Form 8-K Midcoast Energy Partners For: May 02

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549 

 

 

FORM 8-K

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

Date of report (Date of earliest event reported): May 2, 2016

 

 

MIDCOAST ENERGY PARTNERS, L.P.

(Exact Name of Registrant as Specified in Charter)

 

 

DELAWARE	1-36175	61-1714064
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

 

1100 LOUISIANA, SUITE 3300, HOUSTON, TEXAS 77002

(Address of Principal Executive Offices) (Zip Code)

 

(713) 821-2000

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 2.02. Results of Operations and Financial Condition.

 

We issued a press release on May 2, 2016 announcing our financial results for the three months ended March 31, 2016, which is attached hereto as Exhibit 99.1. As noted in the press release, a copy of our unaudited condensed consolidated financial statements for the three months ended March 31, 2016 is available on our website at www.midcoastpartners.com and is attached hereto as Exhibit 99.2. This information is not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any registration statements filed under the Securities Act of 1933, as amended.

 

Item 9.01. Financial Statements and Exhibits.

 

(d) Exhibits

 

Reference is made to the “Index of Exhibits” following the signature page, which is hereby incorporated into this Item.

 

 

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 there unto duly authorized.

 

	MIDCOAST ENERGY PARTNERS, L.P. (Registrant)
	By:	Midcoast Holdings, L.L.C.
		its General Partner
Date: May 2, 2016	By:	/s/ Noor Kaissi
		Noor Kaissi Controller (Duly Authorized Officer)

 

 

Index of Exhibits

 

Exhibit Number		Description
99.1		Press release of Midcoast Energy Partners, L.P., dated May 2, 2016 reporting financial results for the three months ended March 31, 2016
99.2		Unaudited condensed consolidated financial statements of Midcoast Energy Partners, L.P. for the three months ended March 31, 2016

 

 

Exhibit 99.1

 

NEWS RELEASE

 

Midcoast Energy Partners, L.P. Reports Earnings for First Quarter 2016

 

HOUSTON — (May 2, 2016) -

  

FIRST QUARTER HIGHLIGHTS

 

·

Reported first quarter adjusted EBITDA and distributable cash flow of $23.6 and $16.5 million, respectively.

 

·

Distribution agreement in place with sponsor supporting 1.0x coverage through 2017. (1)

 

·

Commodity-based cash flows more than 90 percent hedged for 2016.

 

Midcoast Energy Partners, L.P. (NYSE: MEP) ("Midcoast Partners" or "the Partnership") reports adjusted EBITDA and distributable cash flow for the three months ended March 31, 2016 of $23.6 million and $16.5 million, respectively.

 

As previously announced, the board of directors of our general partner declared a quarterly cash distribution of $0.3575 per unit, or $1.43 per unit on an annualized basis on all of its outstanding common and subordinated units, for the quarter ended March 31, 2016. The approved distribution remains unchanged from the previous quarter and represents an increase of 2.9 percent over the first quarter of 2015. The distribution is payable on May 13, 2016, to unitholders of record at the close of business on May 6, 2016.

 

“The Partnership’s earnings for the first quarter are well in line with our expectations. During the quarter, we benefited from the constructive actions successfully executed throughout 2015 to strengthen our business, including establishing a more sustainable cost structure and divesting certain non-core assets,” said C. Gregory Harper, president.

 

“Looking forward, more than 90 percent of 2016 commodity-based cash flows are hedged at weighted average prices well above current market levels, which supports our current year financial outlook and underpins a level of cash flow certainty. Building upon our momentum gained last year, our team remains focused on executing on our strategic priorities, including attracting volumes to our system, capturing new low-risk business, executing additional opportunities to further reduce operating costs commensurate with activity levels, and rationalizing other non-core assets,” Harper continued.

 

In light of the low commodity price environment and the ongoing challenges it presents to our business, MEP has begun working with our sponsor, Enbridge Energy Partners, L.P. (“EEP”), to explore and evaluate a broad range of strategic alternatives to address these challenges in our jointly owned gas business, Midcoast Operating, L.P. (“MOLP”). EEP has also indicated that as part of its review, it is considering strategic alternatives with respect to its investment in MOLP and MEP. The various strategic alternatives being evaluated may include, but are not necessarily limited to: asset sales; mergers, joint ventures, reorganizations or recapitalizations; and further reductions in operating and capital expenditures. The evaluation process is in the early stages and is ongoing, and no decision on any particular strategic alternative has yet been reached. In addition, MEP cannot assure that any particular strategic alternative will be pursued or effected. Neither MEP nor EEP intend to disclose further developments with respect to this evaluation process except to the extent that a specific course of action is approved, the process is concluded or it is required by law or otherwise deemed appropriate.

 

(1)

As previously disclosed, distribution agreement in place with sponsor to support 1.0x coverage each quarter with respect to any declared distribution through 2017, and no requirement for MEP to reimburse EEP for adjusted distributions.

 

  

COMPARATIVE EARNINGS STATEMENT

 

The financial results for the three months ended March 31, 2016 for Midcoast Partners are presented on a consolidated basis. We own a 51.6 percent controlling interest in Midcoast Operating, and for the three months ended March 31, 2016, we consolidated the results of operations of Midcoast Operating and recorded a 48.4 percent non-controlling interest deduction for EEP’s interest in Midcoast Operating.

 

COMPARATIVE EARNINGS STATEMENT

 

		Three months ended
		March 31,
(unaudited, dollars in millions except per unit amounts)		2016				2015
Operating revenue		$	431.9			$	873.5
Operating expenses:
Cost of natural gas and natural gas liquids			348.0				779.1
Operating and maintenance			57.2				63.4
General and administrative			15.6				21.0
Depreciation and amortization			39.5				38.3
Operating loss			(28.4	)			(28.3	)
Interest expense, net			(8.3	)			(6.7	)
Other income			7.3				5.7
Loss before income tax expense			(29.4	)			(29.3	)
Income tax expense			(0.9	)			(0.8	)
Net loss			(30.3	)			(30.1	)
Less: Net loss attributable to noncontrolling interest			(10.1	)			(10.1	)
Net loss attributable to general and limited partner
ownership interest in Midcoast Energy Partners, L.P.		$	(20.2	)		$	(20.0	)
Net loss attributable to limited partners		$	(19.8	)		$	(19.6	)
Weighted average limited partner units (millions)			45.2				45.2
Net loss per limited partner unit (dollars)		$	(0.44	)		$	(0.43	)

  

 

COMPARISON OF QUARTERLY RESULTS

 

Following are explanations for significant changes in Midcoast Operating’s financial results, comparing the three months ended March 31, 2016 with the same period of 2015. The comparison refers to adjusted operating income, which excludes the effect of non-cash and other items that are not indicative of our core operating results (see Non-GAAP Reconciliations section below).

 

Midcoast Operating		Three months ended
Adjusted Operating Income (loss)		March 31,
(unaudited, dollars in millions)		2016				2015
Gathering, Processing and Transportation		$	(1.0	)		$	6.9
Logistics and Marketing			2.1				0.2
Adjusted operating income			1.1				7.1
MEP Corporate			(1.2	)			(1.7	)
Adjusted operating income (loss)		$	(0.1	)		$	5.4

 

Gathering, Processing and Transportation – First quarter adjusted operating results for the Gathering, Processing and Transportation segment were $7.9 million lower than the same period of 2015. The decrease in segment adjusted operating income was predominantly attributable to lower natural gas and NGL system production volumes, in addition to lower commodity prices, net of hedges. Lower system volumes were primarily attributable to the continued low commodity price environment for hydrocarbons, which has resulted in reductions in drilling activity from producers in the areas in which we operate. The decrease in operating income was partially offset by reductions in operating and administrative expenses from enacted cost reduction measures.

 

Midcoast Operating		Three months ended
Gathering, Processing and Transportation Throughput		March 31,
(MMBtu per day)		2016				2015
East Texas			948,000				1,007,000
Anadarko			652,000				831,000
North Texas			216,000				287,000
Total			1,816,000				2,125,000
NGL Production
(Barrels per day)			2016				2015
Total System Production			73,499				81,046

 

Logistics and Marketing – First quarter adjusted operating results for the Logistics and Marketing segment were $1.9 million higher than the same period of 2015. The increase in adjusted operating income was primarily attributable to lower operating and administrative expenses from enacted cost reduction measures.

 

MANAGEMENT REVIEW OF QUARTERLY RESULTS

 

Midcoast Partners will host a conference call at 8:30 a.m. Eastern Time on Monday, May 2, 2016 to review its first quarter 2016 financial results. The call will be webcast live over the internet and may be accessed on the Midcoast Partners website under “Events and Presentations” or directly at http://edge.media-server.com/m/p/5mgtkfwq

 

Presentation slides and condensed financial statements will also be available on the Partnership’s website at the link below.

 

http://www.midcoastpartners.com under “Events and Presentations”

 

 

Replay Information

 

A webcast replay will be available at the link above approximately two hours after the conclusion of the event. A transcript will be posted to the website within approximately 24 hours. 

 

NON-GAAP RECONCILIATIONS

 

Adjusted net income and adjusted operating income for the principal business segments are provided to illustrate trends in income excluding non-cash unrealized derivative fair value losses and gains and other items that are not indicative of our core operating results. The derivative non-cash losses and gains result from marking to market certain financial derivatives used by the Partnership for hedging purposes that do not qualify for hedge accounting treatment in accordance with the authoritative accounting guidance as prescribed under generally accepted accounting principles in the United States.

 

Midcoast Energy Partners		Three months ended
Adjusted Earnings		March 31,
(unaudited; dollars in millions except per unit amounts)		2016				2015
Net loss attributable to general and limited partner
ownership interests in Midcoast Energy Partners, L.P.		$	(20.2	)		$	(20.0	)
Noncash derivative fair value losses
-Gathering, Processing and Transportation			13.0				8.2
-Logistics and Marketing			1.0				9.9
Make-up rights adjustment			-				(0.3	)
Option premium amortization			0.6				(0.7	)
Adjusted net loss		$	(5.6	)		$	(2.9	)
Adjusted net loss attributable to limited partners		$	(5.5	)		$	(2.8	)
Weighted average units (millions)			45.2				45.2
Adjusted net loss per limited partner unit (dollars)		$	(0.12	)		$	(0.06	)

 

Midcoast Operating		Three months ended
Gathering, Processing and Transportation		March 31,
(unaudited; dollars in millions)		2016				2015
Operating loss		$	(27.3	)		$	(7.6	)
Noncash derivative fair value losses			25.1				15.9
Option premium amortization			1.2				(1.4	)
Adjusted operating income (loss)		$	(1.0	)		$	6.9

 

Midcoast Operating		Three months ended
Logistics and Marketing		March 31,
(unaudited; dollars in millions)		2016				2015
Operating income (loss)		$	0.1			$	(19.0	)
Noncash derivative fair value losses			2.0				19.2
Adjusted operating income		$	2.1			$	0.2

  

 

Adjusted EBITDA

 

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) is used as a supplemental financial measurement to assess liquidity and the ability to generate cash sufficient to pay interest costs and make cash distributions to unitholders. The following reconciliation of net cash provided by operating activities to adjusted EBITDA is provided because EBITDA is not a financial measure recognized under generally accepted accounting principles. The table also references “MOLP Adjusted EBITDA, inclusive of other cash items”, representing total cash flow generated by Midcoast Operating.

 

Midcoast Operating		Three months ended
Adjusted EBITDA		March 31,
(unaudited; dollars in millions)		2016				2015
Net cash provided by operating activities		$	123.3			$	168.2
Changes in operating assets and liabilities,
net of cash acquired			(89.9	)			(124.0	)
Income tax expense			0.9				0.8
Interest expense, net			8.3				6.7
Option premium amortization			1.2				(1.4	)
Other			3.0				(1.5	)
Adjusted EBITDA attributable to EEP retained interest			(23.2	)			(24.4	)
Adjusted EBITDA attributable to MEP (1)			23.6				24.4
Adjusted EBITDA attributable to EEP retained interest			23.2				24.4
Other			1.1				1.7
Adjusted EBITDA attributable to MOLP (1)		$	47.9			$	50.5
G&A abatement			6.2				6.3
Texas Express distributions in excess of equity earnings			3.1				3.0
MOLP adjusted EBITDA, inclusive of other cash items (1)		$	57.2			$	59.8

 

(1)

Adjusted EBITDA attributable to MEP is inclusive of public partnership expenses. However, Adjusted EBITDA attributable to MOLP is not inclusive of public partnership expenses attributable to MEP.

 

 

MEP Adjusted EBITDA and Distributable Cash Flow

 

Midcoast Partners		Three months ended
Adjusted EBITDA		March 31,
(unaudited; dollars in millions)		2016				2015
Net cash provided by operating activities		$	123.3			$	168.2
Changes in operating assets and liabilities,
net of cash acquired			(89.9	)			(124.0	)
Income tax expense			0.9				0.8
Interest expense, net			8.3				6.7
Option premium amortization			1.2				(1.4	)
Other			3.0				(1.5	)
Adjusted EBITDA attributable to EEP retained interest			(23.2	)			(24.4	)
Adjusted EBITDA attributable to MEP			23.6				24.4
Maintenance capital expenditures			(3.9	)			(3.1	)
Income tax expense			(0.5	)			(0.8	)
Interest expense, net			(8.3	)			(6.7	)
G&A abatement			3.2				3.3
Texas Express distribution in excess of equity earnings			1.6				1.5
Distribution support agreement (1)			0.8				-
Distributable cash flow		$	16.5			$	18.6

  

(1)

Distribution agreement in place with sponsor to support 1.0x coverage each quarter with respect to any declared distribution through 2017, and no requirement for MEP to reimburse EEP for adjusted distributions.

 

About Midcoast Energy Partners, L.P.

 

Midcoast Energy Partners, L.P. (NYSE: MEP), is a limited partnership formed by EEP to serve as EEP's primary vehicle for owning and growing its natural gas and natural gas liquids (NGLs) midstream business in the United States. Our assets consist of a 51.6 percent controlling interest in Midcoast Operating, L.P., a Texas limited partnership that owns a network of natural gas and NGL gathering and transportation systems, natural gas processing and treating facilities and NGL fractionation facilities primarily located in Texas and Oklahoma. Midcoast Operating also owns and operates natural gas, condensate and NGL logistics and marketing assets that primarily support its gathering, processing and transportation business. Through our ownership of Midcoast Operating's general partner, we control, manage and operate these systems.

 

EEP owns 100 percent of Midcoast Holdings, LLC, the general partner of Midcoast Partners and holds an approximate 54 percent interest in Midcoast Partners. EEP owns and operates a diversified portfolio of crude oil and, through Midcoast Partners, natural gas transportation systems in the United States. Its principal crude oil system is the largest pipeline transporter of growing oil production from western Canada and the North Dakota Bakken formation. EEP is recognized by Forbes as one of the 100 Most Trustworthy Companies in America.

 

Forward Looking Statements

This news release includes forward-looking statements, which are statements that frequently use words such as "anticipate," "believe," “consider,” "continue," "could," "estimate," "expect," “explore,” “evaluate,” "forecast," "intend," "may," "plan," "position," "projection," "should," "strategy," “opportunity,” "target," "will" and similar words. Although we believe that such forward-looking statements are reasonable based on currently available information, such statements involve risks, uncertainties and assumptions and are not guarantees of performance. Future actions, conditions or events and future results of operations may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results are beyond the ability of Midcoast Energy Partners, L.P. (the “Partnership”) to control or predict. The Partnership’s forward-looking statements are subject to risks and uncertainties pertaining to operating performance, regulatory parameters, project approval and support, weather, economic conditions, interest rates and commodity prices, including but not limited to the following specific factors that could cause actual results to differ from those in the forward-looking statements: (1) changes in the demand for or the supply of, forecast data for, and price trends related to natural gas, natural gas liquids and crude oil and the response by natural gas and crude oil producers to changes in any of these factors; (2) the Partnership’s ability to successfully complete and finance expansion projects; (3) the effects of competition, in particular, by other pipeline and gathering systems, as well as other processing and treating plants; (4) shut-downs or cutbacks at the Partnership’s facilities or refineries, petrochemical plants, utilities or other businesses for which the Partnership transports products or to whom the Partnership sells products; (5) hazards and operating risks that may not be covered fully by insurance; (6) changes in or challenges to the Partnership’s rates; (7) changes in laws or regulations to which the Partnership is subject, including compliance with environmental and operational safety regulations that may increase costs of system integrity testing and maintenance; and (8) cost overruns and delays on construction projects resulting from numerous factors.

 

 

Forward-looking statements regarding “drop-down” opportunities are further qualified by the fact that Enbridge Energy Partners, L.P. is under no obligation to offer to sell us additional interests in Midcoast Operating, L.P., and we are under no obligation to buy any such additional interests. As a result, we do not know when or if any such additional interests will be purchased.

 

Except to the extent required by law, we assume no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Reference should also be made to the Partnership’s filings with the U.S. Securities and Exchange Commission (the “SEC”), including its Annual Report on Form 10-K for the year ended December 31, 2015 and any subsequently filed Quarterly Reports on Form 10-Q and current Reports on Form 8-K for additional factors that may affect results. These filings are available to the public over the Internet at the SEC’s web site (www.sec.gov) and at the Partnership’s web site.

 

Tax notification

This release serves as qualified notice to nominees as provided for under Treasury Regulation Section 1.1446-4(b)(4) and (d). Please note that 100 percent of Midcoast Energy Partners, L.P.’s distributions to foreign investors are attributable to income that is effectively connected with a United States trade or business. Accordingly, all of Midcoast Energy Partners, L.P.’s distributions to foreign investors are subject to federal income tax withholding at the highest effective tax rate for individuals or corporations, as applicable. Nominees, and not Midcoast Energy Partners, L.P., are treated as withholding agents responsible for withholding distributions received by them on behalf of foreign investors.

 

FOR FURTHER INFORMATION PLEASE CONTACT:

 

Sanjay Lad, CFA	Terri Larson, APR
Investment Community	Media
Toll-free: (855) MEP-7222 or (855) 637-7222	Toll-free: (877) 496-8142
E-mail: [email protected]	E-mail: [email protected]

 

# # #

 

 

 

 

Exhibit 99.2

 

MIDCOAST ENERGY PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

 

		For the three months
		ended March 31,
		2016				2015
		(unaudited; in millions, except per unit amounts)
Operating revenues:
Commodity sales		$	377.8			$	800.9
Commodity sales - affiliate			5.2				21.8
Transportation and other services			48.9				50.8
			431.9				873.5
Operating expenses:
Cost of natural gas and natural gas liquids			335.4				761.2
Cost of natural gas and natural gas liquids – affiliate			12.6				17.9
Operating and maintenance			32.3				38.2
Operating and maintenance - affiliate			24.9				25.2
General and administrative			2.5				1.9
General and administrative - affiliate			13.1				19.1
Depreciation and amortization			39.5				38.3
			460.3				901.8
Operating loss			(28.4	)			(28.3	)
Interest expense, net			(8.3	)			(6.7	)
Equity in earnings of joint ventures			7.1				5.7
Other income			0.2				-
Loss before income tax expense			(29.4	)			(29.3	)
Income tax expense			(0.9	)			(0.8	)
Net loss			(30.3	)			(30.1	)
Less: Net loss attributable to noncontrolling interest			(10.1	)			(10.1	)
Net loss attributable to general and limited partner ownership
interest in Midcoast Energy Partners, L.P.		$	(20.2	)		$	(20.0	)
Net loss attributable to limited partner ownership interest		$	(19.8	)		$	(19.6	)
Net loss per limited partner unit (basic and diluted)		$	(0.44	)		$	(0.43	)
Weighted-average limited partner units outstanding			45.2				45.2

  

 

MIDCOAST ENERGY PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

		For the three months
		ended March 31,
		2016				2015
		(unaudited; in millions)
Cash provided by operating activities:
Net loss		$	(30.3	)		$	(30.1	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			39.5				38.3
Derivative fair value net losses			27.1				35.1
Inventory market price adjustments			-				4.6
Distributions from investment in joint ventures			7.1				5.7
Equity earnings from investment in joint ventures			(7.1	)			(5.7	)
Other			(3.1	)			0.7
Changes in operating assets and liabilities, net of acquisitions:
Receivables, trade and other			4.8				(11.6	)
Due from General Partner and affiliates			45.4				44.4
Accrued receivables			32.1				184.9
Inventory			18.2				48.2
Current and long-term other assets			(1.7	)			(12.1	)
Due to General Partner and affiliates			68.8				4.8
Accounts payable and other			(31.1	)			(9.3	)
Accrued purchases			(34.7	)			(115.9	)
Interest payable			(4.1	)			(4.1	)
Property and other taxes payable			(7.6	)			(9.7	)
Net cash provided by operating activities			123.3				168.2
Cash used in investing activities:
Additions to property, plant and equipment			(16.3	)			(56.1	)
Changes in restricted cash			3.0				(2.7	)
Acquisitions			-				(44.1	)
Investment in joint ventures			-				(1.9	)
Distributions from investment in joint ventures in excess of cumulative earnings			4.2				2.4
Other			(0.8	)			(0.6	)
Net cash used in investing activities			(9.9	)			(103.0	)
Cash used in financing activities:
Net repayments under credit facility			(50.0	)			(45.0	)
Distributions to partners			(16.5	)			(15.8	)
Contributions from General Partner			9.5				-
Contributions from noncontrolling interest			2.9				20.7
Distributions to noncontrolling interest			(25.9	)			(19.8	)
Net cash used in financing activities			(80.0	)			(59.9	)
Net increase in cash and cash equivalents			33.4				5.3
Cash and cash equivalents at beginning of year			18.0				-
Cash and cash equivalents at end of period		$	51.4			$	5.3

  

 

MIDCOAST ENERGY PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

 

		March 31,				December 31,
		2016				2015
ASSETS		(unaudited; in millions)
Current assets:
Cash and cash equivalents		$	51.4			$	18.0
Restricted cash			14.6				20.6
Receivables, trade and other, net of allowance for doubtful accounts of $2.6 million
and $2.5 million, respectively, at March 31, 2016 and December 31, 2015			10.3				13.3
Due from General Partner and affiliates			4.3				47.0
Accrued receivables			24.0				56.1
Inventory			13.7				31.9
Other current assets			100.2				118.5
			218.5				305.4
Property, plant and equipment, net			4,207.5				4,226.3
Intangible assets, net			267.5				272.9
Equity investment in joint ventures			368.0				372.3
Other assets, net			81.1				95.2
Total assets		$	5,142.6			$	5,272.1
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Due to General Partner and affiliates		$	108.2			$	45.7
Accounts payable and other			57.2				92.6
Accrued purchases			109.1				143.8
Property and other taxes payable			10.8				18.4
Interest payable			1.1				5.2
			286.4				305.7
Long-term debt			838.3				888.2
Other long-term liabilities			39.6				45.9
Total liabilities			1,164.3				1,239.8
Commitments and contingencies
Partners’ capital :
Class A common units (22,610,056 authorized and issued at March 31, 2016 and
December 31,2015)			504.2				522.2
Subordinated units (22,610,056 authorized and issued at March 31, 2016 and
December 31, 2015)			1,044.0				1,062.0
General Partner units (922,859 authorized and issued at March 31, 2016 and
December 31, 2015)			52.1				43.3
Accumulated other comprehensive income			(0.9	)			(0.9	)
Total Midcoast Energy Partners, L.P. partners’ capital			1,599.4				1,626.6
Noncontrolling interest			2,378.9				2,405.7
Total partners’ capital			3,978.3				4,032.3
		$	5,142.6			$	5,272.1

 

 

NET INCOME PER LIMITED PARTNER AND GENERAL PARTNER INTEREST

 

We allocate our net income among our General Partner and limited partners using the two-class method. Under the two-class method, we allocate our net income, including any earnings in excess of distributions, to our limited partners, our General Partner and the holders of our IDRs in accordance with the terms of our partnership agreement. We allocate any distributions in excess of earnings for the period to our General Partner and our limited partners based on their respective proportionate ownership interests in us, after taking into account distributions to be paid with respect to the IDRs, as set forth in our partnership agreement.

 

Distribution Targets		Portion of Quarterly Distribution Per Unit		Percentage Distributed to Limited Partners		Percentage Distributed to General Partner
Minimum Quarterly Distribution		Up to $0.3125		98%		2%
First Target Distribution		> $0.3125 to $0.359375		98%		2%
Second Target Distribution		> $0.359375 to $0.390625		85%		15%
Third Target Distribution		> $0.390625 to $0.468750		75%		25%
Over Third Target Distribution		In excess of $0.468750		50%		50%

 

We determined basic and diluted net loss per limited partner unit as follows:

                   

		For the three months
		ended March 31,
		2016				2015
		(in millions, except per unit amounts)
Net loss		$	(30.3	)		$	(30.1	)
Less: Net loss attributable to noncontrolling interest			(10.1	)			(10.1	)
Net loss attributable to general and limited partner
interests in Midcoast Energy Partners, L.P.			(20.2	)			(20.0	)
Less distributions:
Total distributed earnings to our General Partner			(0.3	)			(0.3	)
Total distributed earnings to our limited partners			(16.2	)			(15.7	)
Total distributed earnings			(16.5	)			(16.0	)
Overdistributed earnings		$	(36.7	)		$	(36.0	)
Weighted-average limited partner units outstanding			45.2				45.2
Basic and diluted earnings per unit:
Distributed earnings per limited partner unit (1)		$	0.36			$	0.35
Overdistributed earnings per limited partner unit (2)			(0.80	)			(0.78	)
Net loss per limited partner unit (basic and diluted)		$	(0.44	)		$	(0.43	)

________________

(1)	Represents the total distributed earnings to limited partners divided by the weighted-average number of limited partner interests outstanding for the period.
(2)	Represents the limited partners' share (98%) of distributions in excess of earnings divided by the weighted-average number of limited partner interests outstanding for the period and underdistributed earnings allocated to the limited partners based on the distribution waterfall that is outlined in our partnership agreement.

 

 

 

SEGMENT INFORMATION

 

Our business is divided into operating segments, defined as components of the enterprise, about which financial information is available and evaluated regularly by our Chief Operating Decision Maker, collectively comprised of our senior management, in deciding how resources are allocated and performance is assessed.

 

Each of our reportable segments is a business unit that offers different services and products that are managed separately, since each business segment requires different operating strategies. We conduct our business through two distinct reporting segments:

 

•

Gathering, Processing and Transportation; and

•

Logistics and Marketing.

 

The following tables present certain financial information relating to our business segments and corporate activities:

 

		As of and for the three months ended March 31, 2016
		Gathering, Processing and Transportation				Logistics and Marketing				Corporate (1)				Total
		(in millions)
Total revenue		$	243.1			$	248.8			$	-			$	491.9
Less: Intersegment revenue			54.5				5.5				-				60.0
Operating revenue			188.6				243.3				-				431.9
Cost of natural gas and natural gas liquids			118.5				229.5				-				348.0
Segment gross margin			70.1				13.8				-				83.9
Operating and maintenance			46.7				10.4				0.1				57.2
General and administrative			13.0				1.5				1.1				15.6
Depreciation and amortization			37.7				1.8				-				39.5
			97.4				13.7				1.2				112.3
Operating income (loss)			(27.3	)			0.1				(1.2	)			(28.4	)
Other income			7.1	(2)			-				0.2				7.3
Interest expense, net			-				-				(8.3	)			(8.3	)
Income (loss) before income tax expense			(20.2	)			0.1				(9.3	)			(29.4	)
Income tax expense			-				-				(0.9	)			(0.9	)
Net income (loss)			(20.2	)			0.1				(10.2	)			(30.3	)
Less: Net loss attributable to noncontrolling interest			-				-				(10.1	)			(10.1	)
Net income (loss) attributable to general and limited partner
ownership interests in Midcoast Energy Partners, L.P.		$	(20.2	)		$	0.1			$	(0.1	)		$	(20.2	)
Total assets		$	4,897.8	(3)		$	130.9			$	113.9			$	5,142.6
Capital expenditures (excluding acquisitions)		$	15.9			$	2.7			$	(0.9	)		$	17.7

 

 ________________

(1)	Corporate consists of interest expense, interest income, noncontrolling interest and other costs such as income taxes, which are not allocated to the business segments.
(2)	Other income for our Gathering, Processing and Transportation segment includes our equity investment in the Texas Express NGL system.
(3)	Totals assets for our Gathering, Processing and Transportation segment includes $368.0 million for our equity investment in the Texas Express NGL system.

  

 

		As of and for the three months ended March 31, 2015
		Gathering, Processing and Transportation				Logistics and Marketing				Corporate (1)				Total
		(in millions)
Total revenue		$	385.4			$	765.3			$	-			$	1,150.7
Less: Intersegment revenue			267.3				9.9				-				277.2
Operating revenue			118.1				755.4				-				873.5
Cost of natural gas and natural gas liquids			21.9				757.2				-				779.1
Segment gross margin			96.2				(1.8	)			-				94.4
Operating and maintenance			50.8				12.6				-				63.4
General and administrative			16.3				3.0				1.7				21.0
Depreciation and amortization			36.7				1.6				-				38.3
			103.8				17.2				1.7				122.7
Operating loss			(7.6	)			(19.0	)			(1.7	)			(28.3	)
Other income			5.7	(2)			-				-				5.7
Interest expense, net			-				-				(6.7	)			(6.7	)
Loss before income tax expense			(1.9	)			(19.0	)			(8.4	)			(29.3	)
Income tax expense			-				-				(0.8	)			(0.8	)
Net loss			(1.9	)			(19.0	)			(9.2	)			(30.1	)
Less: Net loss attributable to noncontrolling interest			-				-				(10.1	)			(10.1	)
Net income (loss) attributable to general and limited partner
ownership interests in Midcoast Energy Partners, L.P.		$	(1.9	)		$	(19.0	)		$	0.9			$	(20.0	)
Total assets		$	5,226.2	(3)		$	236.9			$	116.5			$	5,579.6
Capital expenditures (excluding acquisitions)		$	54.8			$	0.7			$	0.1			$	55.6

  ________________

(1)	Corporate consists of interest expense, interest income, noncontrolling interest and other costs such as income taxes, which are not allocated to the business segments.
(2)	Other income for our Gathering, Processing and Transportation segment includes our equity investment in the Texas Express NGL system.
(3)	Totals assets for our Gathering, Processing and Transportation segment includes $380.1 million for our equity investment in the Texas Express NGL system.

 

 

 

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