financial Reporting Standards (IFRS) for annual financial statements and accordingly, should be read in conjunction with Inter Pipeline Ltd.’s (Inter Pipeline) audited consolidated financial statements and notes thereto for the year ended December 31, 2020.
Inter Pipeline has consistently applied the same accounting policies for all periods presented in these interim financial statements as those used in Inter Pipeline’s audited consolidated financial statements for the year ended December 31, 2020. Certain prior period balances have been reclassified to match the current year presentation.
These interim financial statements were authorized for issue in accordance with a resolution of the Board of Directors of Inter Pipeline on August 5, 2021.
- REVISION OF REPORTABLE SEGMENTS
Effective January 1, 2021, Inter Pipeline restructured its reportable segments to better reflect its underlying operations. The application of existing segment reporting and revenue recognition accounting policies to Inter Pipeline’s new reportable segments is outlined below.
Refer to note 4 for the restated segment reporting for the three and six months ended June 30, 2020.
Segment Reporting
Inter Pipeline determines its reportable segments based on the nature of its operations. This is consistent with how the business is managed and results are reported to the Chief Executive Officer and Chief Financial Officer, who are Inter Pipeline’s chief operating decision makers. Operating segments that have similar economic characteristics are aggregated into reportable segments. Inter Pipeline evaluates the financial performance of its reportable segments primarily based on adjusted EBITDA. Adjusted EBITDA is defined as net income before financing charges, income taxes, depreciation and amortization, and unrealized gains / losses on derivatives.
Segment results include items that are directly attributable to a segment as well as items that can be allocated on a reasonable basis and can be controlled by segment managers. Intersegment transactions are recorded at estimated market rates and are eliminated on consolidation.
Industry Segments
The transportation segment is comprised of oil sands and conventional oil pipelines that transport petroleum products, as well as bulk liquid storage terminals that provide storage and blending services for oil, chemical and biofuel products. The facilities infrastructure segment owns assets that provide customers with NGL, offgas and petrochemical products and services. The marketing segment manages the logistics and sale of products not produced under fee-based or cost-of-service agreements, engages in facility and pipeline optimization opportunities, and is responsible for Inter Pipeline’s commodity risk management activities, including hedging. The new ventures segment focuses on the development of large-scale innovative projects to create new cash flow streams, and currently includes the Heartland Petrochemical Complex (HPC). Once projects are in service and operating as intended, the assets and operations will be transferred to the facilities infrastructure and marketing segments.
Inter Pipeline - 5
Revenue Recognition
Revenue is recognized when control of the underlying goods or services for a particular performance obligation is transferred to a customer by applying the following five steps:
| 1. | Identify the contract with a customer; |
|---|---|
| 2. | Identify the performance obligations in the contract; |
| --- | --- |
| 3. | Determine the transaction price; |
| --- | --- |
| 4. | Allocate the transaction price to the performance obligations in the contract; and |
| --- | --- |
| 5. | Recognize revenue when, or as, the entity satisfies a performance obligation. |
| --- | --- |
Goods or services that are promised to a customer are referred to as “performance obligations”. Inter Pipeline’s performance obligations have been determined as follows:
| Segment | Nature of Performance Obligations | Recognition |
|---|---|---|
| Transportation | ● Transportation of petroleum products | ● over time |
| ● Storage of petroleum and petrochemical<br>products | ● over time | |
| ● Blending<br>and ancillary services | ● at a<br>point in time | |
| Facilities Infrastructure | ● Processing of NGLs | ● over time |
| ● Sale of<br>NGL products | ● at a<br>point in time | |
| Marketing | ● Sale of petroleum and NGL products | ● at a point in time |
| ● Blending<br>and ancillary services | ● at a<br>point in time | |
| New Ventures^(1)^ | ● Processing of NGLs and ancillary<br>services | ● over time |
| ● Sale of<br>plastic products | ● at a<br>point in time | |
| (1) | Material revenue is not anticipated from the New Ventures segment until HPC is<br>in-service in early 2022. | |
| --- | --- |
Revenue is disaggregated into categories that depict how the nature, timing, and uncertainty of revenues and cash flows are affected by economic factors. Inter Pipeline has categorized its revenue into the following contract types: (i) cost-of-service; (ii) fee-based; and (iii) commodity-based.
Cost-of-Service Contracts
Inter Pipeline provides transportation, NGL processing and storage services under cost-of-service contracts that generally are not impacted by throughput volume or commodity price fluctuations. This includes take-or-pay contracts with dedicated volume or revenue commitments, modified cost-of-service contracts that may have throughput volume exposure in certain circumstances, as well as contracts which generally provide for a return on invested capital and recovery of substantially all operating costs.
Inter Pipeline satisfies its performance obligations and recognizes revenue under cost-of-service contracts over time, as the associated transportation, gas processing, or storage services are provided, or ratably over the term of any take-or-pay arrangements. Contracts may contain make-up rights which are earned by the shippers when minimum volume commitments are not utilized during the period and under certain circumstances can be used to offset excess volume in future periods, subject to expiry periods. Inter Pipeline recognizes revenues associated with make-up rights at the earlier of when the make-up volume is shipped, the make-up right expires, or when it is determined that the likelihood that the shipper will utilize the make-up rights is remote.
Revenue is deferred when payments are received in advance of future services, or in the case of certain declining rate base cost-of-service contracts, when the term of invoicing is less than the period over which performance obligations are satisfied. Deferred amounts are recognized over the period the performance obligation is expected to be satisfied.
Inter Pipeline - 6
Fee-Based Contracts
Fee-based contracts are generally subject to fluctuations in throughput volume but not commodity prices. Revenue is based on a contracted fee and consideration is variable with respect to volume. Inter Pipeline satisfies its performance obligations and recognizes revenue under fee-based contracts over time as the associated transportation, gas processing, or storage services are provided. Inter Pipeline has fee-based contracts with both external and internal customers.
Commodity-Based Contracts
Petroleum and NGLs are sold under commodity-based contracts that are generally subject to throughput volume and commodity price fluctuations. Inter Pipeline satisfies its performance obligations and recognizes revenue once the products have been delivered, which is the same point that control is transferred.
3. ACQUISITION OF THE MILK RIVER PIPELINE SYSTEM AND SALE OF THE EMPRESS DIVESTITURE GROUP
On June 1, 2021, Inter Pipeline completed the acquisition of the Milk River pipeline system from Plains Midstream Canada ULC, in exchange for its 100% ownership interest in the Empress II and 50% ownership interest in the Empress V straddle plants (collectively the “Empress divestiture group”). Inter Pipeline also received cash proceeds of $38.7 million.
a) Acquisition of Milk River Pipeline System
The Milk River pipeline system provides an important link between Inter Pipeline’s Bow River pipeline system and the U.S./ Canadian border west of Coutts, Alberta and will allow for operational and commercial synergies with Inter Pipeline’s existing conventional oil transportation business. Operating results for the Milk River pipeline system have been included in the consolidated financial statements since June 1, 2021, within the transportation segment. The Milk River pipeline system contributed $5.4 million and $2.7 million to revenue and net income before tax, respectively from the date of acquisition to June 30, 2021. If the acquisition had taken place on January 1, 2021, for the six months ended June 30, 2021, management estimates that the Milk River pipeline system would have contributed an incremental $25.7 million to pro forma revenue and $15.1 million to pro forma net income before tax. The pro forma information is not necessarily indicative of the results of operations that would have resulted had the acquisition been effective on the date indicated, or of future results.
The acquisition was accounted for by the acquisition method as at the closing date of June 1, 2021. Determinations of fair value often require management to make assumptions and estimates about future events. Changes in any of the assumptions or estimates used in determining the fair value of acquired assets and liabilities could impact the carrying amounts assigned. Inter Pipeline has allocated the consideration transferred as follows:
| Cash | $ | 38.7 | |
|---|---|---|---|
| Abandonment trust fund | 0.9 | ||
| Property, plant and equipment | 79.0 | ||
| Intangible assets | 82.4 | ||
| Provisions | (2.3 | ) | |
| Purchase price | $ | 198.7 | **** |
Inter Pipeline - 7
b) Sale of the Empress Divestiture Group
The following table summarizes the gain recorded in net income on the sale of the Empress divestiture group:
| Proceeds | $ | 198.7 | |
|---|---|---|---|
| Net assets disposed | (128.7 | ) | |
| Gain on sale of the Empress divestiture group | $ | 70.0 | **** |
| The following table summarizes the net assets of the Empress divestiture group at June 1, 2021: | |||
| Current Assets | |||
| Accounts receivable | $ | 7.5 | |
| Prepaid expenses and other assets | 2.5 | ||
| Non-Current Assets | |||
| Property, plant and equipment (note 5) | 131.7 | ||
| Goodwill and intangible assets | 33.4 | ||
| Assets of the Empress divestiture group | $ | 175.1 | **** |
| Current Liabilities | |||
| Accounts payable and other liabilities | $ | 6.5 | |
| Non-Current liabilities | |||
| Provisions | 5.3 | ||
| Deferred income taxes | 34.6 | ||
| Liabilities of the Empress divestiture group | $ | 46.4 | **** |
| Net assets of the Empress divestiture group | $ | 128.7 | **** |
Inter Pipeline - 8
4. SEGMENT REPORTING
| Three Months Ended June 30, 2021 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Transportation | Facilities<br><br><br>Infrastructure | Marketing | New Ventures | Corporate^(1)^ | Total | ||||||||||
| Cost-of-service | $ | 260.4 | $ | 10.2 | $ | — | $ | — | $ | — | $ | 270.6 | |||
| Fee-based | 33.6 | 47.6 | — | — | — | 81.2 | |||||||||
| Commodity-based | — | — | 351.1 | — | — | 351.1 | |||||||||
| Revenue from external customers^(2)^ | 294.0 | 57.8 | 351.1 | — | — | 702.9 | |||||||||
| Intersegment fee-based revenue | 8.8 | 99.4 | — | — | (108.2 | ) | — | ||||||||
| TOTAL REVENUE | **** | 302.8 | **** | 157.2 | **** | 351.1 | **** | — | **** | **** | (108.2 | ) | **** | 702.9 | |
| Cost of sales | 76.7 | 130.4 | 282.2 | 7.8 | (108.5 | ) | 388.6 | ||||||||
| Loss on derivatives | — | — | 34.1 | — | — | 34.1 | |||||||||
| GROSS PROFIT | **** | 226.1 | **** | 26.8 | **** | 34.8 | **** | (7.8 | ) | **** | 0.3 | **** | **** | 280.2 | |
| General and administrative | 16.0 | 1.5 | 1.5 | 5.0 | 46.8 | 70.8 | |||||||||
| Add back: | |||||||||||||||
| Unrealized loss on derivatives | — | — | 25.8 | — | — | 25.8 | |||||||||
| ADJUSTED EBITDA | $ | 210.1 | $ | 25.3 | $ | 59.1 | $ | (12.8 | ) | $ | (46.5 | ) | $ | 235.2 | |
| Depreciation and amortization | 77.1 | ||||||||||||||
| Gain on sale of the Empress divestiture group | (70.0) | ||||||||||||||
| Unrealized loss on derivatives | 25.8 | ||||||||||||||
| Financing charges | 35.6 | ||||||||||||||
| Income tax expense | 21.2 | ||||||||||||||
| NET INCOME | $ | 145.5 | |||||||||||||
| EXPENDITURES ON PROPERTY, PLANT ANDEQUIPMENT | $ | 18.4 | $ | 25.2 | $ | — | $ | 301.7 | **** | $ | 3.5 | **** | $ | 348.8 | |
| (1) | Corporate includes intersegment eliminations. | ||||||||||||||
| --- | --- | ||||||||||||||
| (2) | Transportation revenue includes $28.0 million of sales to external customers located in Europe. Marketing<br>revenue includes $48.4 million of sales to external customers located in the United States. | ||||||||||||||
| --- | --- | ||||||||||||||
| Three Months Ended June 30, 2020 | |||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Transportation | Facilities<br>Infrastructure | Marketing | New Ventures | Corporate^(1)^ | Total | ||||||||||
| Cost-of-service | $ | 278.2 | $ | 11.4 | $ | — | $ | — | $ | — | $ | 289.6 | |||
| Fee-based | 41.6 | 59.4 | — | — | — | 101.0 | |||||||||
| Commodity-based | — | — | 148.9 | — | — | 148.9 | |||||||||
| Revenue from external customers^(2)^ | 319.8 | 70.8 | 148.9 | — | — | 539.5 | |||||||||
| Intersegment fee-based revenue | 5.5 | 89.2 | — | — | (94.7 | ) | — | ||||||||
| TOTAL REVENUE | **** | 325.3 | **** | 160.0 | **** | 148.9 | **** | **** | — | **** | **** | (94.7 | ) | **** | 539.5 |
| Cost of sales | 85.5 | 112.5 | 152.6 | 1.2 | (91.8 | ) | 260.0 | ||||||||
| Loss on derivatives | — | — | 2.9 | — | — | 2.9 | |||||||||
| GROSS PROFIT | **** | 239.8 | **** | 47.5 | **** | (6.6 | ) | **** | (1.2 | ) | **** | (2.9 | ) | **** | 276.6 |
| General and administrative | 21.1 | 1.3 | 0.7 | 3.3 | 19.9 | 46.3 | |||||||||
| ADJUSTED EBITDA | $ | 218.7 | $ | 46.2 | $ | (7.3 | ) | $ | (4.5 | ) | $ | (22.8 | ) | $ | 230.3 |
| Depreciation and amortization | 95.4 | ||||||||||||||
| Financing charges | 49.4 | ||||||||||||||
| Income tax expense | 23.0 | ||||||||||||||
| NET INCOME | $ | 62.5 | |||||||||||||
| EXPENDITURES ON PROPERTY, PLANT ANDEQUIPMENT | $ | 30.8 | $ | 10.0 | $ | — | **** | $ | 237.9 | **** | $ | 4.6 | **** | $ | 283.3 |
| (1) | Corporate includes intersegment eliminations. | ||||||||||||||
| --- | --- | ||||||||||||||
| (2) | Transportation revenue includes $80.8 million of sales to external customers located in Europe. Marketing<br>revenue includes $29.9 million of sales to external customers located in the United States. | ||||||||||||||
| --- | --- |
Inter Pipeline - 9
| Six Months Ended June 30, 2021 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Transportation | Facilities<br>Infrastructure | Marketing | New Ventures | Corporate^(1)^ | Total | ||||||||||
| Cost-of-service | $ | 534.0 | $ | 24.1 | $ | — | $ | — | $ | — | $ | 558.1 | |||
| Fee-based | 60.1 | 99.9 | — | — | — | 160.0 | |||||||||
| Commodity-based | — | — | 682.0 | — | — | 682.0 | |||||||||
| Revenue from external customers^(2)^ | 594.1 | 124.0 | 682.0 | — | — | 1,400.1 | |||||||||
| Intersegment fee-based revenue | 15.3 | 226.6 | — | — | (241.9 | ) | — | ||||||||
| TOTAL REVENUE | **** | 609.4 | **** | 350.6 | **** | 682.0 | **** | — | **** | **** | (241.9 | ) | **** | 1,400.1 | |
| Cost of sales | 156.4 | 289.3 | 519.9 | 12.7 | (239.0 | ) | 739.3 | ||||||||
| Loss on derivatives | — | — | 54.5 | — | — | 54.5 | |||||||||
| GROSS PROFIT | **** | 453.0 | **** | 61.3 | **** | 107.6 | **** | (12.7 | ) | **** | (2.9 | ) | **** | 606.3 | |
| General and administrative | 31.9 | 2.9 | 3.9 | 10.1 | 74.5 | 123.3 | |||||||||
| Add back: | |||||||||||||||
| Unrealized loss on derivatives | — | — | 29.7 | — | — | 29.7 | |||||||||
| ADJUSTED EBITDA | $ | 421.1 | $ | 58.4 | $ | 133.4 | $ | (22.8 | ) | $ | (77.4 | ) | $ | 512.7 | |
| Depreciation and amortization | 147.0 | ||||||||||||||
| Gain on sale of the Empress divestiture group | (70.0) | ||||||||||||||
| Unrealized loss on derivatives | 29.7 | ||||||||||||||
| Financing charges | 73.0 | ||||||||||||||
| Income tax expense | 59.7 | ||||||||||||||
| NET INCOME | $ | 273.3 | |||||||||||||
| EXPENDITURES ON PROPERTY, PLANT ANDEQUIPMENT | $ | 47.9 | $ | 58.7 | $ | — | $ | 527.1 | **** | $ | 7.7 | **** | $ | 641.4 | |
| (1) | Corporate includes intersegment eliminations. | ||||||||||||||
| --- | --- | ||||||||||||||
| (2) | Transportation revenue includes $57.4 million of sales to external customers located in Europe. Marketing<br>revenue includes $124.1 million of sales to external customers located in the United States. | ||||||||||||||
| --- | --- | ||||||||||||||
| Six Months Ended June 30, 2020 | |||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Transportation | Facilities<br>Infrastructure | Marketing | New Ventures | Corporate^(1)^ | Total | ||||||||||
| Cost-of-service | $ | 555.6 | $ | 23.3 | $ | — | $ | — | $ | — | $ | 578.9 | |||
| Fee-based | 97.7 | 118.7 | — | — | — | 216.4 | |||||||||
| Commodity-based | — | — | 348.0 | — | — | 348.0 | |||||||||
| Revenue from external customers^(2)^ | 653.3 | 142.0 | 348.0 | — | — | 1,143.3 | |||||||||
| Intersegment fee-based revenue | 12.3 | 182.0 | — | — | (194.3 | ) | — | ||||||||
| TOTAL REVENUE | **** | 665.6 | **** | 324.0 | **** | 348.0 | **** | **** | — | **** | **** | (194.3 | ) | **** | 1,143.3 |
| Cost of sales | 179.3 | 231.1 | 347.9 | 5.0 | (187.1 | ) | 576.2 | ||||||||
| Loss on derivatives | — | — | 2.9 | — | — | 2.9 | |||||||||
| GROSS PROFIT | **** | 486.3 | **** | 92.9 | **** | (2.8 | ) | **** | (5.0 | ) | **** | (7.2 | ) | **** | 564.2 |
| General and administrative | 35.1 | 2.9 | 1.6 | 7.2 | 23.2 | 70.0 | |||||||||
| ADJUSTED EBITDA | $ | 451.2 | $ | 90.0 | $ | (4.4 | ) | $ | (12.2 | ) | $ | (30.4 | ) | $ | 494.2 |
| Depreciation and amortization | 187.4 | ||||||||||||||
| Financing charges | 98.1 | ||||||||||||||
| Income tax expense | 57.1 | ||||||||||||||
| NET INCOME | $ | 151.6 | |||||||||||||
| EXPENDITURES ON PROPERTY, PLANT ANDEQUIPMENT | $ | 77.1 | $ | 19.2 | $ | — | **** | $ | 492.7 | **** | $ | 10.8 | **** | $ | 599.8 |
| (1) | Corporate includes intersegment eliminations. | ||||||||||||||
| --- | --- | ||||||||||||||
| (2) | Transportation revenue includes $161.8 million of sales to external customers located in Europe. Marketing<br>revenue includes $68.2 million of sales to external customers located in the United States. | ||||||||||||||
| --- | --- |
Inter Pipeline - 10
- PROPERTY, PLANT AND EQUIPMENT
| Pipelines, | Construction | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Facilities and | Work in | ||||||||
| Equipment^(1)^ | Progress | Total | |||||||
| COST | |||||||||
| Balance, January 1, 2020 | $ | 11,423.4 | $ | 2,488.6 | $ | 13,912.0 | |||
| Additions and transfers from construction^(2)^ | 513.9 | 1,266.2 | 1,780.1 | ||||||
| Disposals and completed construction^(2)^ | (46.2 | ) | (512.1 | ) | (558.3 | ) | |||
| Sale of the European divestiture group | (1,037.8 | ) | (32.3 | ) | (1,070.1 | ) | |||
| Reclassified to assets of the Empress divestiture group held for sale^(3)^ | (255.7 | ) | — | (255.7 | ) | ||||
| Foreign currency translation adjustments | 86.1 | 3.0 | 89.1 | ||||||
| Balance, December 31, 2020 | 10,683.7 | 3,213.4 | 13,897.1 | ||||||
| Additions and transfers from construction^(2)^ | 134.1 | 566.0 | 700.1 | ||||||
| Acquisition of Milk River pipeline system (note<br>3) | 79.0 | — | 79.0 | ||||||
| Disposals and completed construction^(2)^ | (21.0 | ) | (134.8 | ) | (155.8 | ) | |||
| Foreign currency translation adjustments | (45.2 | ) | (1.8 | ) | (47.0 | ) | |||
| Balance, June 30, 2021 | $ | 10,830.6 | **** | $ | 3,642.8 | **** | $ | 14,473.4 | **** |
| ACCUMULATED DEPRECIATION | |||||||||
| Balance, January 1, 2020 | $ | 2,154.2 | $ | — | $ | 2,154.2 | |||
| Depreciation | 284.7 | — | 284.7 | ||||||
| Disposals | (21.0 | ) | — | (21.0 | ) | ||||
| Sale of the European divestiture group | (334.2 | ) | — | (334.2 | ) | ||||
| Reclassified to assets of the Empress divestiture group held for sale^(3)^ | (124.0 | ) | — | (124.0 | ) | ||||
| Foreign currency translation adjustments | 22.2 | — | 22.2 | ||||||
| Balance, December 31, 2020 | 1,981.9 | — | 1,981.9 | ||||||
| Depreciation | 135.7 | — | 135.7 | ||||||
| Disposals | (12.1 | ) | — | (12.1 | ) | ||||
| Foreign currency translation adjustments | (12.8 | ) | — | (12.8 | ) | ||||
| Balance, June 30, 2021 | $ | 2,092.7 | **** | $ | — | **** | $ | 2,092.7 | **** |
| NET BOOK VALUE | |||||||||
| As at December 31, 2020 | $ | 8,701.8 | $ | 3,213.4 | $ | 11,915.2 | |||
| As at June 30, 2021 | $ | 8,737.9 | **** | $ | 3,642.8 | **** | $ | 12,380.7 | **** |
| (1) | At June 30, 2021, $496.8 million of pipelines, facilities and equipment was leased to others (December 31,<br>2020 - $544.4 million). | ||||||||
| --- | --- | ||||||||
| (2) | The majority of property, plant and equipment additions are related to constructed assets and are initially recorded<br>as construction work in progress before being transferred to pipelines, facilities and equipment when the related asset is available for use. | ||||||||
| --- | --- | ||||||||
| (3) | The divestiture of assets of the Empress group held for sale was completed on June 1, 2021.<br> | ||||||||
| --- | --- |
At June 30, 2021, Inter Pipeline had $280.6 million of contractual commitments for property, plant and equipment.
Inter Pipeline - 11
- FINANCIAL DEBT
The following table summarizes Inter Pipeline’s financial debt as at June 30, 2021 and December 31, 2020:
| June 30 | December 31 | |||||
|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||
| Corridor syndicated credit facility^(1)^ | $ | 1,291.8 | **** | $ | 1,309.5 | |
| Inter Pipeline syndicated credit facilities | **** | 530.0 | **** | 44.0 | ||
| Inter Pipeline term credit facility | **** | 500.0 | **** | 500.0 | ||
| Medium-term notes | **** | 3,200.0 | **** | 3,525.0 | ||
| Subordinated hybrid notes | **** | 1,450.0 | **** | 1,450.0 | ||
| Long-term debt and short-term debt (excluding transaction costs and discounts) | **** | 6,971.8 | **** | 6,828.5 | ||
| Transaction costs and discounts, net of accumulated<br>amortization | **** | (31.8 | ) | (33.8 | ) | |
| Financial debt | **** | 6,940.0 | **** | 6,794.7 | ||
| Comprised of: | ||||||
| Short-term debt and current portion of long-term debt | **** | 1,688.9 | **** | 1,629.7 | ||
| Long-term debt | **** | 5,251.1 | **** | 5,165.0 | ||
| Financial debt | **** | 6,940.0 | **** | 6,794.7 | ||
| (1) | At June 30, 2021, a letter of credit totalling $0.6 million (December 31, 2020 - $nil) has been issued<br>under Corridor’s syndicated credit facility; however, this is not included in the amount outstanding. | |||||
| --- | --- |
On January 27, 2021, Inter Pipeline amended the $500 million term credit facility agreement to reduce the pricing margin.
On February 2, 2021, the $325 million 4.967% Series 1 medium-term notes matured and were repaid.
On February 11, 2021, Inter Pipeline amended the $1.0 billion unsecured revolving credit facility agreement to reduce the pricing margin and extend the maturity date to December 5, 2022. At June 30, 2021, no amounts were drawn against this facility (December 31, 2020 - $nil).
At June 30, 2021, letters of credit totalling $10.7 million (December 31, 2020 - $10.7 million) have been issued under Inter Pipeline’s demand facility; however, no amounts have been borrowed against the facility at June 30, 2021 (December 31, 2020 - $nil).
- INCOME TAXES
Income tax expense varies from amounts computed by applying the Canadian federal and provincial statutory income tax rates to income before income taxes as shown in the following table:
| Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |||||||||
| Income before income taxes | $ | 166.7 | **** | $ | 85.5 | $ | 333.0 | **** | $ | 208.7 | ||
| Tax rate | **** | 23.0 | % | 25.0 | % | **** | 23.0 | % | 25.0 | % | ||
| Income tax at statutory rate | **** | 38.3 | **** | 21.4 | **** | 76.6 | **** | 52.2 | ||||
| Non-taxable gain on sale of the Empress divestiture group | **** | (16.1 | ) | — | **** | (16.1 | ) | — | ||||
| Deductible intercompany interest expense | **** | — | **** | (2.0 | ) | **** | — | **** | (4.2 | ) | ||
| Impact of change in deferred tax rates | **** | — | **** | 3.2 | **** | — | **** | 8.7 | ||||
| Other | **** | (1.0 | ) | 0.4 | **** | (0.8 | ) | 0.4 | ||||
| Total income tax expense | $ | 21.2 | **** | $ | 23.0 | $ | 59.7 | **** | $ | 57.1 |
Inter Pipeline - 12
8. SHAREHOLDERS’ EQUITY
a) Share Capital
Inter Pipeline had 429.2 million common shares outstanding with a book value of one Canadian dollar at June 30, 2021 and December 31, 2020.
b) Calculation of Net Income per Common Share
| Three Months Ended June 30 | Six Months Ended June 30 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (millions, except per share amounts) | 2021 | 2020 | 2021 | 2020 | ||||||
| Net income – basic and diluted | $ | 145.5 | $ | 62.5 | $ | 273.3 | $ | 151.6 | ||
| Weighted average shares outstanding – basic | **** | 429.2 | 428.6 | **** | 429.2 | 425.8 | ||||
| Effect of Premium Dividend^™^ and Dividend | ||||||||||
| Reinvestment Plan | **** | — | 0.6 | **** | — | 1.0 | ||||
| Weighted average shares outstanding – diluted | **** | 429.2 | 429.2 | **** | 429.2 | 426.8 | ||||
| Net income per common share – basic and diluted | $ | 0.34 | $ | 0.15 | $ | 0.64 | $ | 0.36 | ||
| c) Dividends to Shareholders | ||||||||||
| Three Months Ended June 30 | Six Months Ended June 30 | |||||||||
| (millions, except per share amounts) | 2021 | 2020 | 2021 | 2020 | ||||||
| Dividends declared on common shares | $ | 51.5 | $ | 51.5 | $ | 103.0 | $ | 232.6 | ||
| Dividends settled with the issuance of shares under the Premium Dividend^™^ and Dividend | ||||||||||
| Reinvestment Plan | **** | — | (33.3 | ) | **** | — | (125.7 | ) | ||
| Cash dividends paid on common shares | $ | 51.5 | $ | 18.2 | $ | 103.0 | $ | 106.9 | ||
| Dividends declared per share | $ | 0.1200 | $ | 0.1200 | $ | 0.2400 | $ | 0.5475 |
As at June 30, 2021, dividends of $17.2 million were payable on 429.2 million outstanding common shares at $0.04 per share (December 31, 2020 - $17.2 million payable on 429.2 million outstanding common shares at $0.04 per share).
On July 9, 2021, Inter Pipeline declared dividends of $0.04 per share. The dividends will be paid on or about August 16, 2021, to shareholders of record on July 22, 2021. The total declared dividends are approximately $17.2 million.
9. CAPITAL DISCLOSURES
Capital under management includes financial debt and shareholders’ equity.
At June 30, 2021, Inter Pipeline had access to committed credit facilities totalling $4,550.0 million, of which $2,227.6 million remained unutilized. Inter Pipeline also had access to demand facilities of $125.7 million, of which $115.0 million remained unutilized. Certain facilities are available to specific subsidiaries of Inter Pipeline.
Inter Pipeline was compliant with all financial covenants throughout each of the periods presented.
^TM^Denotes trademark of Canaccord Genuity Corp.
Inter Pipeline - 13
- FINANCIAL INSTRUMENTS
a) Classification of Financial Assets and Financial Liabilities
The carrying value of Inter Pipeline’s financial assets and liabilities recorded at June 30, 2021, are classified as follows:
| Amortized Cost | Fair Value<br>Through Profit<br>or Loss | Non-Financial<br>Asset or Liability^(1)^ | Carrying Value<br>of Asset or<br>Liability | |||||
|---|---|---|---|---|---|---|---|---|
| Assets^(2)^ | ||||||||
| Cash and cash equivalents | $ | 28.7 | $ | — | $ | — | $ | 28.7 |
| Accounts receivable | 325.5 | — | 11.5 | 337.0 | ||||
| Derivatives^(3)^ | — | 2.8 | — | 2.8 | ||||
| Prepaid expenses and other assets | 1.0 | — | 77.6 | 78.6 | ||||
| Liabilities | ||||||||
| Dividends payable | $ | 17.2 | $ | — | $ | — | $ | 17.2 |
| Accounts payable and other liabilities | 517.0 | — | 95.3 | 612.3 | ||||
| Derivatives^(3)^ | — | 33.2 | — | 33.2 | ||||
| Long-term deferred revenue and other liabilities | 14.3 | — | 25.9 | 40.2 | ||||
| Long-term debt and short-term debt<br>(note 6)^(4)^ | 6,971.8 | — | — | 6,971.8 | ||||
| (1) | Not all components of assets and liabilities meet the definition of a financial asset or liability.<br> | |||||||
| --- | --- | |||||||
| (2) | Inter Pipeline does not have any assets that meet the definition of “fair value through other comprehensive<br>income”. | |||||||
| --- | --- | |||||||
| (3) | Inter Pipeline measures its derivatives at fair value through profit or loss and does not apply hedge accounting.<br> | |||||||
| --- | --- | |||||||
| (4) | Carrying values exclude transaction costs, discounts and accumulated amortization. | |||||||
| --- | --- |
b) Fair Value of Fixed Rate Debt
At June 30, 2021, the carrying values of fixed rate debt compared to fair values are as follows:
| Carrying Value^(1)^ | Fair Value | |||
|---|---|---|---|---|
| Medium-term notes | $ | 3,200.0 | $ | 3,375.5 |
| Subordinated hybrid notes | $ | 1,450.0 | $ | 1,599.0 |
| (1) | Carrying value excludes transaction costs, discounts and accumulated amortization. | |||
| --- | --- |
Inter Pipeline - 14
c) Fair Value of Derivatives
Derivative financial assets and liabilities are offset if Inter Pipeline has the current legal right to offset and intends to settle on a net basis or settle the asset and liability simultaneously. The following table summarizes the fair value of derivatives as at June 30, 2021:
| Derivative Asset | Derivative Liability | |||||
|---|---|---|---|---|---|---|
| NGL^(1)^ | — | 45.8 | ||||
| Natural gas | 17.5 | 2.1 | ||||
| Gross amount | 17.5 | 47.9 | ||||
| Amount offset | (14.7 | ) | (14.7 | ) | ||
| Net amount | **** | 2.8 | **** | **** | 33.2 | **** |
| (1) | NGL includes crude oil, propane, isobutane, and polymer grade propylene. | |||||
| --- | --- |
Realized gains / losses represent actual settlements under derivative contracts during the period. The realized gains / losses on derivatives recognized in net income were:
| Three Months Ended June 30 | Six Months Ended June 30 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| **** | 2021 | **** | 2020 | **** | 2021 | **** | 2020 | |||
| Crude oil | $ | (0.6 | ) | $ | 2.9 | $ | (0.2 | ) | $ | 2.9 |
| NGL^(1)^ | **** | 11.5 | **** | — | **** | 27.6 | **** | — | ||
| Natural gas | **** | (2.6 | ) | — | **** | (2.6 | ) | — | ||
| Net realized loss on derivatives | $ | 8.3 | **** | $ | 2.9 | $ | 24.8 | **** | $ | 2.9 |
| (1) | NGL includes crude oil, propane, isobutane, and polymer grade propylene. | |||||||||
| --- | --- |
The unrealized changes in fair value related to derivatives recognized in net income were:
| Three Months Ended June 30 | Six Months Ended June 30 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| **** | 2021 | **** | 2020 | **** | 2021 | **** | 2020 | |||
| Crude oil | $ | 1.1 | **** | $ | — | $ | — | **** | $ | — |
| NGL^(1)^ | **** | 39.7 | **** | — | **** | 45.1 | **** | — | ||
| Natural gas | (15.0 | ) | — | (15.4 | ) | — | ||||
| Net unrealized loss on derivatives | $ | 25.8 | $ | — | $ | 29.7 | $ | — | ||
| (1) | NGL includes crude oil, propane, isobutane, and polymer grade propylene. | |||||||||
| --- | --- |
At June 30, 2021, Inter Pipeline had the following derivative contracts outstanding:
| Notional Volume^(1)^ | Remaining Term^(2)^ | Weighted Average<br>Price^(3)^ | ||||
|---|---|---|---|---|---|---|
| Crude oil^(4)^ | 154,000 | December 2021 | $ | 73.28 | ||
| Propane | 1,778,000 | December 2021 | $ | 39.98 | ||
| Isobutane | 140,000 | December 2021 | $ | 44.06 | ||
| Polymer grade propylene | 278,000 | December 2021 | $ | 107.30 | ||
| Natural<br>gas^(5)^ | 14,273,000 | December 2021 | $ | 2.53 | ||
| (1) | Notional volume for all commodities are in barrels except for natural gas which is in gigajoules.<br> | |||||
| --- | --- | |||||
| (2) | Contracts mature between July and December 2021. | |||||
| --- | --- | |||||
| (3) | Derivatives denominated in foreign currency have been translated to Canadian Dollars at the June 30, 2021<br>closing rate. | |||||
| --- | --- | |||||
| (4) | Inter Pipeline utilizes crude oil derivatives to mitigate risks arising from both its crude oil and NGL risk<br>management strategies. | |||||
| --- | --- | |||||
| (5) | Inter Pipeline is the seller for all commodities except for natural gas where it is the purchaser.<br> | |||||
| --- | --- |
Inter Pipeline - 15
- RISK MANAGEMENT
Inter Pipeline is exposed to a number of inherent financial risks arising in the normal course of operations which include market risk related to interest rates, commodity prices and foreign currency exchange rates, credit risk and liquidity risk.
a) Market Risk
Based on the variable rate debt obligations outstanding at June 30, 2021, a 1% change in interest rates at this date would have changed interest expense for the three and six months ended June 30, 2021, by approximately $5.8 million and $11.5 million, respectively, assuming all other variables remain constant. Of this amount, $3.2 million and $6.4 million for the three and six months ended June 30, 2021, relates to the Corridor syndicated credit facility (note 6) and is recoverable through the terms of the Corridor Firm Service Agreement; therefore, the after-tax income impact for the three and six months ended June 30, 2021, would be $2.0 million and $3.9 million, respectively. When deemed appropriate, Inter Pipeline may enter into interest rate or cross-currency swap agreements to manage its interest rate price risk exposure. As at June 30, 2021, there were no interest rate or cross-currency swap agreements outstanding.
Inter Pipeline is exposed to commodity price risk arising from purchases and sales of crude oil, natural gas, NGL, power, carbon credits, and petrochemicals. Inter Pipeline manages its commodity risk exposures by utilizing commodity swaps. The following table illustrates how a 10% change in commodity prices in isolation could individually impact the valuation of Inter Pipeline’s derivatives, and consequently income before income taxes, assuming all other variables remain constant:
| Increase (decrease) in income <br> <br>before income taxes based on | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Fair value of<br>derivatives | 10% increase<br>in price | 10% decrease in<br>price | |||||||
| NGL | (45.8 | ) | (16.5 | ) | 16.5 | ||||
| Natural gas | 15.4 | 5.1 | (5.1 | ) | |||||
| Commodity risk management | $ | (30.4 | ) |
As at June 30, 2021, there were no foreign exchange derivatives outstanding.
b) Credit Risk
Credit risk exposure relates primarily to the non-performance of Inter Pipeline’s customers and financial counterparties. Inter Pipeline believes that the credit risk arising from cash and cash equivalents and derivatives is minimal as these financial assets are predominantly held with major financial institutions. At June 30, 2021, Inter Pipeline considers that the risk of non-performance of its customers is minimal based on Inter Pipeline’s credit approval, ongoing monitoring procedures and historical experience.
Inter Pipeline assesses lifetime expected credit losses for accounts receivable using historical default rates, aged accounts receivable analysis, and forward looking information to determine the appropriate expected credit losses. At June 30, 2021, lifetime expected credit losses for accounts receivable outstanding were insignificant.
Inter Pipeline - 16
c) Liquidity Risk
The table below summarizes the contractual maturity profile of Inter Pipeline’s financial liabilities at June 30, 2021, on an undiscounted basis:
| Total | Less Than<br>One Year | One to Five<br>Years | After Five<br>Years | |||||
|---|---|---|---|---|---|---|---|---|
| Dividends payable | $ | 17.2 | $ | 17.2 | $ | — | $ | — |
| Accounts payable and other liabilities | 612.3 | 612.3 | — | — | ||||
| Derivatives | 33.2 | 33.2 | — | — | ||||
| Lease liabilities | 210.2 | 20.5 | 75.5 | 114.2 | ||||
| Long-term deferred revenue and other liabilities | 40.2 | — | 29.2 | 11.0 | ||||
| Long-term debt and short-term debt | 6,971.8 | 1,691.8 | 2,180.0 | 3,100.0 | ||||
| Total | $ | 7,884.9 | $ | 2,375.0 | $ | 2,284.7 | $ | 3,225.2 |
- COMMITMENTS AND CONTINGENCIES
a) Purchase Obligations
Inter Pipeline had operating purchase commitments totalling approximately $3,117.3 million at June 30, 2021. Refer to note 5 for committed property, plant and equipment expenditures.
b) Alberta Petrochemicals Incentive Program
On April 5, 2021, Inter Pipeline announced it will receive $408 million from the Government of Alberta under the Alberta Petrochemicals Incentive Program (APIP). The grant was awarded in support of Inter Pipeline’s HPC, which will be operational in early 2022. The APIP cash grant will be paid to Inter Pipeline in three equal instalments over three years once HPC is operational. Inter Pipeline was previously approved to receive $200 million of royalty credits for the propane dehydrogenation plant under the Petrochemicals Diversification Program, but has resigned these credits in favour of the more significant APIP grant.
The APIP grant will be accounted for as a government grant related to income, and will not be recognized on the balance sheet until Inter Pipeline has reasonable assurance that the conditions attached to the grant will be fulfilled.
- PEMBINA ARRANGEMENT
On May 31, 2021, Inter Pipeline entered into an agreement (the “Arrangement Agreement”) to pursue a business combination with Pembina Pipeline Corporation (“Pembina”), whereby Pembina agreed to acquire all the issued and outstanding Inter Pipeline common shares. The Arrangement Agreement provided for the payment by Inter Pipeline of a $350 million termination fee if the Arrangement Agreement was terminated in certain specified circumstances. Inter Pipeline did not record a provision for the termination fee as at June 30, 2021 as the specified circumstances requiring payment of the termination fee had not yet occurred and related to uncertain future events not wholly within the control of Inter Pipeline.
On July 26, 2021, Inter Pipeline announced that it had advised Pembina that Inter Pipeline’s Board of Directors would not be reconfirming its recommendation that shareholders vote in favour of the Arrangement Agreement. As a result, Pembina terminated the Arrangement Agreement and Inter Pipeline paid Pembina the termination fee of $350 million on July 27, 2021.
Inter Pipeline - 17
EX-99.2
Exhibit 99.2
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Brookfield Infrastructure Partners L.P. (“BIP” or the “partnership”), alongside institutional partners (the “IPL consortium”), announced its intention to acquire (the “Offer”) the remaining outstanding shares of Inter Pipeline Ltd. (“IPL”) not already owned by the IPL consortium (the “acquisition”), through Bison Acquisition Corp. Each IPL shareholder (“Shareholder”) will have the ability to elect to receive, per IPL share, C$20.00 in cash, 0.25 of a class A exchangeable subordinate voting share (“BIPC Share”) of Brookfield Infrastructure Corporation (“BIPC”) or 0.25 of a Class B exchangeable limited partnership unit (“Exchangeable LP Unit”) of Brookfield Infrastructure Corporation Exchange Limited Partnership. The acquisition will be fully financed, with a maximum aggregate number of BIPC Shares and Exchangeable LP Units issued of approximately 31 million. Up to an additional 5 million Exchangeable LP Units are issuable in connection with the supplementary election. Subsequent to the acquisition, we expect that BIP will hold an approximate 51% interest in IPL (IPL consortium total of 100%).
The following unaudited pro forma consolidated financial statements are presented to illustrate the estimated effects of the acquisition. These unaudited pro forma consolidated financial statements have been prepared by applying pro forma adjustments to the historical consolidated financial statements of the partnership incorporated by reference in the prospectus/offer to exchange, which was filed with the U.S. Securities and Exchange Commission and forms a part of a Registration Statement on Form F-4 (File No. 333-253365-01) as amended. The unaudited pro forma consolidated statement of financial position gives effect to the Offer as if it had occurred on June 30, 2021. The unaudited pro forma consolidated statement of operating results for the six months ended June 30, 2021 and the year ended December 31, 2020 give effect to the Offer as if it had occurred on January 1, 2020. All pro forma adjustments and their underlying assumptions are described in the notes to the unaudited pro forma consolidated financial statements.
These unaudited pro forma consolidated financial statements have been prepared using the partnership’s and IPL’s respective financial statements as described below. In preparing these pro forma consolidated financial statements, management of the partnership has made certain assumptions that affect the amounts reported in the unaudited pro forma consolidated financial statements. These unaudited pro forma consolidated financial statements are not intended to be indicative of the results that would have actually occurred, had the events reflected therein occurred on the dates indicated, and do not purport to project the future financial position of the partnership. Actual amounts recorded upon consummation of the transactions contemplated by the Offer will differ from these unaudited pro forma consolidated financial statements. Readers are cautioned to not place undue reliance on these unaudited pro forma consolidated financial statements.
All amounts are in millions of U.S. dollars, except where noted.
1
Unaudited Pro forma Statement of Operating Results
| US$ MILLIONS, except where otherwiseindicated | BIP | IPL(CAD millions) | IPL^(1)^ | Transaction Adjustments | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| For the six-month periodended June 30, 2021 | Notes | Pro FormaAdjustments | Pro FormaConsolidated | ||||||||||||||||
| Note 1 | |||||||||||||||||||
| Revenues | $ | 5,346 | $ | 1,123 | $ | — | $ | — | $ | 6,469 | |||||||||
| Direct operating costs | (2,779 | ) | — | (592 | ) | — | (3,371 | ) | |||||||||||
| General and administrative expenses | (191 | ) | ) | (99 | ) | — | — | (290 | ) | ||||||||||
| Depreciation and amortization expense | (961 | ) | ) | (118 | ) | — | 3a | (73 | ) | (1,152 | ) | ||||||||
| Cost of sales | — | ) | (592 | ) | 592 | — | — | ||||||||||||
| Loss on derivatives | — | ) | (44 | ) | 44 | — | — | ||||||||||||
| 1,415 | 270 | 44 | (73 | ) | 1,656 | ||||||||||||||
| Interest expense | (717 | ) | — | (59 | ) | 3b | (29 | ) | (805 | ) | |||||||||
| Financing charges | — | ) | (59 | ) | 59 | — | — | ||||||||||||
| Share of earnings from investments in associates and joint ventures | 77 | — | — | — | 77 | ||||||||||||||
| Mark-to-market on<br>hedging items | 20 | — | (44 | ) | — | (24 | ) | ||||||||||||
| Gain on sale of assets | — | 56 | (56 | ) | — | — | |||||||||||||
| Other income | 1,344 | — | 56 | — | 1,400 | ||||||||||||||
| Income (loss) before income tax | 2,139 | 267 | — | (102 | ) | 2,304 | |||||||||||||
| Income tax (expense) recovery | |||||||||||||||||||
| Current | (168 | ) | ) | (5 | ) | — | — | (173 | ) | ||||||||||
| Deferred | (252 | ) | ) | (43 | ) | — | 3c | 24 | (271 | ) | |||||||||
| Net income | $ | 1,719 | $ | 219 | $ | — | $ | (78 | ) | $ | 1,860 | ||||||||
| Attributable to: | |||||||||||||||||||
| Limited partners | $ | 281 | $ | — | $ | 67 | 3 | $ | (25 | ) | $ | 323 | |||||||
| General partner | 101 | — | — | 3 | — | 101 | |||||||||||||
| Non-controlling interest attributable to: | |||||||||||||||||||
| Redeemable Partnership Units held by Brookfield | 116 | — | 28 | 3 | (10 | ) | 134 | ||||||||||||
| Class A shares of Brookfield Infrastructure Corporation | 43 | — | 17 | 3 | (6 | ) | 54 | ||||||||||||
| Brookfield Infrastructure Partners Exchange LP Units | 1 | — | — | 3 | — | 1 | |||||||||||||
| Interest of others in operating subsidiaries | 1,177 | — | 107 | 3 | (37 | ) | 1,247 | ||||||||||||
| Preferred unitholders | — | — | — | — | — | ||||||||||||||
| Basic and diluted earnings (loss) per unit attributable to: | |||||||||||||||||||
| Limited partners | $ | 0.88 | $ | — | $ | 0.23 | $ | (0.09 | ) | $ | 1.02 |
All values are in US Dollars.
| (1) | Amounts in CAD were translated to USD using average exchange rate for the six-month period ending June 30, 2021 of CAD$1 = US$0.8022 |
|---|
2
Unaudited Pro forma Statement of
Operating Results
| US MILLIONS, except where otherwiseindicated | Transaction Adjustments | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| For the year ended December 31, 2020 | IPL (Cmillions) | IPL^(1)^ | Reclassification | Notes | Pro FormaAdjustments | Pro FormaConsolidated | ||||||||||||
| Note 1 | ||||||||||||||||||
| Revenues | 8,885 | $ | 1,792 | $ | — | $ | — | $ | 10,677 | |||||||||
| Direct operating costs | (4,843 | ) | ) | (424 | ) | (505 | ) | — | (5,772 | ) | ||||||||
| General and administrative expenses | (312 | ) | ) | (140 | ) | — | — | (452 | ) | |||||||||
| Depreciation and amortization expense | (1,705 | ) | ) | (269 | ) | — | 3a | (140 | ) | (2,114 | ) | |||||||
| Cost of sales | — | ) | (505 | ) | 505 | — | — | |||||||||||
| 2,025 | 454 | — | (140 | ) | 2,339 | |||||||||||||
| Interest expense | (1,179 | ) | — | (143 | ) | 3b | (61 | ) | (1,383 | ) | ||||||||
| Financing charges | — | ) | (143 | ) | 143 | — | — | |||||||||||
| Share of earnings from investments in associates and joint ventures | 131 | — | — | — | 131 | |||||||||||||
| Mark-to-market on<br>hedging items | (16 | ) | — | — | — | (16 | ) | |||||||||||
| Gain on sale of assets | — | 40 | (40 | ) | — | — | ||||||||||||
| Other income | 234 | — | 40 | — | 274 | |||||||||||||
| Income (loss) before income tax | 1,195 | 351 | — | (201 | ) | 1,345 | ||||||||||||
| Income tax (expense) recovery | ||||||||||||||||||
| Current | (237 | ) | ) | (5 | ) | — | — | (242 | ) | |||||||||
| Deferred | (54 | ) | ) | (80 | ) | — | 3c | 47 | (87 | ) | ||||||||
| Net income (loss) | 904 | $ | 266 | $ | — | $ | (154 | ) | $ | 1,016 | ||||||||
| Attributable to: | ||||||||||||||||||
| Limited partners | 141 | $ | — | $ | 82 | 3 | $ | (50 | ) | $ | 173 | |||||||
| General partner | 183 | — | — | 3 | — | 183 | ||||||||||||
| Non-controlling interest attributable to: | ||||||||||||||||||
| Redeemable Partnership Units held by Brookfield | 55 | — | 35 | 3 | (21 | ) | 69 | |||||||||||
| Class A shares of Brookfield Infrastructure Corporation | 14 | — | 18 | 3 | (11 | ) | 21 | |||||||||||
| Brookfield Infrastructure Partners Exchange LP Units | 1 | — | — | 3 | — | 1 | ||||||||||||
| Interest of others in operating subsidiaries | 510 | — | 131 | 3 | (72 | ) | 569 | |||||||||||
| Preferred unitholders | — | — | — | — | — | |||||||||||||
| Basic and diluted earnings (loss) per unit attributable to: | ||||||||||||||||||
| Limited partners | 0.35 | $ | — | $ | 0.28 | $ | (0.16 | ) | $ | 0.47 |
All values are in US Dollars.
| (1) | Amounts in CAD were translated to USD using average exchange rate for the year endingDecember 31, 2020 of C$1 = US$0.7465 |
|---|
3
Unaudited Pro Forma Statement of
Financial Position
| US MILLIONS, except where otherwiseindicated | Transaction Adjustments | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| As at June 30, 2021 | IPL (CADmillions) | IPL ^(1)^ | Reclassification | Notes | Pro FormaAdjustments | Pro FormaConsolidated | |||||||
| Note 1 | |||||||||||||
| Assets | |||||||||||||
| Cash and cash equivalents | 1,275 | $ | 23 | $ | — | $ | — | $ | 1,298 | ||||
| Financial assets | 1,121 | — | 2 | 2 | (291 | ) | 832 | ||||||
| Accounts receivable and other | 2,041 | 271 | 64 | — | 2,376 | ||||||||
| Derivatives | — | 2 | (2 | ) | — | — | |||||||
| Prepaid expenses and other | — | 64 | (64 | ) | — | — | |||||||
| Assets classified as held for sale | 1,156 | — | — | — | 1,156 | ||||||||
| Inventory | 285 | 22 | — | — | 307 | ||||||||
| Current assets | 5,878 | 382 | — | (291 | ) | 5,969 | |||||||
| Property, plant and equipment | 28,005 | 9,987 | 98 | 2b | 4,358 | 42,448 | |||||||
| Intangible assets | 12,406 | — | 205 | — | 12,611 | ||||||||
| Intangible assets and goodwill | — | 403 | (403 | ) | — | — | |||||||
| Right-of-use<br>assets | — | 98 | (98 | ) | — | — | |||||||
| Investments in associates and joint ventures | 5,127 | — | — | — | 5,127 | ||||||||
| Investment properties | 563 | — | — | — | 563 | ||||||||
| Goodwill | 6,811 | — | 198 | 2b | 942 | 7,951 | |||||||
| Financial assets (non-current) | 485 | — | — | — | 485 | ||||||||
| Other assets | 867 | — | — | — | 867 | ||||||||
| Deferred income tax asset | 136 | — | — | — | 136 | ||||||||
| Total assets | 60,278 | $ | 10,870 | $ | — | $ | 5,009 | $ | 76,157 | ||||
| Liabilities and Equity | |||||||||||||
| Liabilities | |||||||||||||
| Accounts payable and other (2) | 2,864 | 553 | (27 | ) | 2c | 414 | 3,804 | ||||||
| Corporate borrowings | 496 | — | — | — | 496 | ||||||||
| Non-recourse borrowings | 1,332 | — | 1,362 | — | 2,694 | ||||||||
| Financial liabilities | 1,462 | — | 27 | — | 1,489 | ||||||||
| Short-term-debt and current portion of long-term debt | — | 1,362 | (1,362 | ) | — | — | |||||||
| Liabilities directly associated with assets classified as held for sale | 859 | — | — | — | 859 | ||||||||
| Current liabilities | 7,013 | 1,915 | — | 414 | 9,342 | ||||||||
| Corporate borrowings | 2,326 | 4,235 | (4,235 | ) | 2a | 600 | 2,926 | ||||||
| Long-term lease liabilities | — | 111 | (111 | ) | — | — | |||||||
| Non-recourse borrowings<br>(non-current) | 18,667 | — | 4,235 | 2a,d | 1,307 | 24,209 | |||||||
| Financial liabilities (non-current) | 1,432 | — | — | — | 1,432 | ||||||||
| Other liabilities (non-current) | 4,656 | — | 385 | — | 5,041 | ||||||||
| Provisions | — | 242 | (242 | ) | — | — | |||||||
| Employee benefits | — | — | — | — | — | ||||||||
| Deferred income tax liability | 4,713 | 827 | — | 2b | 942 | 6,482 | |||||||
| Long-term deferred revenue and other liabilities | — | 32 | (32 | ) | — | — | |||||||
| Preferred shares | 20 | — | — | — | 20 | ||||||||
| Total liabilities | 38,827 | 7,362 | — | 3,263 | 49,452 | ||||||||
| Partnership capital | |||||||||||||
| Limited partners | 4,275 | — | — | 2c | (126 | ) | 4,149 | ||||||
| General partner | 20 | — | — | (1 | ) | 19 | |||||||
| Non-controlling interest attributable to: | |||||||||||||
| Redeemable Partnership Units held by Brookfield | 1,703 | — | — | 2c | (52 | ) | 1,651 | ||||||
| Class A shares of Brookfield Infrastructure Corporation | 643 | — | — | 2a,c | 2,417 | 3,060 | |||||||
| Brookfield Infrastructure Partners Exchange LP Units | 11 | — | — | — | 11 | ||||||||
| Interest of others in operating subsidiaries | 13,475 | — | — | 2 | 3,016 | 16,491 |
All values are in US Dollars.
4
| US MILLIONS, except where otherwiseindicated | Transaction Adjustments | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| As at June 30, 2021 | IPL (CADmillions) | IPL ^(1)^ | Reclassification | Notes | Pro FormaAdjustments | Pro FormaConsolidated | ||||||||
| Note 1 | ||||||||||||||
| Preferred unitholders | 1,324 | — | — | — | 1,324 | |||||||||
| Equity | ||||||||||||||
| Shareholder’s equity | — | 3,535 | — | (3,535 | ) | — | ||||||||
| Total reserves | — | ) | (27 | ) | — | 27 | — | |||||||
| Total partnership capital | 21,451 | 3,508 | — | 1,746 | 26,705 | |||||||||
| Total liabilities and partnership capital | 60,278 | $ | 10,870 | $ | — | $ | 5,009 | $ | 76,157 |
All values are in US Dollars.
| (1) | Amounts in CAD were translated to USD using spot exchange rate as at June 30, 2021 ofCAD$1 = US$0.8066 |
|---|---|
| (2) | IPL balances are comprised of Accounts payable and other liabilities, Dividends payable,Derivatives, Lease liabilities, and Current income tax payable as of June 30, 2021. |
| --- | --- |
5
Notes to the Pro Forma Consolidated Financial Statements
(Unaudited)
1. Description of the Transaction
Brookfield Infrastructure Partners L.P. (our “partnership” and, together with its subsidiaries and operating entities, “Brookfield Infrastructure”) owns and operates utilities, transport, midstream and data businesses in North and South America, Europe and the Asia Pacific region. Brookfield Infrastructure Corporation (“BIPC”) and its subsidiaries own and operate regulated utilities investments in Brazil and the U.K. BIPC is a subsidiary of our partnership.
The partnership, alongside institutional partners (the “IPL consortium”), announced its intention to acquire the remaining outstanding shares of Inter Pipeline Ltd. (“IPL”) not already owned by the IPL consortium (the “acquisition”), through Bison Acquisition Corp. Each Shareholder will have the ability to elect to receive, per IPL share, C$20.00 in cash, 0.25 of a BIPC Share, or 0.25 of an Exchangeable LP Unit. The acquisition will be fully financed, with a maximum aggregate number of BIPC Shares and Exchangeable LP Units issued of approximately 31 million. Up to an additional 5 million Exchangeable LP Units are issuable in connection with the supplementary election. Subsequent to the acquisition, we expect that BIP will hold an approximate 51% interest in IPL (IPL consortium total of 100%).
These pro forma consolidated financial statements have been prepared by the partnership for inclusion in the prospectus/offer to exchange, which was filed with the U.S. Securities and Exchange Commission and forms a part of a Registration Statement on Form F-4 (File No. 333-253365-01), as amended August 11, 2021 (the “prospectus/offer to exchange”) to reflect the impact of the acquisition. Management of IPL has not participated in the preparation of these pro forma consolidated financial statements. The pro forma consolidated financial statements have been prepared from and should be read in conjunction with:
| • | the audited annual financial statements of the partnership, together with the notes thereto, as of and for the<br>year ended December 31, 2020; |
|---|---|
| • | the unaudited interim financial statements of the partnership, together with the notes thereto, as at and for the<br>six months ended June 30, 2021; |
| --- | --- |
| • | the audited annual financial statements of IPL, together with the notes thereto, as of and for the year ended<br>December 31, 2020, included in the prospectus/offer to exchange; and |
| --- | --- |
| • | the unaudited interim financial statements of IPL, together with the notes thereto, as at and for the six months<br>ended June 30, 2021, included in Exhibit 99.1 hereto. |
| --- | --- |
As of the date of these pro forma consolidated financial statements, the partnership is not in a position to independently assess or verify certain of the information in IPL’s publicly filed documents, including its financial statements. IPL has not reviewed these pro forma consolidated financial statements and has not confirmed the accuracy and completeness of the information in respect of IPL contained herein. All pro forma financial information regarding IPL included herein has been derived from IPL’s public reports and securities filings. While the partnership has no reason to believe that such publicly filed information is inaccurate or incomplete, the partnership does not assume any responsibility for the accuracy or completeness of any such information.
In preparing these pro forma consolidated financial statements, management of the partnership has made certain assumptions that affect the amounts reported in these pro forma consolidated financial statements. Such pro forma consolidated financial statements are not intended to be indicative of the results that would have actually occurred, had the events reflected therein occurred on the dates indicated, and do not purport to project the future financial position of the partnership. Actual amounts recorded upon consummation of the transactions contemplated by the prospectus/offer to exchange will differ from such pro forma consolidated financial statements. Shareholders are cautioned to not place undue reliance on such pro forma consolidated financial statements. Certain reclassifications were made in respect of IPL’s financial statement presentation to conform to
6
the partnership’s financial statement presentation. Net income reported by IPL were reallocated to components of the partnership’s equity and basic and diluted earnings (loss) per unit attributable to limited partners were recalculated based on units outstanding during the period presented.
2. Pro Forma Adjustments to theConsolidated Statement of Financial Position
The proposed acquisition of IPL has been accounted for as a business combination, whereby the assets acquired and the liabilities assumed are recorded at the estimated fair value on the Offer date of August 11, 2021. The fair values of identifiable assets and liabilities acquired were estimated based on information available in the public domain at the time of preparation of these pro forma financial statements. Actual amounts recognized by the partnership on the effective date of the proposed transaction, if consummated, may differ materially from these estimates. In addition, for the purpose of the pro forma consolidated financial statements, it is assumed that 31 million BIPC Shares and no Exchangeable LP Units are issued in connection with the acquisition. If 5 million Exchangeable LP Units were issued in connection with the acquisition as a result of the supplementary election, there would be a decrease in the cash consideration payable by our partnership and a corresponding increase in non-controlling interest attributable to Exchangeable LP Units of approximately $400 million. Alternatively, if Shareholders elect to receive all-cash consideration, there would be an increase in cash consideration payable by BIP and a corresponding decrease in non-controlling interest attributable to BIPC Shares of approximately $2.4 billion.
The following table provides the preliminary purchase price equation:
| (In US millions, unless otherwise<br>noted)(1) | ||
|---|---|---|
| Estimated number of BIPC Shares to be issued (millions of shares) | 30.99 | |
| Price of BIPC Shares ( per<br>share)(2) | 79.03 | |
| Total estimated share consideration | 2,449 | |
| Total estimated cash<br>consideration(1) | 1,132 | |
| Pre-existing interest in IPL(3) | 291 | |
| Consideration provided by non-controlling interests(4) | 3,732 | |
| Total estimated consideration | 7,604 | |
| Current assets | 382 | |
| Property, plant, and equipment | 14,443 | |
| Intangibles and goodwill | 1,345 | |
| Current liabilities | (553 | ) |
| Borrowings | (5,859 | ) |
| Deferred tax liabilities | (1,769 | ) |
| Other long-term liabilities | (385 | ) |
| Net assets acquired | 7,604 |
All values are in US Dollars.
| (1) | Total consideration is calculated based upon the assumptions that there are 429.2 million outstanding IPL<br>shares. Shareholders will have the ability to elect to receive, per IPL share, C$20.00 in cash, 0.25 of a BIPC Share, or 0.25 of an Exchangeable LP Unit. The pro forma consolidated financial statements are prepared assuming that total consideration<br>attributed to the partnership of $3.9 billion will be comprised of $2.4 billion of BIPC Shares, cash consideration, and our pre-existing interest. For the purposes of the pro forma financial<br>statements, it is assumed that 31 million BIPC Shares and no Exchangeable LP Units are issued in association with the acquisition. Total consortium consideration of $7.6 billion will be comprised of consideration from the partnership as<br>noted above, IPL consortium’s pre-existing interest, and cash consideration from institutional partners (presented as non-controlling interests) that will be<br>paid to the Shareholders. |
|---|
7
| (2) | For the purposes of the pro forma consolidated financial statements, a BIPC Share price of $79.03 has been<br>ascribed based on the closing price of the BIPC Shares on July 14, 2021 of C$95.41 converted to U.S. dollars using May 31, 2021 spot exchange rate of C$1 = US$0.8284. |
|---|---|
| (3) | As at June 30, 2021, the IPL consortium held an aggregate economic interest in approximately 84 million<br>shares of IPL, representing approximately 19% of the issued and outstanding shares of IPL on an undiluted basis (BIP’s share—~6% interest). This position is comprised of shares of IPL and cash-settled total return swaps. BIP’s share<br>of the interest was accounted for as a financial asset and had a fair market value of $291 million as at June 30, 2021, net of associated non-recourse borrowings. |
| --- | --- |
| (4) | Represents the consideration paid for the interest acquired by the IPL consortium excluding the partnership,<br>measured at fair value. This amount includes the pre-existing interest held by the IPL consortium other than interest held by the partnership. |
| --- | --- |
| a) | Borrowings, non-controlling interests attributable to BIPC Shares, and<br>partnership capital attributable to holders of LP, RPU, GP and Brookfield Infrastructure Partners Exchange LP Units and BIPC Shares were adjusted to reflect the post transaction allocation of the purchase price consideration and share consideration.<br> |
| --- | --- |
| b) | Assets acquired and liabilities assumed were remeasured to fair value. Differences between the fair value of<br>consideration paid and the carrying values of assets acquired and liabilities assumed have been reflected as adjustments to the respective balances where public fair value information is available (refer to note d below). The remaining difference<br>was allocated to property, plant and equipment as the majority of the value of the business is derived from property, plant and equipment. The increase to deferred tax liabilities represents the tax impact of the difference between the fair value<br>and the carrying value of net assets. The increase in deferred tax liabilities was calculated based on a tax rate of 23%, which represents the statutory tax rate of IPL as disclosed in Note 7 of IPL’s financial statements for the six-month<br>period ended June 30, 2021. The recognition of deferred tax liabilities resulted in a corresponding increase in goodwill for the same amount. Readers are cautioned that changes to the assumptions used could have a material impact on the fair values.<br> |
| --- | --- |
| c) | Accounts payable and other include (i) $135 million of estimated transaction costs and (ii) the break<br>fee payable by IPL to Pembina Pipeline Corporation of C$350 million (or approximately $280 million), both of which are non-recurring. |
| --- | --- |
| d) | Non-recourse borrowings was adjusted to account for the difference<br>between the fair value and the carrying value of IPL’s fixed rate debt as disclosed in Note 10 of IPL’s Q2 2021 interim financial statements. In estimating the impact on interest expense, an average interest rate of ~4% was applied,<br>estimated using IPL’s interest expense for the year ended December 31, 2020 divided by average debt. |
| --- | --- |
3. Pro FormaAdjustments to the Consolidated Statements of Operating Results
The Pro Forma Consolidated Statements of Operating Results for the six months ended June 30, 2021 and for the year ended December 31, 2020 have been adjusted to give effect to the consummation of the transactions contemplated by the prospectus/offer to exchange as if the acquisition of all of the issued and outstanding common shares and associated rights of IPL had occurred on January 1, 2020.
| a) | Depreciation and amortization expense has been adjusted to reflect the incremental pro forma fair value of<br>property, plant and equipment. |
|---|---|
| b) | Interest expenses have been adjusted to reflect incremental borrowings at the partnership level to fund the<br>cash component of the transaction. |
| --- | --- |
| c) | Deferred income taxes have been adjusted at a tax rate of 23%, to approximate the tax impacts of the<br>adjustments noted above. The rate is based on the statutory tax rate of IPL as disclosed in Note 7 of IPL’s financial statements for the six-month period ended June 30, 2021 and therefore would be applicable to the incremental pro forma<br>adjustment related to depreciation and interest expense. |
| --- | --- |
8
4. Master Services Agreement with Brookfield
Brookfield and its subsidiaries provide management services to the partnership pursuant to our Master Services Agreement. Pursuant to our Master Services Agreement, on a quarterly basis, the partnership pays a base management fee to the Service Provider equal to 0.3125% (1.25% annually) of the market value of our partnership. For purposes of calculating the base management fee, the market value of our partnership is equal to the aggregate value of all the outstanding units, preferred units and securities of the other service recipients, which includes BIPC, plus all outstanding third party debt with recourse to a service recipient, less all cash held by such entities. Based on $2.4 billion of BIPC Shares assumed to be issued in connection with the acquisition, the base management fee is expected to increase by $30 million annually.
9
EX-99.3
Exhibit 99.3
Consolidated Capitalization of Brookfield Infrastructure Partners L.P. as at June 30, 2021
The following table sets forth the consolidated capitalization of Brookfield Infrastructure Partners L.P. (“BIP”) based on its unaudited consolidated financial statements as at June 30, 2021 (a) on an actual basis, and (b) as adjusted to take into account the acquisition by Bison Acquisition Corp. (the “Offeror”) of all outstanding common shares (the “Common Shares”) of Inter Pipeline Ltd. (“IPL”) under the offer to purchase (the “Offer”) Common Shares made to the shareholders of IPL (“Shareholders”). The financial information set out below should be read in conjunction with BIP’s unaudited consolidated financial statements as at and for the three and six months ended June 30, 2021, and BIP’s audited consolidated financial statements as at and for the year ended December 31, 2020 as well as the unaudited pro forma statement of financial position of BIP as at June 30, 2021 and the unaudited pro forma statement of operating results of BIP for the six months ended June 30, 2021 and for the year ended December 31, 2020, giving effect to the proposed acquisition of all outstanding Common Shares under the Offer, in the manner set forth therein, set forth in Exhibit 99.2. Other than as set forth below, there have been no material changes to BIP’s share and loan capital since June 30, 2021.
| June 30, 2021 | |||
|---|---|---|---|
| Actual | Adjusted^(1),(2)^ | ||
| (in US millions) | |||
| Cash and cash equivalents | 1,298 | ||
| Corporate borrowings | 3,422 | ||
| Non-recourse borrowings | 26,903 | ||
| Liabilities | 30,325 | ||
| Partnership Capital | |||
| Limited partners | 4,149 | ||
| General partner | 19 | ||
| Non-controlling interest attributable to: | |||
| RPUs held by Brookfield | 1,651 | ||
| BIPC Shares | 3,060 | ||
| Brookfield Infrastructure Partners Exchange LP Units | 11 | ||
| Interest of others in operating subsidiaries | 16,491 | ||
| Preferred unitholders | 1,324 | ||
| Total partnership capital | 26,705 | ||
| Capitalization | 57,030 |
All values are in US Dollars.
| (1) | Please refer to Exhibit 99.2 for a summary of the pro forma adjustments. The “as adjusted” columndoes not reflect indebtedness incurred or repaid by BIP since June 30, 2021 other than as contemplated in connection with the Offer. In addition, for the purpose of the pro forma amounts, it is assumed that 31 million class A exchangeablesubordinate voting shares of BIPC (the “BIPC Shares”) and no class B exchangeable limited partnership unit of Brookfield Infrastructure Corporation Exchange Limited Partnership (“Exchangeable LP Unit”) are issued in connectionwith the acquisition. If 5 million Exchangeable LP Units were issued in connection with the acquisition as a result of the Supplementary Election (as defined in BIP’s registration statement on Form F-4 (File No. 333-253365-01), asamended), there would be a decrease in the cash consideration payable by BIP and a |
|---|
1
| corresponding increase in non-controlling interest attributable to Exchangeable LP Units of approximately $400 million. Alternatively, if Shareholderselect to receive all-cash consideration, there would be an increase in cash consideration payable by BIP and a corresponding decrease in non-controlling interest attributable to BIPC Shares of approximately $2.4 billion. | |
|---|---|
| (2) | Brookfield anticipates that Brookfield Infrastructure will indirectly have a 51% interest in the CommonShares taken up under the Offer. |
| --- | --- |
2