Brookfield Infrastructure Corp 6-K, filed Aug 10, 2021
Brookfield Infrastructure Corp (BIPC)
About this 6-K
Brookfield Infrastructure Corp filed this 6-K on August 10, 2021.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of August 2021
Commission file number 001-39250
BROOKFIELD INFRASTRUCTURE CORPORATION
(Exact name of Registrant as specified in its charter)
250 Vesey Street, 15th Floor
New York, New York, 10281
United States
(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 and 99.2 of this Form 6-K is incorporated by reference into the registrant’s registration statement on Form F-4 (File No. 333-253365).
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 CORPORATION | ||||||
| Date: August 10, 2021 | By: | /s/ MICHAEL RYAN | ||||
| Name: Michael Ryan | ||||||
| Title: Corporate Secretary | ||||||
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 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 (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 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 3) |
(70.0 | ) | — | (70.0 | ) | — | ||||||||||
| INCOME BEFORE INCOME TAXES |
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 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 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 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 (note 3) |
38.7 | — | 38.7 | — | ||||||||||||
| Net change in 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 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 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 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 (note 8) |
125.7 | — | — | 125.7 | ||||||||||||
| Stated capital adjustment |
(5,026.0 | ) | 5,026.0 | — | — | |||||||||||
| Balance, June 30, 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 as otherwise indicated)
1. 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.
2. 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 products |
● over time | |||
| ● Blending and ancillary services |
● at a point in time | |||
| Facilities Infrastructure |
● Processing of NGLs |
● over time | ||
| ● Sale of NGL products
|
● at a point in time | |||
| Marketing |
● Sale of petroleum and NGL products |
● at a point in time | ||
| ● Blending and ancillary services
|
● at a point in time | |||
| New Ventures(1) |
● Processing of NGLs and ancillary services |
● over time | ||
| ● Sale of plastic products
|
● at a point in time |
| (1) | Material revenue is not anticipated from the New Ventures segment until HPC is 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 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 AND EQUIPMENT |
$ | 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 revenue includes $48.4 million of sales to external customers located in the United States. |
| Three Months Ended June 30, 2020 | ||||||||||||||||||||||||
| Transportation | Facilities 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 AND EQUIPMENT |
$ | 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 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 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 AND EQUIPMENT |
$ | 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 revenue includes $124.1 million of sales to external customers located in the United States. |
| Six Months Ended June 30, 2020 | ||||||||||||||||||||||||
| Transportation | Facilities 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 AND EQUIPMENT |
$ | 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 revenue includes $68.2 million of sales to external customers located in the United States. |
Inter Pipeline - 10
5. 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 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, 2020 - $544.4 million). |
| (2) | The majority of property, plant and equipment additions are related to constructed assets and are initially recorded 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. |
At June 30, 2021, Inter Pipeline had $280.6 million of contractual commitments for property, plant and equipment.
Inter Pipeline - 11
6. 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 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 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).
7. 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
10. 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 Through Profit or Loss |
Non-Financial Asset or Liability(1) |
Carrying Value of Asset or 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 (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. |
| (2) | Inter Pipeline does not have any assets that meet the definition of “fair value through other comprehensive income”. |
| (3) | Inter Pipeline measures its derivatives at fair value through profit or loss and does not apply hedge accounting. |
| (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 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 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. |
| (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 closing rate. |
| (4) | Inter Pipeline utilizes crude oil derivatives to mitigate risks arising from both its crude oil and NGL risk management strategies. |
| (5) | Inter Pipeline is the seller for all commodities except for natural gas where it is the purchaser. |
Inter Pipeline - 15
11. 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 before income taxes based on |
||||||||||||
| Fair value of derivatives |
10% increase in price |
10% decrease in 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 One Year |
One to Five Years |
After Five 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 | ||||||||
12. 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.
13. 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 $350 million on July 27, 2021.
Inter Pipeline - 17
Exhibit 99.2
Consolidated Capitalization of Brookfield Infrastructure Corporation as of June 30, 2021
The following table sets forth the consolidated capitalization of Brookfield Infrastructure Corporation (“BIPC”) based on its unaudited consolidated financial statements as of June 30, 2021 (a) on an actual basis, and (b) as adjusted to reflect the class A exchangeable subordinate voting shares of BIPC (the “BIPC Shares”) issued as part of the consideration relating to the acquisition by the Bison Acquisition Corp. (the “Offeror”) of all outstanding common shares (the “Common Shares”) of Inter Pipeline Ltd. (“IPL”) under the offer to purchase (the “Offer”) Common Shares made to the shareholders of IPL (“Shareholders”). The financial information set out below should be read in conjunction with BIPC’s unaudited consolidated financial statements as at and for the three and six months ended June 30, 2021, and BIPC’s audited consolidated financial statements as at and for the year ended December 31, 2020. Other than as set forth below, there have been no material changes to BIPC’s share and loan capital since June 30, 2021.
| June 30, 2021 | ||||||||
| Actual | As adjusted(1) | |||||||
| (in US$ millions) | ||||||||
| Cash and cash equivalents |
370 | 370 | ||||||
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| Non-recourse borrowings |
3,740 | 3,740 | ||||||
| Exchangeable and Class B Shares(2) |
2,479 | 4,928 | ||||||
| Loans payable to subsidiaries of BIP |
825 | 323 | ||||||
| Equity attributable to: |
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| Brookfield Infrastructure Partners L.P. |
(1,983 | ) | (1,983 | ) | ||||
| Non-controlling interest |
835 | 835 | ||||||
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| Total equity |
(1,148 | ) | (1,148 | ) | ||||
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| Capitalization |
5,896 | 7,843 | ||||||
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| (1) | In connection with the Offer, BIPC will issue BIPC Shares to Brookfield Infrastructure Partners L.P. (“BIP”) or one of its subsidiaries for cash consideration, which cash consideration will be used to partially repay existing intercompany debt payable to BIP. Following the issuance, BIP or one of its subsidiaries will deliver the BIPC Shares to the Offeror for use as the Share Consideration (as defined in BIPC’s registration statement on Form F-4 (File No. 333-253365), as amended (the “Registration Statement”)) under the Offer. For the purpose of the adjusted amounts, it is assumed that 31 million BIPC Shares and no class B exchangeable limited partnership unit of Brookfield Infrastructure Corporation Exchange Limited Partnership (“Exchangeable LP Unit”) are issued in connection with the acquisition. Up to an additional 5.0 million Exchangeable LP Units are available for issuance under the Offer in connection with any Supplementary Elections (as defined in the Registration Statement). |
| (2) | BIPC Shares are classified as liabilities under IFRS due to their exchangeable features. Class B multiple voting shares are classified as a liability due to its cash redemption feature. |